Jamieson Wellness Inc.

Strong Growth in Multiple Geographies: 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 1 June 2020, the market capitalization of the company stood at CAD1.26 billion.

Quarterly Performance (For the Period Ended 31 March 2020): During the three months ended 31 March 2020, the company generated strong growth in revenue, net income and adjusted EBITDA driven by Jamieson Brands segment in both Canada and international markets. During the half, JWEL reported an increase of 16.5% in revenue to CAD84.5 million and a growth of 15.2% in adjusted EBITDA to CAD16.7 million. The company saw an acceleration in consumer purchases as health and wellness became a hot potato amid the COVID-19 pandemic. The company’s international business witnessed a continued growth, increasing by 51.3% on the prior year. This was led by strong growth in multiple geographies owing to the significant increase in demand for immunity products, particularly in China and Europe. In the same time span, JWEL retained a healthy balance sheet with cash balance of CAD107.2 million and total debt of CAD173.0 million. The decent financial performance of the company enabled the Board to declare a dividend of CAD0.11 per common share, which will be paid on 12 June 2020.

Quarterly Financial Performance (Source: Company Reports)

Future Guidance: The company has maintained a positive outlook for FY20 and expects net revenue in a range of CAD364 to CAD376 million, representing growth of 5.5% to 9.0%. It also anticipates 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 significantly impacted certain industries, the supply chain of the company is considered essential and hence has not seen significant retail closures.

Stock Recommendation: The physical distancing and the closure due to the lockdowns has accelerated the demand for both immunity and general health supplements. JWEL has rapidly adapted to the changing environment to mitigate the risk of business interruption and has ensured a steady supply of products to its consumers. The stock of JWEL gave a return of 27.88% in the past three months and a return of 2.69% in the last one month. On a TTM basis, the stock is trading at an EV/EBITDA multiple of 18.7x, lower than the industry average (Food &Tobacco) of 21.7x. As per TSX, the stock is inclined towards its 52-week high, but still holds the potential for growth. Considering the current trading levels, decent returns in the past one month, resilient financial position and positive guidance, we recommend a ‘Hold’ rating on the stock at the current market price of CAD 32.03 on 2 June 2020.

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

Goodfood Market Corp.

Flagship Fulfilment Centre in the Greater Toronto Area: Goodfood Market Corp. (TSX: FOOD) is a leading online grocery company in Canada which delivers fresh meals and grocery products. As on 1 June 2020, the market capitalization of the company stood at CAD254.34 million. The company has signed a lease for its second fulfillment centre in the greater Toronto Area. FOOD has extended its position as the leading national purpose-built grocery delivery infrastructure and is likely to generate over 2,000 jobs at full capacity. 

Continued Strong Growth and Margin Improvement: During the second quarter of FY20 ended 29 February 2020, the company saw a continued growth momentum with run-rate gross merchandise sales surpassing the CAD300 million mark for the first time. This was driven by increased penetration from coast-to-coast and a broader offering of private label grocery products and meal solutions. During the quarter, FOOD reported an increase of 61% in revenue to CAD58.8 million, resulting in a growth of 133% in gross margin to CAD17.8 million. Operational efficiencies, economies of scale, automation and operating leverage resulted in an improvement of 10% in adjusted EBITDA margin.

Quarterly Financial Highlights (Source: Company Reports)

Impact of COVID-19: FOOD has experienced greater demand for its products during the current COVID-19 crisis. The company stated that it did not experience any impact of the crisis but is likely to report a positive impact on the revenues in the third quarter results. It also expects significant growth in subscribers order rates and average order values.

Outlook: The online grocery industry is one of the fastest growing industries and FOOD expects significant opportunities and advantages to rapidly grow its subscriber base by continuing to invest in additional facilities and investments. The growth in subscriber base will allow the company to achieve economies of scale and additional efficiencies which will lead to improvements in profitability.

Valuation Methodology: EV/Sales Multiple Based Approach (Illustrative)

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

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

Stock Recommendation: The stock of FOOD gave a return of 68.75% in the past three months and a return of 6.14% in the last one month. As per TSX, the stock is inclined towards its 52-weeks’ high level of CAD4.95. Considering the positive impact of COVID-19 on the stock, it is likely to deliver higher returns in the coming period. We have valued the stock using EV/Sales valuation approach and have arrived at a target upside of higher single digit (in percentage terms). On the back of attractive returns, increasing opportunities, decent financial performance, and positive impact of COVID-19 on business activities, we recommend a ‘Hold’ rating on the stock at the current market price of CAD 4.49 on 2 June 2020.

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

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.