Jamieson Wellness Inc.

Jamieson Wellness Inc. (TSX: JWEL) is engaged in the manufacturing, distributing, and marketing of branded natural health products, like vitamins, minerals, and supplements.

Key Updates:

• Strong Traction across Jamieson Brands & Strategic Partners: The products of the company reported consistent growth, supported by accelerated demand for immunity and general health products as a result of the COVID-19 pandemic. Moreover, the group made periodical innovations and upgradation to its VMS portfolio, which also supported the growth. The company made required promotions across the media, which has attracted several clients in the recent past. Within the Strategic Partners segment, the group launched new programs with existing and new customers, which include initial pipeline shipments; availability of customer supplied materials etc., which supported the overall growth.

                   Quarterly Trend of Revenue (Source: Company Report)

• Strategic Collaboration to enhance company’s footprint: The group made Global strategic partnership with Costco, which has added 21 SKUs distribution in Costco Shanghai, while the group is planning for a potential acquisition of an existing distributor in China. We believe the potential scope for growth within China remains very high from a long-term perspective, while JWEL is highly poised to become a leading health and wellness brand in China. 

• Management Update: On February 25, 2021, the group announced the retirement of its President and CEO, Mark Hornick, with effect from June 01, 2021.

Q4FY20 Financial Highlights:

• JWEL announced its quarterly result, wherein the group posted revenue of CAD 120.369 million, grew 16.6% on y-o-y basis. The growth was driven by strong growth from Jamieson Brands and Strategic Partners.
• Gross profit improved 7.5% on y-o-y basis to CAD 42.514 million, thanks to the higher revenue, partially offset by the higher cost of sales (CAD 77.855 million versus CAD 63.711 million Q4FY19). Gross profit margin stood at 35.3%, lower than 38.3% in the previous corresponding period (pcp).
• Earnings from operations stood at CAD 22.734 million, grew by 11.8% on y-o-y basis. The quarter
• Adjusted EBITDA came at CAD 25.417 million versus CAD 22.902 million in Q4FY19.
• Net income stood at CAD 15.405 million, as compared to CAD 13.163 million in pcp.

Q4FY20 Income Statement Highlights (Source: Company Report)

Risks: The healthcare products are subjected to several regulatory approvals, and a delay in the above would hamper the company’s upcoming product launches. Moreover, currency fluctuations, change in consumer preferences might dampen the company’s overall performances as well.

Valuation Methodology (Illustrative): EV to Sales based

(Note: All forecasted figures and peers have been taken from Thomson Reuters).

Stock Recommendation:

The company posted strong organic growth over the years, backed by a strong brand presence of more than 10,000 retail locations across Canada. Moreover, the products have a presence across all the major ecommerce platforms. During FY14 to FY20, the group reported organic growth of 13.1%. Moreover, the company has scalable in-house manufacturing with three state-of-the-art Canadian facilities and reported solid growth in cash flows and dividend payment over the years.

Cash Flow and Dividend Trend (Source: Company Presentation)

We have valued the stock using the EV to Sales-based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like MTY Food Group Inc, K-Bro Linen Inc etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 35.89 on March 10, 2021.

One-Year Price Chart (as on March 10, 2021). Source: Refinitiv (Thomson Reuters)

Disclaimer

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