Jamieson Wellness Inc.

Jamieson Wellness Inc. (TSX: JWEL) is engaged in the business of manufacturing, distributing, and marketing branded natural health products including vitamins, minerals, and supplements. As on 14 May 2020, the market capitalization of the company stood at CAD1.315 billion.

Quarterly Performance (For the Period Ended 31 March 2020): During the quarter ended 31 March 2020, revenue of the company increased by 16% to CAD84.5 million, and adjusted EBITDA went up by 15.2% to CAD16.7 million. In the same time span, gross profit increased by CAD4.1 million driven by growth in revenue and segment mix. Improved revenue, higher gross profits, and increased EBITDA resulted in growth in adjusted net income by 20.6% to CAD7.8 million and diluted earnings per share to CAD0.20. The company’s domestic Jamieson Brands sales increased by 21.9%, reflecting the continued success of its consumer and trade programs, as well as the increase in sales due to the impact of higher demand for immunity and general health supplements. JWEL also reported a strong balance sheet with an increased cash balance of CAD5.2 million. The decent financial and operational performance enabled the Board to declare a quarterly dividend of CAD0.11 per share.

Quarterly Financial Highlights (Source: Company Reports)

Future Expectations and Growth Opportunities: The company is optimistic about its outlook for FY20 and net revenue in the range of CAD364 to CAD376 million, reflecting a growth of 5.5% to 9.0%. It is also expecting adjusted EBITDA in between CAD80 to CAD84 million and adjusted diluted earnings per share in a range of CAD1.02 to CAD1.10. While physical distancing has impacted certain industries, the industry and supply chain of JWEL are considered essential and hence has not seen significant retail closures.

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

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

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

Stock Recommendation: The company has adapted rapidly to the changing environment to minimize the risk of business interruption due to COVID-19 and is ensuring a steady supply of products to its consumers. As per TSX, the stock is inclined towards its 52-week high but holds further potential for growth. The stock of JWEL gave a return of 15.27% in the past one month and a return of 21.11% in the last three months. Considering the returns in the past three months, trading levels, decent financial performance, and resilience of the business midst the global pandemic, we have valued the stock using EV/EBITDA multiple based illustrative relative valuation method and arrived at a target upside of higher single-digit (in percentage terms). For the said purposes, we have considered Akumin Inc, Knight Therapeutics Inc and Neptune Wellness Solutions Inc as peers. Hence, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD33.5 on 14 May 2020.

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

High Liner Foods Incorporated

High Liner Foods Incorporated (TSE: HLF) is engaged in processing and marketing of a wide range of frozen seafood, from breaded and battered items to seafood entrées. The Company distributes to institutions, health care facilities, and quick-service family and casual dining organizations across North American. The Group operates through brands like High Liner Culinary, Mirabel, FPI, Viking, American Pride, High Liner, Fisher Boy, Sea Cuisine and others.

The Group declared a quarterly dividend of CAD 0.05 per common share, payable on June 15, 2020

Due to the Ongoing COVID 19 pandemic, the Group is witnessing a surge in input costs related to a payment to the frontline employees, personal protective equipment, safety enhancements and increased sanitation. To weather the current situation, the Company is focusing on capital preservation and deferred ~ US$ 6.0 million of capex planning for FY20. The Company’s logistics, production, transportation, and warehouse are operating smoothly with the least impact from the imposition of restrictions. The Company went for a short -term production halt and resumed its operations from April 27, 2020.

Q1FY20 Financial Highlights: For the period ended March 28, 2020, the Group reported sales of US$ 268.58 million, lower than its previous corresponding quarter of US$ 277.42 million, due to a marginal slide in sales volume. Gross profit stood higher at US$ 58.76 million, as compared to US$ 56.07 million in pcp, thanks to a lower cost of sales. Results from operating activities were reported at US$ 24.88 million, lower than US$ 26.48 million as previous period result includes an income of US$ 7.24 million from business acquisition. The group was able to manage its cost prudently as distribution expenses and selling, general & administrative expenses came lower compared to Q1FY19. The Company’s net income stood at US$ 14.23 million, against US$ 14.76 million in Q1FY19.

Q1FY20 Income Statement Highlights (Source: Company Reports) 

Stock Recommendation: The group reported a significant decline in its foodservice businesses, which constitutes the major part of the Company’s revenue. However, the decline was majorly offset by a surge in demand from retail investors. The stock bounced back and generated a 7% return in the last one month, outperforming the index by ~4%. The stock is trading above its 20-days and 50-days simple moving average (SMA) of CAD 6.35 and CAD 6.37, respectively, indicating a bullish trend. At the current market price, the stock is offering a dividend yield of 2.99%, which looks attractive, looking at the current interest rate environment. The Company maintained an operational efficiency during the Q1FY20, and we expect the trend to continue.  We expect higher demand to continue from retail customers, which would further comfort the Company’s cash flows in the near term. We also believe that demand will pick up in the foodservice segment as the lockdown restrictions start to ease. The stock is currently trading at a forward EV/EBITDA multiple of 6.3x against an industry (Consumer – Non-Cyclicals) average of 11x.  Hence, we recommend a ‘Speculative Buy’ rating on the stock at the current price of CAD 6.68 as on May 14, 2020.

HLF One Year Daily Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer

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