Mimi’s Rock gets new “Buy” rating from Beacon Securities

With twin tailwinds in online shopping and the global supplements industry, Mimi’s Rock (Mimi’s Rock Stock Quote, Chart, News TSXV:MIMI) is not only a good buy but the stock has been hiding in plain sight. So says Beacon Securities analyst Doug Cooper who kicked off coverage of MIMI with a “Buy” recommendation and $1.50 target, which at press time represented a projected return of 233 per cent.

Toronto-based online dietary supplement and wellness company Mimi’s Rock owns the Dr. Tobias supplement brand and the All Natural and Maritime Naturals skin care brands and operates an “asset light” business model whereby it employs third party manufacturers who ship their products directly to Amazon from shipment to the customer.

The company bought the German-based Dr. Tobias brand in July 2018 for $29.8 million, where at the time the brand was doing about $30 million in revenue, and then acquired All Natural Advice and Maritime Naturals from a Canadian-based skin care product company in December 2019 for about $8.5 million. MIMI went public through an RTO in May 2019.

Cooper noted that Dr. Tobias’ lead product since 2013 has been its omega-3/fish oil liquid gels, which contain three to five time more DHA and EPA than most other brands but are enteric coated to help avoid the off-putting fishy burps related to other similar products. A consumer survey in 2014 rated the Dr. Tobias omega-3 supplement the highest quality in the US, allowing the brand to grow substantially, with currently about 20,000 consumer reviews on Amazon with an average of 4.5 stars for its fish oil product and 38,900 reviews for its colon cleanse.

“In our view, this is one of the highest number of reviews for any product we have seen on Amazon and speaks to its market position within the vitamin and mineral supplement segment,” Cooper said.

So far, MIMI’s share price has traded below its debut price of $1.25 and is currently in the $0.50 range. But Cooper thinks the stock is undervalued, pointing to the growth in the global supplement industry in general but in particular due to the COVID-19 pandemic where consumer interest in health and wellness and the importance of strengthening one’s immune system has grown.

Cooper quoted a Fortune Business Insights report in February 2020 that put the annual CAGR for the industry at 6.5 per cent and moving from $45 billion in 2018 to $74 billion by 2026 — and that was before the pandemic took over.

But as well, Cooper said the accelerating shift to online commerce, again aided by the pandemic but stretching beyond that framework, will be a boost for a company like Mimi’s Rock which does its business via Amazon, the primary beneficiary of the transition to e-commerce.

“Mimi’s Rock is a company that benefits from all of these trends as its sells its Dr. Tobias brand of dietary supplements and All Maritime Natural skin care brand online, predominantly through Amazon and as such is well positioned for growth,” Cooper said.

Valuation-wise, Cooper compared MIMI to Jamieson Wellness. He said Jamieson has a comparatively minimal online presence and currently trades at 5x latest quarter annualized sales and 31x latest quarter annualized EBITDA, which is well above Mimi’s 0.9x and 6x, respectively, making for a 75-per-cent discount for MIMI, according to Cooper, a massive valuation discount, he said.

In fact, Cooper said that Jamieson, whose share price is currently up about 40 per cent in 2020, should by rights be acquiring Mimi’s Rock, arguing that Mimi would augment Jamieson’s channel strategy through its online relationships and experience and Jamieson could move Mimi’s third party manufacturing in-house and cut Mimi’s corporate overhead costs, all of which would point to a very accretive acquisition for Jamieson.

Even if Jamieson were to pay a 400 per cent premium to Mimi’s current share price, we believe it would still be 14 per cent accretive to Jamieson on an EBITDA per share basis,” Cooper said.

The two approaches — calling MIMI a catch-up trade in terms of likely significant upwards multiple revision and seeing the company as a prime acquisition target — make for a stock with “with little downside risk,” assuming MIMI’s revenues remain at least stable, according to Cooper.

“We believe Mimi’s Rock is ideally positioned for growth as a COVID tailwind stock. Given the current valuation of the shares, we do not believe they reflect the intrinsic value nor any take-out premium, which creates an exceptional risk-return opportunity,” he said.

On the numbers, Cooper is estimating Mimi’s to generate fiscal 2020 revenue and EBITDA of $43.3 million and $6.5 million, respectively, and fiscal 2021 revenue and EBITDA of $48.2 million and $7.9 million, respectively.

Mimi’s Rock last reported earnings on August 26 where its second quarter financials featured revenue of $10.9 million, up 25 per cent year-over-year, and EBITDA of $1.6 million compared to $1.4 million a year earlier. Both results were records for the company.