GURU Organic Energy Corp

GURU Organic Energy Corp (TSX: GURU) is a wellness company. The company is engaged in the business of manufacturing and marketing organic energy drinks. Geographically, it derives a majority of revenue from Canada and also has a presence in the United States.

Key highlights 

• 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 8.1% 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.

Source: Company

• 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 FY20, the group reported a 29% CAGR in the revenue, while average gross margin stood at 65.1% for the same time frame.

Source: Company 

Financial overview (In CAD)

Source: Company

• GURU impresses with its financial performance, wherein the company posted revenue of CAD 22.1 million, reflecting a growth of 26%, compared to CAD 17.5 million in fiscal 2019. The increase was mainly due to the market share growth in Canada (predominantly in Quebec), driven by both convenience and gas outlets and grocery stores, partially offset by lower sales in the U.S.
• Gross profit increased by 22% to CAD 14.0 million, as compared to CAD 11.5 million in fiscal 2019. The growth was aided by improved income on account of growing market share across Canada.
• Gross margin dipped to 64% from 66% 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 1.4 million as compared to CAD 1.6 million, a year ago.
• Net loss for the year totalled at CAD 2.2 million in FY2020, compared to a net income of CAD 0.7 million in the previous corresponding period. The loss was mainly due to the reverse acquisition of Mira X expenses totalling CAD 2.9 million 

Risks associated with investment

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 North American energy drink industry is currently estimated at USD 15 billion in annual sales, with energy drinks being the fastest growing category of non-alcoholic beverages, steadily gaining market share from soft drinks and juices. In 2020, the company continued gaining its market share in Quebec, rapidly growing its online channel, and launching GURU in major U.S. conventional grocery and retail stores, such as Walmart, Albertsons/Safeway, CVS and H-E-B. Furthermore, we believe that the company is poised to gain significant market share across North America as it addresses the industry’s biggest issue: consumer concern about the safety of ingredients in energy drinks.

The group is operating in the highly growth-oriented industry, and the business prospects look attractive. Hence, considering the above rationales, and risk involved, we recommend a “Speculative Buy” recommendation on the stock at the closing price of CAD 15.51 on March 4, 2021. 

Source: Refinitiv (Thomson Reuters)

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.