Jamieson Wellness Inc.

Decent Increase in Revenue and EBITDA: Jamieson Wellness Inc. (TSX: JWEL) is engaged in the business of manufacturing, distributing, and marketing branded natural health products, including vitamins, minerals, and supplements.

Quarterly Performance (For the Period Ended 30 June 2020): During the quarter ended 30 June 2020, the company continued to provide value to its investors and witnessed sustained growth in revenue and earnings despite the softer market conditions. JWEL reported an increase of 15.6% in revenue to CAD 93.2 million and a growth of 15.8% in adjusted EBITDA to CAD 19.0 million. In the same time span, gross profit of the company went up by CAD 3.4 million driven by growth in revenue and segment mix. During the quarter, net income of the company was CAD 6.0 million and adjusted net income increased by 25.1% to CAD 9.9 million. In the same time span, JWEL delivered on its growth strategies and remains confident for the long-term growth opportunities.

Quarterly Financial Highlights (Source: Company Reports)

Outlook and Guidance: The company has provided guidance for the fiscal year 2020, wherein, it expects to generate revenue in the range of CAD 385.0 to CAD 395.0 million, representing a growth of 11.5% to 14.5%. The company also anticipates EBITDA in between CAD 84.0 million to CAD 88.0 million and adjusted diluted earnings per share in the range of CAD 1.08 to CAD 1.15.

Key Risks: Considering the outbreak of the global pandemic, the company is susceptible to the risk related to a second wave of the virus. The expected escalation in measures which may be required to control the outbreak may affect the financial and operational performance of the company. The company may also face uncertainty from a variety of other factors including subdued economic conditions, liquidity risks, market risks and credit risks.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company seems to be well capitalized and generated CAD 14.4 million in cash from operations. JWEL retains ample liquidity with a cash balance of CAD 6.8 million and total debt of CAD 163.8 million. The company will pay its interim dividend of CAD 0.125 on 15 September 2020. As per TSX, the stock of JWEL is trading close to its 52-weeks’ high level of CAD 39.26 but retains a potential for further growth. The stock of JWEL gave a return of 14.95% in the past three months and a return of 3.18% in the past one month. We have valued the stock using the price to earnings multiple based illustrative relative valuation and have arrived at a target upside of mid-single-digit (in percentage terms). Considering the current trading levels, decent returns in the past three months, positive long-term outlook, and guidance, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 37.6, up by 1.51% on 19 August 2020.

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

Metro Inc.

Decent Increase in Revenue and Net Earnings: Metro Inc. (TSX: MRU) is one of the largest grocery retailers in Canada which acts as a distributor, leveraging its supply chain capabilities to service smaller, neighborhood grocery stores. As on 19 August 2020, the market capitalization of the company stood ~CAD 15.116 billion.

Quarterly Performance (For the Quarter Ended 4 July 2020): During the quarter ended 4 July 2020, the company delivered solid results driven by strong sales growth. During the period, the company reported an increase of 11.6% in sales to CAD 5,835.2 million and a growth of 15.6% in food same-store sales. In the same time span, net earnings of the company went up by 18.5% to CAD 263.5 million and fully diluted earnings per share increased by 20.9% to CAD 1.04. During the quarter, the company realized synergies amounting to CAD 23 million related to the Jean Coutu acquisition. The company expects the short-term food revenues will continue to grow at higher-than-normal rates.

Quarterly Financial Highlights (Source: Company Reports)

Key Risks: The company is exposed to a variety of risks including the risks related to the entry of new competitors, liquidity risk, credit risk, interest rate risk, etc.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

EV/EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Despite the softer market conditions due to the global pandemic, the company managed to deliver decent financial performance. The Board has also declared a dividend of CAD 0.225 per share, reflecting an increase of 12.5% on the pcp. As per TSX, the stock of MRU is trading very close to its 52-weeks’ high level of CAD 61.74 but retains a potential for further growth. The stock of MRU gave a return of 1.23% in the past three months and a return of 1.73% in the past one month. We have valued the stock using the EV/EBITDA multiple based illustrative relative valuation method and have arrived at a target upside of high single-digit (in percentage terms). Considering the current trading levels, decent returns in the past three months, resilient financial performance, and acquisition synergies, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 59.95, down by 0.42% on 19 August 2020.

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

Goodfood Market Corp.

Goodfood Market Corp (TSX: FOOD) is a Canada based online grocery company which delivers fresh meal solutions and grocery items and related products to its customers.

Key Highlights:

• Recently, the Company reported that it had closed previously announced bought deal public offering wherein, the underwriters purchased an aggregate of 5,788,000 common shares and 247,950 additional secondary shares of the Company at an aggregate amount of CAD 40.3 million. The Company intends to use the proceedings to enhance its same-day delivery capabilities and for general corporate purposes.

• The Company announced the launch of its e-commerce platform for ordering, Flex. The Company stated that more than 210,000 members are already using this platform, and remaining clients will be transitioned to the new interface in the coming weeks.

Q3FY20 Financial Highlights: Goodfood announced its quarterly results wherein the revenue stood at CAD 86.6 million as compared to CAD 49.864 million in the previous corresponding period (pcp). The robust revenue growth was aided by a significant increase in the online grocery shopping segment in Canada underpinned by changing consumer behavior. Gross profit stood at CAD 24.91 million against CAD 14.089 million, a year ago thanks to robust top-line growth. Adjusted Gross margin declined to 38.2%, reflecting a reduction of 3.4 percentage points due to a surge in labour costs and other operating costs. Adjusted EBITDA stood at CAD 5.98 million, as compared to a loss of CAD 2.38 million in pcp, depicting a margin of 6.9%, as compared to a negative margin of 4.8% in Q3FY19. Net income, at the end of Q3FY20, stood at CAD 2.786 million against a net loss of CAD 3.639 million, a year ago. The business reported active subscribers of 272,000, depicting an increase of 44% on y-o-y basis.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: The company’s operations might hinder due to the temporary supplier closures and substitution of unavailable ingredients. Further, the company might face rising pressure from workers and added sanitation costs, which would lead to margin pressure.

Stock Recommendation: The stock of FOOD soared ~148% and ~160% in the last six months and one year, respectively, aided by the exponential growth in its subscriber base. The company provides grocery essentials with exclusive prices, including extra virgin olive oil, sea salt, a variety of premium proteins, peanut butter, tea, appetizers and the demand of these products are resilient, which ensures stable top-line in the coming days. During the quarter, the company expanded its ready-to-eat and breakfast meal solutions across Canada, which is likely to drive growth. The company invested in automation and additional facilities and also enhanced its product offerings. The group is planning to invest CAD 10 million in the next quarter to enhance its infrastructure. The company reported positive bottom-line for the first time in its history, which is a key positive. Further, the company is investing in infrastructure to enhance the same-day delivery capabilities. The company is operating in the online grocery industry, and we believe the demand for the company’s offerings to remain robust as people are likely to follow social distancing measures in the near to medium term. The stock is trading above the 200-days simple moving average of CAD 4.02, indicating a bullish pattern. The stock is available at an EV to sales of 1.2x on trailing twelve months (TTM) basis, against the industry (Consumer Non-cyclicals) median of 1.9x on NTM basis. Hence, considering the above facts, improved business prospects through e-commerce channel, current price levels, we recommend a ‘Hold’ rating on the stock at the current closing price of CAD 7.32 on August 19, 2020.

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

Disclaimer

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