Goodfood Market Corp (TSX: FOOD) is a leading online grocery company in Canada, delivering fresh meal solutions and grocery items that make it easy for members from across Canada to enjoy delicious meals at home every day through its online platform.

Key highlights

• Launched On-Demand Delivery in Montreal and Alcohol Delivery in Toronto: Recently, the company has launched its on-demand quick delivery to key highly dense neighborhoods in Montreal. The service is available through its new micro-fulfilment centre in the city’s downtown and will deliver orders to customers in approximately 30 minutes. It has also launched the delivery of alcohol in Toronto through its existing micro-fulfilment centre.
  

• Favorable Outlook: The online grocery sector is one of the world's fastest expanding industries. As a result, the company believes that investing in highly targeted marketing campaigns, capacity expansion through additional facilities and automation, increasing its product offering, and continuing to expand its national platform would provide significant opportunities to rapidly grow its subscriber base and basket sizes.
  

• Impressive growth in Active Subscriber’s count: The company reported an impressive subscriber’s base of around 317,000 at the beginning of Q4FY21, which reflects a surge of 17% on y-o-y basis. The improvement was driven by an ongoing surge in the demand of grocery items as people are opting for online delivery. This has resulted in higher-order value per customers and an increase in repetitive orders, which are key positives. However, the group closed the period with cumulative 298,000 active subscribers.

Source: Company Filing

• Healthier liquidity ratios: In Q4FY21, the company continued its momentum and recorded robust liquidity ratio, demonstrating that it is working hard to strengthen its liquidity. Its quick ratio was 2.09x for the reported period, compared to 1.14x against the industry median, while its current ratio stood at 2.31x, higher than 1.84x median of industry.
  

 Financial overview of FY2021

Source: Company

• In FY 2021, the company posted revenue of CAD 379.2 million against CAD 285.3 million in the previous corresponding period. The Revenues continued to be favorably impacted by its strategy to expand product offering and same-day delivery which in turn drives higher average basket sizes and order frequency.
• Gross profit increased to CAD 116.1 million compared to CAD 86.4 million in pcp, primarily due to an increase in net sales as well as a decrease in incentives and credits as a percentage of net sales, larger basket sizes and lower fulfillment costs per order
• An year was marked by an increase in selling, general and administrative expense (CAD 136.3 million v/s CAD 84.9 million in pcp), higher depreciation and amortization (CAD 8.8 million v/s CAD 5.2 million in pcp) which resulted in higher net loss of CAD 31.8 million against a loss of CAD 5.3 million in pcp.
  

Risks associated with investment

The group witnessed a surge in the input costs due to a surge in the company’s wages and salaries coupled with higher operational expenses due to expansion of the company’s distribution network. Continuation of the above trend is likely to weigh high on the company’s cash flows and margins. 

Valuation Methodology (Illustrative): EV/SALES 

Stock recommendation

The company continues to develop and evolve into an on-demand online grocery and meal-solutions provider in fiscal 2021, which saw substantial year-over-year growth. It made great progress toward its long-term goals and is now securely positioned as an online, on-demand grocery and meal solution provider in Toronto and Montreal, with delivery in one hour or less. It claimed a growing subscriber base of roughly 298,000 at the end of FY21, representing a 6.4% increase year over year. By investing in highly focused marketing initiatives, the company believes there are huge opportunities to rapidly build its subscriber base and basket sizes. Therefore, based on the above rationale and valuation, we recommend a “Speculative Buy” rating on the stock at the closing price of CAD 4.61 on December 8, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

One-Year Technical Price Chart (as on December 8, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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