GURU Organic Energy Corp.

GURU Organic Energy Corp. (TSX: GURU) is a wellness company and is engaged in the business of manufacturing and marketing organic energy drinks.

Key Updates:

• Started Trading on TSX on Nov 2, 2020: The company’s shares listed on TSX on November 2, 2020. Prior to the TSX stock listing, the Company closed CAD 34.5 million financing on September 30, 2020, and its reverse takeover transaction with Mira X Acquisition Corp. on October 29, 2020, allowing it to trade on Canada’s premier stock exchange.
• New Product launch: Recently, the company announced the addition of GURU Yerba Mate within its plant-based energy drink segment. The concept of the product is being inspired by the Amazon and created in Quebec, which constituted natural and organic energy-boosting ingredients. With the growing demand for the organic-energy drinks, the launch is likely to gain the traction.
• Lucrative Macro Dynamics: The US energy drink segment is one of the growing industries within the non-alcoholic beverage category and is expected to grow at ~8% CAGR to USD 19.4 billion by 2024 from USD 13.1 billion in 2019. As per the recent consumer trend, most of the customers are opting for healthier alternatives. Thus, the company’s product, with a strong distribution network, is expected to add higher sales volumes in the foreseeable future.

Trend of US Energy Dring Industry (Source: Company Reports)

• Impressive Financial Metrics: The company reported a solid top-line and bottom-line growth over the years, backed by higher acceptability of its products. From FY17 to FY19, the group reported a 20.4% CAGR in the revenue, while gross margin stood close to 65%.                               

Financial Metrics (Source: Company Presentation)

Q3FY20 Financial Highlights:

• GURU impresses with its financial performance, wherein the company posted its revenue of CAD 6.6 million, reflecting a growth of 13.5% on y-o-y basis. The increase was driven by strong traction across Canada, while a marginal slide in sales volume across the USA remained a drag.
• Gross profit increased to CAD 4.35 million, as compared to CAD 3.95 million in Q3FY19. The growth was aided by improved income on account of growing market share across Canada. Gross margin dipped to 66% from 68.1% in the previous corresponding period (pcp) due to increased promotional activities during the COVID-19 pandemic peak in the spring of FY20.
• Adjusted EBITDA came at CAD 1.8 million as compared to CAD 1.6 million, a year ago.
• Net income stood at CAD 1.23 million, from CAD 1.065 million in Q3FY19.
• The company reported cash and cash equivalent of CAD 0.74 million, while total assets stood at CAD 10.558 million.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: The sector is dominated by already established brands and those brands has the upper hand in terms of economies of scale, larger distributions, etc. as compared to GURU.

Stock Recommendation:

The Company markets organic energy drinks in Canada and across the United States through a distribution network of more than 15,000 points of sale, and through guruenergy.com and Amazon. The company has successfully increased its credit-facility from CAD 1.5 million to CAD 4.5 million, which can support the company’s working capital and capital investments. We believe, the company’s product is directly co-related to the changing consumption pattern, and an elevated demand scenario for the non-alcoholic products would improve the company’s overall sales volumes.  The group is operating in the highly growth-oriented industry, and the business prospects look attractive; however, there is limited history available as the group is recently listed on the stock exchange. Hence, considering the aforesaid facts, and risk involved, we have given a ‘Speculative Buy’ recommendation on the stock at the closing price of CAD 14.85 on December 07, 2020.

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

Disclaimer

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