Goodfood Market Corp.

Goodfood Market Corp. (TSX: FOOD) is a Canadian company delivering fresh meal solutions and grocery items and related products to its subscribers. The company operates in the meal-kit industry. The company is a dinner subscription service delivering fresh ingredients that make it easy for subscribers to prepare meals at home every week.

Key Highlights:

• New Product Launch: Recently, the company announced the launch of Goodfood WOW, which would provide unlimited same-day grocery delivery service, across the Greater Montreal Area. The company intends to expand this service to several other major Canadian cities over the next year. We believe the service would likely to improve the overall traction and would support the company’s long-term growth prospects. 

• Increase in subscriber’s base: The corporation posted a stupendous growth in the Active subscriber’s base to 2,80,000 as on August 31, 2020, reflecting an increase of 40% a year ago. Moreover, the company focuses on significant opportunities within its rapidly growing subscriber base through investing in highly targeted marketing campaigns, capacity expansion by additional facilities and investments in automation, increasing its product offering and in continuing to expand its national platform. 

• Robust performance: The company delivered a solid performance during the year with Revenues reached CAD 285.4 million for the year, an annual increase of CAD 124.0 million or 77%. Gross margin for fiscal 2020 reached 30.3%, an improvement of 5.3 percentage points, and gross profit reached CAD 86.4 million, an increase of CAD 46.1 million, or 114%. 

Key Takeaways from Q4FY20 results:

• The group impressed with its quarterly results and reported revenue of CAD 83.691 million, as compared to CAD 45.259 million. The increase was driven by strong organic growth, coupled with an increase in average order size and increase in frequency.
• Gross margin improved to 32.8%, as compared to 26.7% in Q4FY19, aided by a decrease in incentives and credits combined with lower food costs in terms of revenues. Furthermore, lower unit costs for packaging and shipping due primarily to higher operational efficiencies, additional automation investments, higher density also supported both gross profit and gross margin. Gross profit soared to CAD 27.474 million, as compared to CAD 12.077 million in pcp.
• The company reported Adjusted EBITDA of CAD 5.263 million, as compared to a loss of CAD 4.391 million in pcp.
• The company reported net income of CAD 1.590 million, as compared to a net loss of CAD 5.887 million in pcp.

Q4FY20 Income Statement Highlights (Source: Company Reports)

Risks: Further breakout of COVID-19 would result in labor shortage and supply chain disruption. As a result, the company’s performance might affect adversely.

Stock Recommendation: Due to an exuberant growth in the subscriber’s base in the recent past, the stock of FOOD soared ~180% in the last one year. The company has reported an increase in subscriber base, higher market share and providing higher value to its customers resulting in an improved return on invested capital, which is noteworthy. For the FY20, cash flows provided by operating activities stood at CAD 8.6 million, as compared to CAD 0.9 million in FY19, which is praiseworthy. We expect the momentum to continue in the coming years driven by the change in consumer preferences, acceptability of new offers etc. The stock of FOOD is available at a significantly lower valuation of EV to Sales of 1.3x on NTM basis, as compared to industry (Consumer Non-Cyclical) median of 1.5x. Hence, considering the aforesaid facts, current price movements, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 9.06 on 23 November 2020.

FOOD Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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