Jamieson Wellness Inc.

Jamieson Wellness Inc. (TSX: JWEL) is engaged in the manufacturing, distributing, and marketing of branded natural health products like vitamins, minerals, and supplements.

Key highlights:

• Encouraging outlook: The company expects its FY21 revenue to be in the range of CAD 435 to 445 million, higher than CAD 404 million in FY20, supported by strong growth within domestic branded and Strategic Partner revenues, while international branded volume growth is expected to support by the strengthening of the Canadian dollar. Adjusted EBITDA is expected in between CAD 97 to 100 million.
• Continued growth from the international segment: In the recent past, the company explored its possible areas of growth and enhanced its footprints across new geographies. International revenue spurred to CAD 51.5 million in FY20, reflecting a growth of ~50% over FY19, driven by a strong performance from China through prudent marketing techniques like availability of products across ecommerce platforms, strategic partnership with Costco etc. Meanwhile, the management feels that the momentum is likely to continue in FY21 and expects international volume growth in between 20% to 25% in terms of U.S. dollars.
• Industry beating margins: in Q2FY21, the company reported an EBITDA and operating margin of 17.7% and 14.5%, respectively, as compared to the industry median of 16.9% and 13.9%, respectively. Net margin stood at 10.4% in Q2FY21, as compared to the industry median of 8.5%.

Q2FY21 Financial Highlights:

• JWEL announced its quarterly result, wherein the group posted revenue of CAD 556 million, up from CAD 93.204 million in the previous corresponding period (pcp).
• Gross profit climbed to CAD 324 million, from CAD 32.941 million in pcp, supported by higher revenue, partially offset by the increased cost of sales (CAD 72.232 million v/s CAD 60.263 million pcp).
• Earnings from operations came at CAD 043 million, jumped from CAD 10.675 million in pcp. Notably, the company’s operating margin improved 300 bps on y-o-y basis to 14.5%.
• Adjusted EBITDA stood higher at CAD 327 million, as compared to CAD 18.983 million in pcp.
• Net income was recorded at CAD 472 million, jumped from CAD 6.038 million in Q2FY20.

Source: Company Report

Risks: The product of the company caters to the healthcare segment and are subjected to several regulatory approvals, and a delay in the above would hinder the company’s upcoming product launches.

Valuation Methodology (Illustrative): Price to Earnings

Stock Recommendation: The company reported constant growth of its brands supported by higher household penetration, strategic partnership with leading brands and increasing its footprints across key geographies like China, Eastern Europe, Middle East, and Southeast Asia etc. The company is focusing on consumer education, in order to attract new consumers for its products and expand its usage across segments. This looks promising and is expected to support sales volume. We have valued the stock using the Price to Earnings-based relative valuation approach and arrived at a target price offering single-digit upside potential (in % terms). Hence, considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 37.06 on September 9, 2021.

One-Year Technical Price Chart (as on September 9, 2021). Source: REFINITIV, Analysis by Kalkine Group

Quipt Home Medical Corp

Quipt Home Medical Corp (TSXV: QIPT) is engaged in-home monitoring equipment, supplies, and services to patients. The company's services consist of Daily & Ambulatory Aides, Power Mobility, INR Self-Testing, Respiratory Equipment Rental, Home ventilation, Oxygen Therapy, and Sleep Apnea & PAP Treatment.

Key Highlights:

• Improving Debt to Equity ratio: The company reported improving debt to equity ratio in the recent past, which indicates a healthy balance sheet. Notably, the D/E ratio improved from 1.01x in Q3FY20 to 0.58x in Q3FY21, as the company successfully repaid its long-term debt amounting to USD 10.386 million in the last three quarters. Long-term debt to total capital ratio also reduced to 20.3% in Q3FY21, from 31.6% in Q3FY20.
• New Acquisition to spur upcoming growth: On August 23, 2021, the group confirmed its strategic acquisition of a forty-year old Missouri-based company with 15,000 active patients and 1,500 unique referring physicians. Notably, the above company reported revenue of USD 5.5 million on trailing twelve months basis and expected adjusted EBITDA of USD 1.1 million post integration. With the above acquisition, QIPT is expected to strengthen its overall interconnected healthcare network and would mark its presence across new locations.
• Growth in Cash flows: The company posted higher cash from operations of USD 921 million, in H1FY21, compared to USD 9.702 million in pcp. The improvement was supported by improved working capital management, which further indicates operational efficiency and higher liquidity.

Q3FY21 Income Statement Highlights:

• QIPT announces its quarterly result, wherein the group posted a higher revenue of USD 238 million, as compared to USD 18.572 million in pcp. The increase was driven by strong growth from equipment and supplies sales.
• The quarter was marked by higher operating expenses coupled with a significantly higher stock-based compensation cost. The group reported an operating loss of USD 1.113 million, as compared to a profit of USD 0.701 million in pcp.
• Income from continuing operations stood at USD 5.794 million, as compared to a loss of USD 2.492 million in pcp. The surge was driven by gains from financial instruments.

Q3FY21 Income Statement Highlights (Source: Company Report)

Risks: The company might not achieve desiered synergies from the recent acquisitions. In such a scenario, the company’s future performance might be impacted.

Stock Recommendation: At the end of Q3FY21, the company posted an impressive liquidity of USD 30.594 million in cash balance and USD 20 million of line of credit, which seems to be sufficient to meet its upcoming liabilities. With the new acquisition, the company is in-line with its long-term strategy of increase its brand presence coupled with reporting both organic and inorganic growth in the coming years. On the valuation front, the stock is available at an EV to Sales multiples of 1.7x on an NTM basis, compared to the industry (Healthcare & Providers & services) median of 2.2x. Hence, considering the aforesaid facts, we give a ‘Hold’ rating on the stock at the closing price of CAD 8.12 on September 9, 2021.

One-Year Technical Price Chart (as on September 9, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

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