GURU Organic Energy Corp.

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

Key Highlights:

• Bullish Macros: The energy drink segment across North America has grown consistently since 2014 and expected to grow at a CAGR of 8.1% from 2020 to USD 19.4 billion in 2024. The growth is supported by higher traction towards organic/plant-based products over artificial additives due to healthy lifestyle choices from the younger customers. We believe the above segment offers tremendous prospects in the coming days, and the company is highly poised to capitalize the opportunity coming from the sector.
• Rise in cash balance: The company reported a higher cash balance of CAD 68.479 million in Q3FY21, as compared to CAD 0.74 million in pcp, which is a key positive.
• Strategic collaboration with PepsiCo®: The company has entered into a partnership with PepsiCo® Beverages for a period of 10-years with effective from October 4, 2021. PepsiCo® has a solid network along with best-in-class marketing and sales capabilities across Canada. The above is expected to provide first mover advantage to GURU’s product within the energy drink space across Canada.

Q3FY21 Financial Highlights:

• GURU announced its quarterly result, wherein the company posted revenue of CAD 8.048 million, surged from CAD 6.594 million in the previous corresponding period (pcp). The growth was driven by higher income from Canada region due to increased points of sale from its expansion plans, partially offset by a weak performance from the US geography.
• Gross profit jumped to CAD 5.036 million, from CAD 4.350 million in Q3FY20. The increase was driven by higher revenue, partially offset by the higher cost of goods sold (CAD 3.011 million v/s CAD 2.244 million in pcp). Gross margin slide to 63% from 66% in pcp due to an increase in promotion activities and increase in transportation costs.
• The quarter was marked by a higher selling, general and administrative expense (CAD 7.218 million v/s CAD 2.675 million in pcp). The increase was due to the commencement of field and trade marketing investments across Canada, expansion plan set-up costs, set-up costs incurred for the national Canadian distribution agreement, and additional costs related to the operations of a public company.
• Adjusted EBITDA loss stood at CAD 1.5 million, as compared to a net profit of CAD 1.8 million in pcp.
• The group reported a net loss of CAD 2.026 million v/s a net income of CAD 1.236 million in pcp.

Q3FY21 Income Statement Highlights (Source: Company Report)

Risks: The company is investing heavily in Marketing and Sales, which might lead to higher input costs and would dampen the company’s margin. Moreover, a shift in consumer preference towards other product might dampen the company’s overall sales volume as well.

Stock Recommendation:

The recent collaboration with PepsiCo Beverages Canada is expected to increase the company’s market share and would result in deeper penetration across the Canadian Market. The company is also investing within the online segment and has provided direct delivery services through Amazon and guruenergy.com. This is expected to result in higher sales volumes in the coming quarters, supported by the growing customer’s traction for the online delivery. On the valuation front, the stock is available at an EV to sales multiples of 16.1x on TTM basis, as compared to the industry average of 68.5x. Hence, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of CAD 16.73 on September 20, 2021, with lower double-digit (percentage term) upside potential.

Technical Analysis Summary

One-Year Technical Price Chart (as on September 20, 2021). Source: REFINITIV, Analysis by Kalkine Group 

Wishpond Technologies Ltd

Wishpond Technologies Ltd (TSXV: WISH) is a provider of marketing-focused online business solutions that empower entrepreneurs to achieve success online. The company offers an all-in-one marketing suite that provides companies with marketing, promotion, lead generation, and sales conversion capabilities from one integrated platform.

Key highlights

• Registering sequential revenue growth: The Company maintained its momentum and has a strong success in its revenue. The Company is working closely with customers, and as a result, its presence is growing in tandem with volume, which is commendable. Compared to the previous similar period, the Company's sales increased by 68% to CAD 3.2 million in the reporting period.

Source: Company

• Launched new product and solutions: Marketing Funnels, a new tool that enables for progressive lead profiling and upselling opportunities, was just released by the firm. Such tools are a valuable addition to the landing page editor, improving its ability to profile and convert new leads. PersistIQ, a subsidiary of the company also recently released a new completely managed Outbound Sales Solution. This new solution includes an improved sales automation platform as well as a service package that provides small business owners with access to PersistIQ's technology, outbound sales tactics, and a team of specialists to help them develop faster.
• Acquires “Brax”, a Provider of Ad Management Software Solutions: Brax was recently acquired by the firm for a total price of about USD 2.0 million. It is a fast-growing and successful technology business based in New York that provides a sophisticated advertising platform for managing a company's digital ads across numerous sources. Brax's technology and capabilities are projected to grow into the adjacent market for digital ad management software solutions, having a diverse client base which produced roughly USD 1.5 million in sales during the last twelve months. Additionally, its SaaS business model generates predictable recurring revenue, strong gross margins of 80%, and EBITDA margins of more than 15%.

Financial overview of Q2 2021 (Expressed in Canadian Dollars)

Source: Company

• In Q2 2021, the company achieved a record quarterly revenue of CAD 3.2 million compared to CAD 1.8 million in Q2 2020. The increase of 68% in revenue was mainly driven by higher organic growth from the Company's incremental investment in its sales team and acquisitions made by them.
• On the back of higher revenue, it clocked a gross profit of CAD 2.2 million, against CAD 1.2 million in the previous corresponding period.
• The company registered higher operating expenses in the reported period, which stood at CAD 3.3 million v/s CAD 1.1 million in pcp; thus, it reported an operating loss at CAD 1.0 million against a profit of CAD 0.07 million in pcp.
• Net loss stood at CAD 1.5 million in Q2 2021, compared to a nominal profit of CAD 0.03 million in pcp.

Risks associated with investment

To stay competitive, the corporation must create new software products or features and improve its present marketing services. The company's business and operational performance would suffer if it failed to position and/or price its items to satisfy market demand. Moreover, we had limited financial information as the company got recently listed. 

Stock recommendation

The firm had another fantastic quarter in Q2 2021, as it set a new quarterly sales record with a 68% year-over-year increase. Despite the unfavorable currency headwinds in the quarter, its revenue in the United States increased by more than 100%. We anticipate the two acquisitions, Invigo and PersistIQ, would continue to perform well. Moreover, recently, it introduced an Appointments product, which came from the Invigo acquisition, and an Outbound Sales Solution, through the PersistIQ purchase, during the second quarter. Due to cross selling its products and services across the many areas of the growing organization, the corporation has begun to see the synergistic effects of its acquisitions, which is a key positive. Furthermore, on the valuation front, the stock is available at a forward EV/Sales multiple of 2.67x against the industry (technology) median of 4.3x. Hence, considering the aforesaid rationales, we recommend a “Speculative Buy” rating on the stock at the closing price of CAD 1.22 on September 20, 2021, with lower double-digit (percentage term) upside potential. 

Technical Analysis Summary

One-Year Technical Price Chart (as on September 20, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

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.