Goodfood Market Corp.

Goodfood Market Corp. (TSX: FOOD) is an online Canadian company delivering fresh meal solutions and grocery items and related products to its subscribers.

Key Highlights:

• Fund Raising through the underwriting of Shares: The group would sell 4,800,000 common shares at a price consideration of CAD 60.0 million to Desjardins Capital Markets and RBC Dominion Securities Inc. The above fund would be used for capital purposes and operational activities. The group is seeking to build same-day delivery capabilities across Montreal and the Greater Toronto Area, through investing in technology and automation.

• Launch of Goodfood WOW in Toronto: The company launched Goodfood WOW in Toronto, which would provide same same-day delivery service. Earlier, the company reported tremendous response for fast and flexible service of the groceries by consumers. Notably, the above service was also introduced in Montreal and received positive feedback from the customers. 

• Bullish Technical Indicators: The stock of FOOD closed above the long -term support levels of 100-days, 150-days and 200-days simple moving average (SMA), indicating a bullish pattern. Moreover, the stock soared ~189% and ~295%, respectively in the last nine month and one year, respectively driven strong revival in sectoral demand.

Source: Refinitiv (Thomson Reuters)

Q1FY21 Financial Highlights:

• Revenue for Q1FY21 soared 62% y-o-y to CAD 91.427 million, driven by an increase in average basket size per customer coupled with improved order frequency.
• Gross profit during Q1FY21 remains considerably higher at CAD 29.573 million, reflecting a growth of 82% on y-o-y basis. Gross margin, on the other hand, stood at 32.3%, against 28.8% in the previous corresponding period (pcp). The increase in gross profit and gross margin primarily resulted from a lower incentive coupled with lower unit costs for packaging and shipping and an increased density among the delivery zones.
• The company reported a lower net loss of CAD 2.625 million, as compared to CAD 5.152 million in pcp. The quarter was marked by higher selling, general and administrative expenses, increase in depreciation and amortization and net finance costs.

Q1FY21 Financial Highlights (Source: Company Reports)

Risks: The group’s performance depends on the consumer taste and preference and a change in consumer buying habit would lead to a lower sales volume across segments, which would subsequently dampen the overall performance.

Stock Recommendation:

The group has confirmed CAD 60 million funding through the underwriting of its common shares, and would utilize for expanding into new horizons, which would help in reporting improve business prospects for the company in the foreseeable future. The company would be investing in technology, automation and robotics, which is expected to enhance the company’s cost structure by reducing its cost-per-pick. The stock appreciated ~39% and ~56% in the last three months and six months, respectively. The stock of FOOD is available at a significantly lower valuation of EV to Sales of 1.9x on the next twelve months (NTM) basis, as compared to the industry (Technology) median of 4.2x. Hence, considering the above rationale, we recommend a ‘Hold’ rating on the stock of FOOD at the closing price of CAD 12.35 on February 5, 2021.

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

High Liner Foods Incorporated

High Liner Foods Incorporated (TSX: HLF), is a Canada-based company, engaged in the processing and marketing of frozen seafood products. The Company produces a range of products from breaded and battered items to seafood entrees, which are sold to North American food retailers and foodservice distributors.

Key Highlights

• Event update: The company will be releasing its Q4 2020, results on February 24, 2021.

• Robust financial performance: The company portrayed a strong financial performance in the reported quarter because of continuous improvement, consistent delivery and focus on customer’s evolving needs. The group has enhanced its business operations and overall financial health, which helped in generating significant improvements to cash flow and profitability. Moving forward, we believe that increased cash flow would enable them to invest further in business and ongoing product innovation.

• Focus on gaining market share:As the industry sees the addition of over half a million new customers in the frozen seafood category in 2020, frozen seafood is becoming fastest growing section of the frozen food aisle. The company feels that it is ready to seize the opportunity to expand its value-added business, capitalizing its market leadership in Canada along with growth in the U.S market.

• Increase in dividend: On December 15, 2020, the Company paid a quarterly dividend of CAD 0.070 per share. The quarterly dividend of CAD 0.070 per share represents a 40.0% increase from the CAD 0.050 per share quarterly dividend paid during the third quarter of 2020. It reflects the Board's continued confidence in the Company's operations.

• Reduced Net debts: The company brought down its Net Debt level by USD 60.6 million to USD 286.0 million, compared to USD 346.5 million on December 28, 2019.

Source: Company

Financial Overview of Q3 2020

Source: Company

• In Q3 2020, the company reported a decline in sales by 11.6%, to USD 194.6 million, compared to USD 220.1 million, due to the lower sales volumes.
• Gross profit decreased by 8.3%, to USD 38.9 million, compared to USD 42.4 million in pcp; however, gross profit as a percentage of sales increased to 20.0% compared to 19.3% in the same period, due to changes in sales mix.
• On the back of lower distribution expenses and SG&A expenses, the Company witnessed an increase in Adjusted EBITDA in Q3 2020 by 15.8% to USD 19.1 million, compared to USD 16.5 million in pcp, and Adjusted EBITDA as a percentage of sales increased to 9.8% compared to 7.5%.
• The Company reported net income of USD 3.8 million, compared to a net loss of USD 2.4 million in the previous corresponding period.  

Risk associated with investment

The performance of the company’s business is prone to several risks which affect income and liquidity. Risks related to resource supply, food processing, suppliers, customers, competition, and foreign exchange exposure are all beyond the management control. 

Stock recommendation

The Company experienced a surge in demand from its retail customers, as trends shifted toward eating at home because of social distancing restrictions. The Company's all three plants increased production lines and operated at planned capacity throughout the third quarter to meet the increasing demand in the Company's retail and foodservice businesses. In contrast, the institutional customers, such as health care facilities, provided a stable demand. The Company is also eying to seize the opportunity to expand its value-added business, capitalizing its market leadership in Canada along with growth in the U.S market. On the valuation front, the stock is available at a forward EV/EBITDA multiple of 6.67x, which is lower than the peer's NTM median of 11.4x. Hence, considering the facts mentioned above and current trading levels, we recommend a "Hold" rating at the closing price of CAD 11.81 on February 5, 2021.

Source: Refinitiv (Thomson Reuters)

Disclaimer

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