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:

• Weak Margin profile on Q-O-Q basis: The company reported EBITDA and operating margins of 19.1% and 14.6%, respectively, in Q1FY22, lower than 25.2% and 22.2%, respectively, in Q4FY21. This indicates weak operational efficiencies and poor cost management. Moreover, the company posted a lower net margin of 9.4% in Q1FY22, as compared to the 7.4% in Q4FY21.

• Highly leveraged financials: At the end of Q1FY22, the company reported a higher D/E ratio of 0.47x, as compared to the industry median of 0.28x. This remains a key concern for the group as it leads to higher finance costs along with a lower profitability for the firm. Moreover, a higher D/E would lead to lower financial flexibility for the firm.
  

• Lengthy Cash cycle days: In Q1FY22, the company reported its cash conversion period of 259 days, significantly higher than the industry median of 159.9 days. This indicates that the company takes higher time to convert its investments to cash flows, which remains a key concern for the group.
  

Valuation Methodology (Illustrative): Price to Earnings based

Analysis By Kaline Group

Stock Recommendation:

The company reported lower cash balance of CAD 5.4 million in Q1FY22, as compared to CAD 6.7 million in Q4FY21, which indicates a lower liquidity level and is a key negative for the company. We have valued the stock using the Price to Earnings-based relative valuation approach and arrived at a target price offering double-digit downside potential (in % terms). We have considered peers like MTY Food Group Inc, K-Bro Linen Inc etc. Hence considering the aforesaid facts, we recommend a ‘Sell’ rating on the stock at the last closing price of CAD 38.06 on June 06, 2022.

One-Year Technical Price Chart (as of June 06, 2022). Analysis by Kalkine Group

The reference data has been partly sourced from REFINITV

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