November 3, 2022
Jamieson Wellness Inc. Wellness check: still healthy
Our view: We maintain our favourable view on Jamieson Wellness Inc. (“Jamieson”) following Q3 results that were largely in line with RBC/ consensus forecasts. Looking ahead, we expect investor focus to be on the integration of recent acquisitions and directional improvement in the leverage profile. Revising PT -$3 to $42; reiterate Outperform.
Key points:
Thoughts exiting Q3 – Jamieson reported good Q3 results (largely in line with RBC/consensus expectations) and narrowed its full-year 2022 guidance. See inside for more details. The company continues to deliver good results amidst an increasingly uncertain backdrop and the guidance points to continued momentum through Q4. Full-year top-line growth for the base business is now expected to be in the +6%-8% range (vs. +5%-9% previously), which also reflects the resilience of the industry, in our view. Looking ahead, we believe 2023 is likely to reflect continued top- line growth, particularly as management noted that there has not been any "tradedown" activity from consumers thus far, even though Jamieson took pricing (up ~LSD) at the beginning of Q3. On the margin front, we believe the company is likely to make internal investments through 2023 in China (more on this below), the U.S. (investing in resources/infrastructure, bringing youtheory to international markets), and Canada.
Acquiring distribution assets in China – Jamieson has reached an agreement to acquire distribution assets from its distribution partner in China (effective April 1, 2023; purchase price not disclosed). On the earnings call, management noted that Jamieson will look to expand the business by investing in talent in the region and more closely managing how it reaches/engages with local consumers. Acquiring the distribution assets will allow Jamieson to manage its brand/go-to-market strategy in a manner similar to its domestic market (likely to include investments in personnel/ operations/brand etc.). We expect additional color on these plans at Q4/22 reporting when the company will also provide 2023 guidance.
Update on youtheory – youtheory generated revenue of $17.5MM in Q3 (vs. our forecast of $19.0MM). Going forward, Jamieson is likely to invest in the youtheory platform to help the brand increase scale, expand into the FDM channel in a more meaningful way, and to increase its footprint in International markets. For more on youtheory, see our note following the acquisition announcement here.
Balance sheet update – Exiting Q3, Jamieson's leverage (Net Debt/LTM EBITDA) stood at 4.4x on a reported basis, but is ~3x pro-forma the Nutrawise (youtheory) acquisition on July 19. Jamieson expects to get to the upper end of its 2.0x-2.5x guidance range by the end of 2023 as its recent acquisitions get rolled into results and as the company invests less in capex/WC over the coming year.