CrossroadsDespite reducing my holdings substantially over the past 2 months – upon reviewing the latest quarter disappointment and listening to the morning’s call, I believe MvT has had a heaping serving of humble pie. I’m thinking about jumping back in at these levels for several reasons (opportunities/risks):
Opportunities - Love Child continues to grow and one of the better margins out of their portfolio.
- GoVeggie is finally contributing to sales and EBITDA. Additional growth to be gained from their white-label products.
- Kiju continues to win distribution in the US.
- They still have the insurance payout from the Love Child recall that has not been paid out yet. They were expecting it in December, but it has been held up. This would be a net positive to the cash flow and working capital issues.
- The US restructuring cost to hit in Q4 2019 will be approximately $200-300K. Not as much as I had expected. It appears a large portion of the transactional cost associated with salaries and benefits to facilitate the move has been charged in this quarter at approximately $1.2M.
- MvT mentioned that their CBD brand will be announced soon – wasn’t expecting this to pop up, so it’s good to know it’s still alive despite Emblem having been bought out in December. Could create some buzz.
- SG&A and advertising for Riot should be low, insisting that it will be up to the distributor to promote and advertise at the store level. Any GSB-specific efforts to promote it will come later down the road, based on reception and sales. Riot distribution win is with a major player. Pushed out to May due to
- Central Roast inventories are being replenished and should be majorly resolved by Q4 2019.
- Goal to be EBIDTA positive by end of Q4 2019 (I would take this with a grain of salt as they are likely to take a charge on the Canadian restructure).
- Q3 2019 did not include Nudge, Holistic – had remaining Life Choices.
- Waiver of default provided by bank.
- Value of components are worth more than what the market cap would suggest.
Risks - Don’t expect a full turnaround on Central Roast sales in Q4 2019 – from what I gather, the working capital and inventory issue wasn’t resolved until the end of January.
- They are fully aware of the debt maturity at the tail-end of the 2019. Not much indication how they are going to pay it. As per other posters, likely will need to sell another brand or secure a partnership.
- Meatbar not meeting expectations – sounds like it will be dropped somewhere down the line, as despite wins in the gas and convenience channel, it is not hitting sales target expectations.
- Still need to fix their balance sheet. MvT mentioned they are going to focus on reducing their capital dependencies – so plan to pay off debt – this will depend on improving their margins.
- Although the value of components are worth more than what the market cap would suggest, this is a pretty rough market, and really, GSBs balance sheet and bottom-line are in real bad shape. However, I believe a lot of the costs may have been front-loaded into Q3 to make Q4 more positive.
Honestly, I know this is MvT's baby - I do believe GSB as whole, its brands, assets, and liabilities could easily fetch $0.80-$0.90 today - but I think the issue here is MvT is holding on to this as if it were his legacy and doing really poorly from an execution standpoint, and that is costing shareholders big time. I think MvT should be entertaining the sale of the whole company - not just its components.