Big push into the U.S: JTR estimates it spent $0.5-$1.0M on marketing, product development and research analysis on rebranding Go Veggie, identifying which existing JTR products (~20 products Love Child snacks, Kiju, Meatbar) would resonate with the U.S. consumer (and through which channels) as well as on its new product Riot Eats, plant-based cheeses (which could also lead to dips, spreads and related products). Feedback from its U.S. partners have been encouraging. The new products will be on display at key industry trade shows in Sept (Toronto, Baltimore) and orders/listings are expected to follow a few months thereafter (late C2018/early C2019). JTR wants to ensure it gets it right with its first big push into the U.S. and believes a successful new product launch could translate to $10M in sales in short order (vs. $1-$2M in Canada).
Organic growth to remain robust: FQ1 organic growth was in-line with JTR’s 20% ongoing growth target. Quebec penetration continues to progress (a new sales person was added to reflect this) and sales to China have commenced but are expected to be slowly ramp up. The company saw growth in all key brands and we expect this to continue.
Forecast changes: On the back of FQ1 results, our sales forecast is essentially unchanged (F20 up a little to reflect recent U.S. efforts thus far), noting potential upside from better-than-expected U.S. success with Go Veggie, Riot Eats and some of JTR’s Canadian products. We increased our SG&A assumptions to reflect ongoing elevated costs associated with the Galaxy acquisition, rebranding, new product launches, which should start to dissipate in Q3/F19; this was offset partially by higher gross margin assumptions from FQ1. See Exhibit 2 for more details.
Valuation: Our target is down to $1.90 from $2.00 reflecting a lower multiple 1.8x Sales (from 1.9x) – we still believe JTR has superior growth but with industry multiples contracting a bit recently (by 1 turn) we wanted to maintain our current 1-turn premium vs. the peer group. Our valuation period reflects Q2/F20 – Q1/F21 (moved out one quarter). JTR is currently trading at ~1.1x forward EV/ NTM Net Sales, vs. peers at ~1.7x."