Post by
retiredcf on Nov 04, 2022 10:16am
CIBC
EQUITY RESEARCH
November 4, 2022 Earnings Update
JAMIESON WELLNESS INC.
Moving Up The Value Chain: JWEL Acquires Chinese
Distributor
Our Conclusion
Jamieson posted another in-line quarter, a relative reprieve in a difficult
market. More relevant was JWEL’s announcement that it has chosen to
acquire its Chinese distributor (no amount disclosed). Even better, the
company has added disclosure on China vs. rest-of-world sales growth.
Although we foresee elevated integration risks in 2023—from both China and the U.S.—and improvements in cashflow generation are now deferred to 2024, we see these risks as tolerable, and the strength of the domestic business provides comfort as well. A more conservative multiple (now 22x; was 24x) leads to our price target of $41 ($46 prior), but we see Jamieson as a high-quality earnings compounder. JWEL is rated Outperformer.
Key Points
China Deal (Nearly) Done, JWEL To Become Distributor. Concurrent with
Q3 earnings, Jamieson announced it has chosen to acquire its Chinese
distributor, effective April 1, 2023. It’s a bold bet from this company given
JWEL’s lack of distribution experience in Canada, but management believes greater involvement can accelerate growth.
Increased Disclosure Should Please Investors. JWEL increased its
disclosure in Q3, sharing organic growth in China, which reached nearly
30%, on top of low-20% growth last year. We estimate that China represents ~45% of JWEL’s non-U.S. international business. Rest-of-world declined 8.7% in Q3, the result of ongoing pressure from eastern Europe. JWEL’s domestic business posted another robust quarter at +12%, which we estimate includes mid-single-digit pricing and ongoing elevated demand.
Rational Strategy For Next Leg Of Company’s Evolution. Greater
involvement in China and a material-sized asset in the U.S. provide JWEL with two growth vectors, supported by its market-leading and highly profitable Canadian business. It’s a strategy we support as JWEL is increasing resources in the two largest VMS markets globally.
Return Of Cold & Flu Season Likely Drives Immunity Sales. Out-of-shape
immune systems for much of the world have anecdotally resulted in a robust start to the annual cold and flu season. This is supported by IRI data, which shows +7% growth in October (lapping +14% LY). As COVID finally enters rear-view mirrors, traditional pathogens should support already strong branded sales.
Stable Q3; Implied Q4 Guide Above Consensus. JWEL reported solid Q3
results, including EBITDA of $29.5MM and EPS of $0.34 (consensus $30MM and $0.34, respectively). Implied guidance for Q4 (using the midpoint) includes sales of $200MM, EBITDA of $48MM and EPS of $0.63, all at or slightly above prior Street estimates