Canaccord ReportCANACCORD Genuity
February 23, 2018
Estimates Revised Consistent earnings close out a year of impressive organic growth; reiterate BUY and C$25.00 target
Investment recommendation:
We are reiterating our BUY rating and target price of $25.00 following the reporting of strong Q4/17 financial results.
Investment highlights:
• Jamieson Wellness reported strong Q4/17 earnings results Thursday evening. Revenue of $84 million grew 28% YoY, while adjusted EBITDA also grew 28% YoY to $19 million, in line with consensus and our estimate. Adjusted earnings per share of $0.25 was slightly below our estimate of $0.28 and in line with consensus.
• Jamieson reported considerably strong top-line growth during Q4/17, with consolidated revenue growing 28% YoY to $84 million. Importantly, both the Branded and Strategic Partner businesses were strong contributors to the 11% organic growth the company posted this quarter. Within the segments, Jamieson Brands revenue was up 18.8% YoY while Strategic Partner sales grew by 78.7% YoY. While organic growth continued to drive solid top-line growth, the company also benefited from the inclusion of Body Plus and Sonoma revenue this quarter, following the acquisitions in early 2017.
• Importantly, Jamieson’s gross profit as a percentage of revenue increased 50 bps YoY to 36.6%, due to the scaling impact of higher volumes and improved manufacturing efficiencies. Body Plus products also carry higher margins than Jamieson’s legacy products.
• SG&A as a percentage of revenue increased 10 bps YoY to 16.9%, reflecting the inclusion of $0.4 million in additional public company costs.
• Jamieson initiated 2018 annual guidance this quarter for sales, EBITDA and EPS, which the company expects to be in line with our estimates. Furthermore, Jamieson is expecting to benefit from strong launches of new product innovation, led by its new Essentials Plus Protein line launched in January. In 2017, new product innovation, led by the launch of the cold and flu product Cold Fighter, contributed $2.2 million or roughly 7% of the sales growth in 2017. We expect Jamieson’s ability to provide meaningful innovation to the category will continue to have a positive impact on sales results in 2018.
Valuation:
We are reiterating our BUY rating and target price of C$25.00. Our target price represents 16.6x our 2018 EBITDA estimate of $69 million, or 14.6x our 2019 EBITDA estimate of $79 million. We note that our 16.6x multiple is a slight premium to Jamieson’s blended peer average multiple of 15.7x. In our view, Jamieson provides investors defensive, visible EBITDA and free cash flow growth at a reasonable valuation.