Else Nutrition is a Canada-listed (TSX:BABY) food and nutrition company that is headquartered in Israel, with subsidiaries in Canada, Israel and the United States. The company develops innovative, clean, plant-based food and nutrition products for infants, toddlers and children. A first mover in the global infant formula industry, Else infant formula is the first and only globally patented alternative to dairy- and soy-based infant formulas.
Here are seven things every investor should know about the business. You might also take a look at Edison’s initiation report on Else.
#1 More than baby steps to global growth
Else launched its Else Toddler formula late 2020 and has since expanded by launching a nutritional drinks line for children and, more recently, a line of infant cereals. The ‘Complete Nutrition’ formula for toddlers was launched in August 2020, following which, in 2021 Else focused on building online and in-store sales infrastructure in the United States. The company is planning to roll out its product into Western Europe and China in H222.
#2 Canada calls
Else will first formally launch its products in Canada in August 2022. The company estimates the Canadian baby food market is projected to reach $2.4bn by 2026, and predicts a CAGR of 7.6% from 2019 to 2026.
#3 Formula and more
The company’s current products include a plant-powered almond and buckwheat Super Cereal for the six months plus age group, (the first and only clean label purity award certified – safe of heavy metals infant cereal in USA), an omega plant-based product for toddlers and a protein nutritional shake for children. In April 2022, Else completed initial production of its minimally processed, 100% plant-based, dairy- and soy-free infant formula, which is also free of gluten and GMO ingredients.
Following further clinical trials and FDA approval, Else is set to be the first company to create the only third baby formula option in the world, in an industry that relies almost entirely on dairy as the single source of protein as its main ingredient.
#4 Inspired by personal experience
Else was conceived in 2012 by CEO Hamutal Yitzhak, who headed the infant nutrition business at Abbott Labs Israel and COO and co founder Uriel Kesler, a senior executive in ProMedico Healthcare group . Hamutal and Uriel joined forces at a later stage with co-founder Michael Azar, formerly CEO of Materna Laboratories, an Israeli baby formula maker acquired by Nestle. Uriel’s granddaughter’s experience of severe allergic reaction as a baby and her later full recovery as a result of their invention was a key motivation for establishing the Else formula.
#5 Market opportunity
Else Nutrition’s infant formula benefits from its position in the total global market for baby formulas, catering to babies and children who are intolerant to dairy and soy and families who are flexitarian or seeking more sustainable food options.
According to Euromonitor 2022, 40% of the total baby formula market in the United States is made up of speciality dairy formulas catering allergic and intolerant babies. According to Palntbasednews.org over half of young Americans identify themselves as flexitarians. Else’s formula is dairy- and soy-free, making it the first and only infant formula alternative to the dairy and soy options currently available.
#6 Loyal customers
At present, Else products are available from US retailers (both in store and online) and on Amazon.com. Stores that stock Else products include, Sprouts Farmers Market, Big-Y, Raley’s and Natural Grocers. Online, Else is carried by US leading e-commerce platforms like Walmart.com, Kroger.com, Thrive market and Amazon.com. On Amazon.com, about 60% of Else’s customers are repeat buyers, with roughly 15% having purchased 10 times or more. Roll-out in Canada is ongoing.
#7 Looking ahead
We value Else primarily on a discounted cash flow basis and flex for different scenarios. Our base case assumes a sales CAGR of 47% in years 4 to 10, followed by 15% in years 11 to 15 and 10% in years 16 to 20. We assume 2.0% terminal growth, a 15% terminal EBIT margin and a WACC of 12.5%, resulting in a mid-case 12-month value of C$6.0. In June 2022, we forecast a three-year revenue CAGR of c 130%.
For a deeper understanding of the business, read Edison’s June 2022 initiation note.
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