Else Nutrition — Building the platform

Else Nutrition (TSXV: BABY)

Currency in CAD

Last close As at 25/01/2023

CAD0.60

−0.01 (−1.64%)

Market capitalisation

CAD69m

Research: Consumer

Else Nutrition — Building the platform

Else Nutrition’s Q222 results demonstrate the growth momentum in the business, with management delivering on its stated goal to reach a C$1m quarterly revenue run rate on Amazon.com by the end of Q2, and on track to reach listings in 4,000 retail stores by the end of FY22, with listings currently in over 3,000 stores. Else added nearly 2,000 stores during Q2, and boosted its cash position with a funding round of C$7.3m at the end of June. Else continues to build its platform for the long term, with plans to enter China in Q3 and the UK in Q4. Further European markets will follow in FY23.

Sara Welford

Written by

Sara Welford

Director, Consumer

Consumer

Else Nutrition

Building the platform

Q2 results

Food and beverages

7 September 2022

Price

C$0.81

Market cap

C$91m

Net cash (C$m) at 30 June 2022 (excluding restricted cash)

20.8

Shares in issue

112.6m

Free float

66%

Code

BABY

Primary exchange

Toronto Stock Exchange

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

12.9

(37.3)

(72.0)

Rel (local)

16.0

(31.6)

(69.4)

52-week high/low

C$2.83

C$0.56

Business description

Else Nutrition is a plant-based baby food manufacturer. Its minimally processed formula is 100% plant-based, dairy and soy free, organic, vegan, gluten free and GMO free. Else is in the process of rolling out its product beyond the US market and expanding its product offering.

Next events

Q3 results

October 2022

Analysts

Sara Welford

+44 (0)20 3077 5700

Russell Pointon

+44 (0)20 3077 5700

Else NutritionElse Nutrition is a research client of Edison Investment Research Limited

Else Nutrition’s Q222 results demonstrate the growth momentum in the business, with management delivering on its stated goal to reach a C$1m quarterly revenue run rate on Amazon.com by the end of Q2, and on track to reach listings in 4,000 retail stores by the end of FY22, with listings currently in over 3,000 stores. Else added nearly 2,000 stores during Q2, and boosted its cash position with a funding round of C$7.3m at the end of June. Else continues to build its platform for the long term, with plans to enter China in Q3 and the UK in Q4. Further European markets will follow in FY23.

Year end

Revenue (C$m)

PBT*
(C$m)

EPS*
(C$)

DPS
(C$)

P/E
(x)

EV/sales
(x)

12/20

1.5

(8.0)

(0.10)

0.0

N/A

47.1

12/21

4.7

(15.5)

(0.16)

0.0

N/A

14.9

12/22e

11.0

(17.8)

(0.16)

0.0

N/A

6.3

12/23e

27.5

(18.1)

(0.16)

0.0

N/A

2.5

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Strong progress in Q2

Revenues in Q2 were 44% ahead quarter-on-quarter, driven by the expansion of the product range. Sales on Amazon.com were up 84% q-o-q, and sales velocity increased with many retailers. Else continues to build its infrastructure as it lists its products with new retailers and expands the number of SKUs sold through existing channels. Its geographic expansion continues apace, while it also successfully completed its second (and final) preclinical study on its infant formula. During Q2 it started a clinical study, and the parameters of a second clinical study have now been approved, thus allowing the study to begin during Q3. These set the path to FDA approval, expected during FY25.

Consumer environment becoming more challenging

The consumer environment is undoubtedly getting tougher as rising interest rates and stubborn inflation squeeze household budgets. The baby food category is generally one of the most defensive within consumer staples, with low private label penetration and a reluctance by consumers to trade down or switch brands. That said, given the tough economic environment, we take a more cautious view on consumer uptake of a new, premium brand, and therefore cut our revenue estimates for FY22–24.

Valuation: Mid-case 12-month value of C$4.0/share

We value Else primarily on a DCF basis and flex for different scenarios. Our base case assumes a sales CAGR of 47% in years four to 10, followed by 15% in years 11–15 and 10% in years 16–20. We assume 2.0% terminal growth and a 15% terminal EBIT margin, resulting in a mid-case 12-month value of C$4.0 (from C$5.80/share). In a more bullish scenario, assuming a faster roll-out and uptake of product, our fair value is C$7.0, and on more pessimistic assumptions our fair value is C$2.7, which still represents significant upside to current levels. Our medium- and long-term growth assumptions remain unchanged.

Financials

As discussed above, we take a more cautious view on Else’s expansion over the next three years as the consumer environment is becoming increasingly tough, and hence shoppers are less likely to try new brands, particularly if priced in the premium segment. We believe there is a long-term trend towards plant-based and flexitarian diets, though in the shorter term consumers may stick to choices and brands with which they are already familiar if they are operating on a squeezed budget. This would lead to a slower uptake of Else’s products and hence slower revenue growth. We note that the infant formula product is undergoing clinical trials to be allowed to be marketed by the FDA and equivalent regulators across the globe and this process is not due to finish until late FY24 at the very earliest. Our infant formula assumptions therefore remain unchanged.

We illustrate the main changes to our forecasts in Exhibit 1 below.

Exhibit 1: Old vs new forecasts for key financials (FY22–24e)

2022

2023

2024

Forecast

Old

New

Diff

Old

New

Diff

Old

New

Diff

Revenue (C$000)

13,637

11,001

(19.3%)

32,974

27,482

(16.7%)

60,660

55,717

(8.1%)

Profit before tax (C$000)

(17,277)

(17,774)

(2.9%)

(16,779)

(18,117)

(8.0%)

(12,843)

(14,323)

(11.5%)

Basic EPS (C$)

(0.16)

(0.16)

(2.9%)

(0.15)

(0.16)

(8.0%)

(0.11)

(0.13)

(11.5%)

Net cash/(debt) (C$000)

11,581

11,881

2.6%

(9,872)

(10,230)

(3.6%)

(30,999)

(32,791)

(5.8%)

Source: Edison Investment Research

Valuation

We value Else primarily on a DCF basis, as it effectively captures the potential growth of the business and can be flexed for different scenarios. We use a 10-year standard DCF followed by a further 10-year ‘fade’ or stabilisation period, before applying our terminal assumptions. Our model assumes a sales CAGR of 47% in years four to 10, followed by 15% in years 11–15 and 10% in years 16–20. We assume 2.0% terminal growth and a 15% terminal EBIT margin. This results in a 12-month DCF value of C$4.0, which we flex to C$7.0 in a bull case scenario. Our fair values have decreased owing to the more cautious assumptions in years 1–3, though our medium- and longer-term growth assumptions remain unchanged. We discussed the valuation assumptions in detail in our initiation note. The current share price appears to be discounting significantly more bearish conditions than our slower roll-out scenario, discounting terminal growth of 0% and a WACC of 20.5%.

Else Nutrition has a unique offering and there are no direct, listed competitors operating in the plant-based space. We therefore use some of the wider plant-based peer group, although we recognise these do not directly operate in the baby and toddler nutrition space. We note these are also loss-making as they are still early-stage companies. On EV/Sales, Else’s premium for FY23 has now eroded, such that it is trading at a discount to the group despite its disruptive products, which is resulting in a far faster growth profile than its more mature and more established baby food competitors. We believe this offers an attractive entry point for the shares.

Exhibit 2: Peer group valuation

Market cap (m)

EV/sales (x)

EV/EBITDA (x)

2022

2023

2022

2023

Nestle

CHF 310,496

3.8

3.6

18.4

17.3

Danone

€ 34,715

1.7

1.6

10.5

9.8

Abbott Laboratories

$179,500

4.4

4.6

15.8

16.8

Perrigo

$4,946

1.9

1.8

13.0

10.5

RB

$46,063

3.9

3.7

14.3

13.8

Oatly

$1,793

2.1

1.5

(7.9)

(15.6)

Beyond Meat

$1,491

4.4

3.7

(8.7)

(13.5)

Burcon NutraScience

C$ 77

424.9

94.5

(17.0)

(11.5)

Peer group average *

55.9

14.4

14.4

13.7

Peer group average (ex Burcon NutraScience)*

3.2

2.9

14.4

13.7

Else

C$ 93

6.3

2.5

(4.1)

(4.3)

Premium/(discount) to peer group (ex Burcon)

100.3%

(13.6%)

N/A

N/A

Source: Edison Investment Research, Refinitiv. Note: Priced at 5 September 2022. *The EV/EBITDA average excludes the peers with negative multiples.

Exhibit 3: Financial summary

C$'000

2019

2020

2021

2022e

2023e

2024e

31-December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

554

1,482

4,687

11,001

27,482

55,717

Cost of Sales

(303)

(984)

(3,944)

(8,927)

(20,789)

(39,028)

Gross Profit

251

498

743

2,074

6,692

16,689

EBITDA

 

 

(2,681)

(7,768)

(15,135)

(17,040)

(16,154)

(10,343)

Normalised operating profit

 

 

(2,755)

(7,961)

(15,519)

(17,774)

(18,117)

(14,323)

Amortisation of acquired intangibles

0

0

0

0

0

0

Exceptionals

(2,370)

(15,087)

16,102

0

0

0

Share-based payments

(253)

(1,056)

(2,201)

0

0

0

Reported operating profit

(5,378)

(24,104)

(1,618)

(17,774)

(18,117)

(14,323)

Net Interest

0

0

0

0

0

0

Joint ventures & associates (post tax)

0

0

0

0

0

0

Exceptionals

0

0

0

0

0

0

Profit Before Tax (norm)

 

 

(2,755)

(7,961)

(15,519)

(17,774)

(18,117)

(14,323)

Profit Before Tax (reported)

 

 

(5,378)

(24,104)

(1,618)

(17,774)

(18,117)

(14,323)

Reported tax

0

0

0

0

0

0

Profit After Tax (norm)

(2,755)

(7,961)

(15,519)

(17,774)

(18,117)

(14,323)

Profit After Tax (reported)

(5,378)

(24,104)

(1,618)

(17,774)

(18,117)

(14,323)

Minority interests

0

0

0

0

0

0

Discontinued operations

0

0

0

0

0

0

Net income (normalised)

(2,755)

(7,961)

(15,519)

(17,774)

(18,117)

(14,322)

Net income (reported)

(5,378)

(24,104)

(1,618)

(17,774)

(18,117)

(14,323)

Basic average number of shares outstanding (m)

50

81

97

108

112

112

EPS - basic normalised (C$)

 

 

(0.05)

(0.10)

(0.16)

(0.16)

(0.16)

(0.13)

EPS - diluted normalised (C$)

 

 

(0.05)

(0.10)

(0.16)

(0.16)

(0.16)

(0.13)

EPS - basic reported (C$)

 

 

(0.11)

(0.30)

(0.02)

(0.16)

(0.16)

(0.13)

Dividend (C$)

0.00

0.00

0.00

0.00

0.00

0.00

Revenue growth (%)

N/A

167.5

216.3

134.7

149.8

102.7

Gross Margin (%)

45.3

33.6

15.9

18.9

24.4

30.0

EBITDA Margin (%)

-483.9

-524.2

-322.9

-154.9

-58.8

-18.6

Normalised Operating Margin

-497.3

-537.2

-331.1

-161.6

-65.9

-25.7

BALANCE SHEET

Fixed Assets

 

 

585

881

1,784

2,267

3,462

5,726

Intangible Assets

51

395

344

344

344

344

Tangible Assets

434

253

484

1,095

2,535

5,453

Investments & other

100

233

956

828

584

(71)

Current Assets

 

 

3,944

28,438

31,138

24,384

13,339

10,192

Stocks

157

2,424

4,546

5,803

12,474

23,417

Debtors

506

369

694

3,850

8,244

16,715

Cash & cash equivalents

2,909

21,538

23,047

11,881

(10,230)

(32,791)

Other

372

4,107

2,851

2,851

2,851

2,851

Current Liabilities

 

 

(839)

(2,019)

(3,317)

(8,114)

(15,971)

(28,739)

Creditors

(301)

(1,235)

(1,898)

(6,695)

(14,552)

(27,320)

Tax and social security

(110)

(8)

(8)

(8)

(8)

(8)

Short term borrowings

0

0

0

0

0

0

Other

(428)

(776)

(1,411)

(1,411)

(1,411)

(1,411)

Long Term Liabilities

 

 

(32)

(16,092)

(2,833)

(2,833)

(2,833)

(2,833)

Long term borrowings

0

0

0

0

0

0

Other long term liabilities

(32)

(16,092)

(2,833)

(2,833)

(2,833)

(2,833)

Net Assets

 

 

3,658

11,208

26,772

15,704

(2,003)

(15,654)

Minority interests

0

0

0

0

0

0

Shareholders' equity

 

 

3,658

11,208

26,772

15,704

(2,003)

(15,654)

CASH FLOW

Op Cash Flow before WC and tax

(2,681)

(7,768)

(15,135)

(17,040)

(16,154)

(10,343)

Working capital

(326)

(1,030)

(1,385)

384

(3,208)

(6,647)

Exceptional & other

(55)

(794)

730

0

0

0

Tax

0

0

0

0

0

0

Net operating cash flow

 

 

(3,062)

(9,592)

(15,790)

(16,656)

(19,362)

(16,990)

Capex

(56)

(230)

(287)

(1,100)

(2,748)

(5,572)

Acquisitions/disposals

(452)

0

0

0

0

0

Net interest

2

5

27

0

0

0

Equity financing

6,639

31,858

16,013

7,354

0

0

Dividends

0

0

0

0

0

0

Other

(132)

(3,115)

2,265

(765)

0

0

Net Cash Flow

2,939

18,926

2,228

(11,166)

(22,110)

(22,562)

Opening net debt/(cash)

 

 

(10)

(2,909)

(21,538)

(23,047)

(11,881)

10,230

FX

(40)

(297)

(719)

0

0

0

Other non-cash movements

0

0

0

0

0

0

Closing net debt/(cash)

 

 

(2,909)

(21,538)

(23,047)

(11,881)

10,230

32,791

Source: Edison Investment Research, Company data

General disclaimer and copyright

This report has been commissioned by Else Nutrition and prepared and issued by Edison, in consideration of a fee payable by Else Nutrition. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

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This report has been commissioned by Else Nutrition and prepared and issued by Edison, in consideration of a fee payable by Else Nutrition. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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AFT Pharmaceuticals — Further studies for Maxigesic IV’s US nod

AFT Pharmaceuticals announced that, along with partner Hyloris Pharmaceuticals, the company will initiate additional studies to address the FDA queries (raised in July 2022) related to Maxigesic IV’s packaging. The new studies, which aim to generate incremental data on extractable and leachable compounds from the packaging, are expected to commence before end-CY22 with targeted completion by CY23. The company will file for FDA registration after submitting its response. Maxigesic IV has already launched in 10 countries and was out-licensed to Hikma Pharmaceuticals in the United States in April 2021 for up to NZ$18.8m in total proceeds. We anticipate the incremental launches (including 20 launches planned in Australia) in the second half of the year will offset this delay and we maintain our estimates.

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