Jamieson Wellness Inc.
(JWEL-T) C$33.09
Predictably Strong Earnings Performance Event
JWEL reported Q3/22 adj. EBITDA of $29.5mm, up ~16% y/y and above TD/consensus estimates of $28.1mm/$29.2mm (excluding a $36mm outlier). Following results and conference call, we made only modest changes to our model.
Impact: SLIGHTLY POSITIVE
Strong domestic revenue growth (+11.7% vs. +8.5% expected) reflected elevated demand on a higher post-pandemic baseline. There has been no evidence of consumer trade-down in this inflationary environment. However, JWEL reported lighter-than-expected international revenue growth due to geopolitical headwinds in Europe, which were outside of its control. China rebounded strongly after COVID-19- related lockdowns last quarter, posting almost 30% growth y/y. Meanwhile, slightly better performance on the gross margin line due to seasonality around Youtheory, favourable mix (Strategic Partners), and lower SG&A pushed adjusted EBITDA up 5% ahead of our estimate.
We were expecting a $22mm contribution from Youtheory, but it came in ~ $5mm less due to seasonality. Overall, Youtheory was an important strategic acquisition and should provide JWEL with 1) a strong platform in the world's largest VMS market (US$50bln+); 2) a meaningful category expansion in the U.S., accelerated by JWEL's diverse product offering and fewer regulatory hurdles; 3) omni-channel presence with potential to grow in food, drug & mass merchandise, and e-commerce; and 4) synergies in distribution, operations, and marketing. All of this should help close the margin gap between JWEL and Youtheory in the longer term.
JWEL announced that it had reached an agreement to acquire assets from its distribution partner in China, allowing it to take direct control over sales, marketing, and distribution activities in the country, effective April 1, 2023. We view this as an important step in developing and growing its brand with direct go-to-market strategy in the second-largest VMS market globally. We expect more details on the strategy in the coming months.
TD Investment Conclusion
We continue to like JWEL given its defensive growth qualities. We do not believe the current valuation (12.9x NTM consensus EBITDA vs. 15.2x/14.9x two/five-year average) fully reflects this solid outlook and would argue that even modest success in the U.S. could push the shares well north of our $50.00 target price over time.