EnWave’s Moon Cheese is a winner, Industrial Alliance says

Following the announcement that the company will add to its Moon Cheese production line, Industrial Alliance Securities analyst Neil Linsdell is maintaining his “Buy” rating on on EnWave (EnWave Stock Quote, Chart, News TSXV:ENW).

This morning, EnWave announced that its wholly owned subsidiary, NutraDried Food Company, will be installing a third large-scale Radiant Energy Vacuum machine to expand production capacity for its Moon Cheese snack product line. The company’s board today approved of an $8.0-million budget (the company currently has $20-million in cash.)

Moon Cheese has become an over-the-moon success for the Vancouver-based company, with Costco, Starbuck and Whole Foods carrying the product, amongst many other retailers. The product is made using the company’s Radiant Energy Vacuum, which it describes as more precise method of dehydrating organic materials.

“Moon Cheese is in the midst of a major brand relaunch reflecting world-class new packaging, new varieties (Garlickin’ Parmesan and Cheddar Bacon Me Crazy) and new sizes. The relaunch has been enthusiastically received by retail partners and will be supported by significant investments in sales and marketing. NutraDried revenue has more than doubled in each of the past two years and aggressive growth rates are expected to continue,” the company pointed out in a press release.

“NutraDried is experiencing significant growth, as demonstrated by this morning’s announcement which further supports our positive outlook. As such, we believe the recent pullback presents a significant buying opportunity…”

Linsdell says the performance of Moon Cheese remains strong.

“YTD (through Q3/F19) NutraDried has generated ~$18M in revenue,” the analyst notes. “We expect $10M in Moon Cheese revenue in FQ4, driven by the Costco MVM program. As NutraDried approaches the $50M revenue level, and with its “Better For You” product offering, we believe that the division could become an attractive acquisition target for a large Consumer Packaged Goods (CPG) company. If EnWave ever accepted to sell this subsidiary, aside from a sizeable cash benefit to the Company, we would expect the acquirer to even further accelerate product development and distribution, which would likely translate into additional REV™ machine sales, and an even faster ramp up in royalties from NutraDried as EnWave would continue to collect payments based on NutraDried sales.”

In a research update to clients today, Linsdell maintained his “Buy” rating and one-year price target of $2.75 on EnWave, implying a return of 54.5 per cent at the time of publication.

The analyst thinks ENW will post Adjusted EBITDA of $2.3-million on revenue of $41.8-million in fiscal 2019. He expects those numbers will improve to EBITDA of $11.3-million on a topline of $61.0-million the following year.

Linsdell thinks investors should take advantage of recent weakness in the company’s share price.

“NutraDried is experiencing significant growth, as demonstrated by this morning’s announcement which further supports our positive outlook. As such, we believe the recent pullback presents a significant buying opportunity,” he concluded.