Jamieson Wellness Inc.
(JWEL-T) C$36.32
Strong Outlook and Brand Attract New Partner and Capital Event
JWEL reported Q4/22 adj. EBITDA of $48.9mm, up ~45% y/y and above TD/ consensus estimates of $47.7mm/$47.8mm.
Management provided 2023 guidance ranges for revenue and adj. EBITDA of $670mm-$700mm (vs cons./TD $697mm/$682mm) and $140mm-$146mm (vs cons./TD $152mm/$149mm), respectively. We have trimmed our 2023/24 EBITDA estimates 4.5%/2.5% to reflect slightly lower new innovation contribution margin.
JWEL announced that it had entered into a partnership with DCP Capital, a leading international private equity firm focused on investment opportunities in Greater China and broader Asian markets.
Impact: MIXED
Q4/22 results were not bad, but we would not be surprised to see the shares weaker today given the 4% top-line miss and, in particular, new 2023 EBITDA guidance falling short of analyst expectations. We think the shortfall is tied to high expectations around the youtheory acquisition. Management did say that the integration is progressing well, but some delayed innovation coincided with a key retail partner managing down inventory in anticipation of a Q2 re-launch of an important SKU, pressured revenue and margin. The good news is that the pressure is expected to be relatively short-lived with new products expected to hit the shelves in Q2. Overall, we are convinced of youtheory's strategic importance to JWEL, providing it with a meaningful growth platform in the world's largest VMS market (US$50bln+).
However, we believe the bigger news was JWEL's announcement that with the help of a partner, it was taking the next step to accelerate growth in China, the second-largest VMS market globally. In return for a one-third share in the ownership of JWEL's Chinese operations and in support of its overall strategic growth plan, DCP Capital is contributing a significant US$110mm in capital. Just as important as the capital infusion, we expect JWEL to leverage DCP's market knowledge and relationships into channel access and brand growth and development.
TD Investment Conclusion
We do not believe the current valuation fully reflects the solid outlook. We would argue that even modest success in the U.S. alone could push the shares well north of our $50.00 target price over time.