Jamieson Wellness Inc.
Focus in 2023 to be on acquisition integration and progress in China
Our view: We maintain our favourable view on Jamieson Wellness Inc. (“Jamieson”) following Q4 earnings that were in line to ahead of consensus forecasts. Looking ahead, we expect investor focus to be on the integration of recent acquisitions and the DCP partnership. Revising our price target - $1 to $41; reiterating Outperform rating.
Key points:
Thoughts exiting Q4 – Jamieson's revenue of $192.8MM was modestly below RBC/consensus forecasts of $199.8MM/$200.8MM, while Adjusted EBITDA of $48.9MM was above consensus forecasts of $47.8MM (modestly below RBC forecast of $50.2MM). Further, the company initiated 2023 guidance, which included revenue and Adjusted EBITDA growth of +22– 28% YoY and +13–18% YoY, respectively (both largely in line with consensus estimates at the midpoint coming into Q4 reporting). See inside for more details. As it relates to 2023 guidance, Jamieson is also expecting youtheory revenue growth of 11.5%-19.0% YoY on a pro-forma basis to $145MM- $155MM. There were some questions on the earnings call related to the youtheory guidance as the pro-forma 2022E revenue noted at the time of acquisition announcement was $155MM-$159MM. Management noted there were some puts/takes on youtheory related to FX and lower customer inventory levels (through late-2022) heading into 2023. Overall, we view Jamieson's Q4 results and 2023 guidance favorably as the company continues to deliver good results amidst an uncertain operating backdrop.
Announces partnership with DCP to support growth in China –Jamieson announced that it has entered into a partnership with DCP Capital (“DCP”; a China-based private equity firm with local market expertise) to accelerate Jamieson’s business in China. Contingent on Jamieson closing its previously announced acquisition of specific assets from its distribution partner in China (expected to close in Q2/23), DCP will contribute ~$47MM in capital in exchange for a one-third share in the ownership structure of Jamieson’s Chinese operations. Further, DCP will subscribe for ~$102MM of preferred shares (which are puttable between years 2 and 5; no dividend). Lastly, DCP will subscribe for warrants to purchase ~2.5MM common shares (vs. ~42.8MM diluted shares outstanding as of Q4/22) at an exercise price equal to a 10% premium to the 20-day volume weighted average share price as of February 22, 2023 (exercisable between years 2 and 5).
Balance sheet update – Exiting Q4, Jamieson's leverage (Net Debt/LTM EBITDA) stood at 3.6x, which we forecast to decline to ~1.5x by year-end 2023 after accounting for Jamieson's recent M&A activity (i.e., acquisitions of Nutrawise and specific assets of the Chinese distribution partner, as well as the DCP partnership). Following the expected cash inflow from the DCP partnership, we believe that Jamieson will be well positioned going forward to deploy capital into internal investments and dividends (M&A less likely over the next 12-18 months).