Currency in CAD
Last close As at 25/01/2023
CAD0.60
▲ −0.01 (−1.64%)
Market capitalisation
CAD69m
Research: Consumer
Else raised gross proceeds of C$7.35m through equity. It offered 7.004m units at C$1.05, with each unit consisting of one share and one warrant. The warrants have an exercise price of C$1.25 and an expiry date of June 2027. The company plans to use net proceeds of C$6.6m for sales and marketing and to build inventory as it expands into new geographies, and on research and development (R&D) as it continues to pursue its disruptive dairy- and soy-free infant formula. We leave our underlying forecasts unchanged and update our model for the fund-raising. Our mid-case 12-month DCF-based value moves to C$5.80/share due to the higher number of shares.
Else Nutrition |
Well funded for expansion |
Capital raise |
Food and beverages |
29 July 2022 |
Share price performance
Business description
Next events
Analysts
Else Nutrition is a research client of Edison Investment Research Limited |
Else raised gross proceeds of C$7.35m through equity. It offered 7.004m units at C$1.05, with each unit consisting of one share and one warrant. The warrants have an exercise price of C$1.25 and an expiry date of June 2027. The company plans to use net proceeds of C$6.6m for sales and marketing and to build inventory as it expands into new geographies, and on research and development (R&D) as it continues to pursue its disruptive dairy- and soy-free infant formula. We leave our underlying forecasts unchanged and update our model for the fund-raising. Our mid-case 12-month DCF-based value moves to C$5.80/share due to the higher number of shares.
Year end |
Revenue (C$m) |
PBT* |
EPS* |
DPS |
P/E |
EV/sales |
12/20 |
1.5 |
(8.0) |
(0.10) |
0.0 |
N/A |
29.7 |
12/21 |
4.7 |
(15.5) |
(0.16) |
0.0 |
N/A |
9.4 |
12/22e |
13.6 |
(17.3) |
(0.16) |
0.0 |
N/A |
3.2 |
12/23e |
33.0 |
(16.8) |
(0.15) |
0.0 |
N/A |
1.3 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Geographic expansion
Else has raised equity to pursue its ambitious growth plan. As detailed in our initiation note, the company launched its toddler formula in August 2020 and successfully built sales infrastructure in the US during 2021, rolling out sales online and in-store. It has expanded by launching a nutritional drink for children and, more recently, a line of baby cereals. With its Q1 results, Else announced plans to expand into Canada, Western Europe and China during H222. The roll-out into Canada is already underway. As Else expands into new geographies, it needs to set up new sales infrastructure and build inventory to service the new markets.
Infant formula on track
Else is looking to disrupt the baby and toddler nutrition market with its minimally processed, plant-based, dairy-free, soy-free formula. During Q2 Else successfully completed a second preclinical study on its infant formula, which was a further step on the path to bringing the product to market. A clinical infant growth study is expected to complete by end-FY23, with submission to the FDA filed thereafter. Management expects the overall cost of the process to be c US$5–6m. Part of the funds raised have been earmarked for R&D and will help to cover these costs.
Valuation: Mid-case 12-month value of C$5.8/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$5.80 (from C$6.0/share). In a more bullish scenario, assuming a faster roll-out and uptake of product, our fair value is C$10.1, and on more pessimistic assumptions our fair value is C$4.0, which still represents significant upside to current levels.
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$5.80, which we flex to C$10.1 in a bull case scenario. 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 27%.
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. Else’s premium for FY22 has now eroded, such that it is trading in line with 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 1: Peer group valuation
Market cap (m) |
EV/sales (x) |
EV/EBITDA (x) |
|||
2022 |
2023 |
2022 |
2023 |
||
Nestle |
CHF321,918 |
3.8 |
3.6 |
18.2 |
17.1 |
Danone |
€37,544 |
1.8 |
1.7 |
11.1 |
10.5 |
Abbott Laboratories |
$191,010 |
4.7 |
4.9 |
16.8 |
18.0 |
Perrigo |
$5,645 |
1.6 |
1.5 |
10.9 |
8.7 |
RB |
$45,666 |
3.9 |
3.8 |
15.0 |
14.2 |
Oatly |
$2,071 |
2.1 |
1.4 |
N/A |
N/A |
Beyond Meat |
$1,939 |
4.5 |
3.6 |
N/A |
N/A |
Burcon NutraScience |
C$100 |
524.6 |
88.9 |
N/A |
N/A |
Peer group average* |
68.4 |
13.7 |
14.4 |
13.7 |
|
Peer group average (ex Burcon NutraScience)* |
3.2 |
2.9 |
14.4 |
13.7 |
|
Else |
C$67 |
3.2 |
1.3 |
(2.7) |
(3.1) |
Premium/(discount) to peer group (ex Burcon) |
0.9% |
(54.5%) |
N/A |
N/A |
Source: Edison Investment Research, Refinitiv. Note: Priced at 26 July 2022. *The EV/EBITDA average excludes the peers with negative multiples, hence marked as N/A.
Exhibit 2: Financial summary
C$'000s |
2019 |
2020 |
2021 |
2022e |
2023e |
2024e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
||||||||
Revenue |
|
|
554 |
1,482 |
4,687 |
13,637 |
32,974 |
60,660 |
Cost of Sales |
(303) |
(984) |
(3,944) |
(11,066) |
(24,944) |
(42,491) |
||
Gross Profit |
251 |
498 |
743 |
2,571 |
8,030 |
18,169 |
||
EBITDA |
|
|
(2,681) |
(7,768) |
(15,135) |
(16,367) |
(14,424) |
(8,510) |
Normalised operating profit |
|
|
(2,755) |
(7,961) |
(15,519) |
(17,277) |
(16,779) |
(12,843) |
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) |
(17,277) |
(16,779) |
(12,843) |
||
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) |
(17,277) |
(16,779) |
(12,843) |
Profit Before Tax (reported) |
|
|
(5,378) |
(24,104) |
(1,618) |
(17,277) |
(16,779) |
(12,843) |
Reported tax |
0 |
0 |
0 |
0 |
0 |
0 |
||
Profit After Tax (norm) |
(2,755) |
(7,961) |
(15,519) |
(17,277) |
(16,779) |
(12,843) |
||
Profit After Tax (reported) |
(5,378) |
(24,104) |
(1,618) |
(17,277) |
(16,779) |
(12,843) |
||
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) |
(17,277) |
(16,779) |
(12,842) |
||
Net income (reported) |
(5,378) |
(24,104) |
(1,618) |
(17,277) |
(16,779) |
(12,843) |
||
Basic average number of shares outstanding (m) |
50 |
81 |
97 |
108 |
112 |
112 |
||
EPS - basic normalised (C$) |
|
|
(0.05) |
(0.10) |
(0.16) |
(0.16) |
(0.15) |
(0.11) |
EPS - diluted normalised (C$) |
|
|
(0.05) |
(0.10) |
(0.16) |
(0.16) |
(0.15) |
(0.11) |
EPS - basic reported (C$) |
|
|
(0.11) |
(0.30) |
(0.02) |
(0.16) |
(0.15) |
(0.11) |
Dividend (C$) |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
||
Revenue growth (%) |
N/A |
167.5 |
216.3 |
191.0 |
141.8 |
84.0 |
||
Gross Margin (%) |
45.3 |
33.6 |
15.9 |
18.9 |
24.4 |
30.0 |
||
EBITDA Margin (%) |
(483.9) |
(524.2) |
(322.9) |
(120.0) |
(43.7) |
(14.0) |
||
Normalised Operating Margin |
(497.3) |
(537.2) |
(331.1) |
(126.7) |
(50.9) |
(21.2) |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
585 |
881 |
1,784 |
2,414 |
3,838 |
6,230 |
Intangible Assets |
51 |
395 |
344 |
344 |
344 |
344 |
||
Tangible Assets |
434 |
253 |
484 |
1,242 |
2,969 |
6,146 |
||
Investments & other |
100 |
233 |
956 |
828 |
525 |
(260) |
||
Current Assets |
|
|
3,944 |
28,438 |
31,138 |
26,398 |
17,838 |
15,545 |
Stocks |
157 |
2,424 |
4,546 |
7,193 |
14,967 |
25,495 |
||
Debtors |
506 |
369 |
694 |
4,773 |
9,892 |
18,198 |
||
Cash & cash equivalents |
2,909 |
21,538 |
23,047 |
11,581 |
(9,872) |
(30,999) |
||
Other |
372 |
4,107 |
2,851 |
2,851 |
2,851 |
2,851 |
||
Current Liabilities |
|
|
(839) |
(2,019) |
(3,317) |
(9,719) |
(18,880) |
(31,163) |
Creditors |
(301) |
(1,235) |
(1,898) |
(8,300) |
(17,461) |
(29,744) |
||
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 |
16,260 |
(37) |
(12,221) |
Minority interests |
0 |
0 |
0 |
0 |
0 |
0 |
||
Shareholders' equity |
|
|
3,658 |
11,208 |
26,772 |
16,260 |
(37) |
(12,221) |
CASH FLOW |
||||||||
Op Cash Flow before WC and tax |
(2,681) |
(7,768) |
(15,135) |
(16,367) |
(14,424) |
(8,510) |
||
Working capital |
(326) |
(1,030) |
(1,385) |
(324) |
(3,731) |
(6,551) |
||
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) |
(16,692) |
(18,155) |
(15,061) |
Capex |
(56) |
(230) |
(287) |
(1,364) |
(3,297) |
(6,066) |
||
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 |
(11,466) |
(21,453) |
(21,127) |
||
Opening net debt/(cash) |
|
|
(10) |
(2,909) |
(21,538) |
(23,047) |
(11,581) |
9,872 |
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) |
(11,581) |
9,872 |
30,999 |
Source: company data, Edison Investment Research
|
|
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