JustKitchen has a recipe for success, Beacon says

Beacon Securities analyst Doug Cooper believes JustKitchen Holdings (JustKitchen Stock Quote, Chart, News, Analysts, Financials TSXV:JK) has found a recipe for success. Cooper reviewed the company’s latest quarterly numbers in an update to clients on September 2 and called it an outstanding performance by the restaurant tech company.

Founded in 2019 and headquartered in Vancouver, JustKitchen operates a network of ghost kitchens in a hub and spoke model, which allows its proprietary delivery-only food brands and partner restaurant brands to reduce production and overhead costs, maximize efficiency, reach more customers and increase sales volume. The company currently has operations in Taiwan, with plans to expand further into Asia and through North America.

JustKitchen released on August 31 its fiscal 2021 third quarter financial results for the period ended June 30. The company reported $3.35 million in total revenue for the quarter, blitzing its reporting from the same period in 2020 to the tune of a 598 per cent year-over-year increase; when put in the context of a nine-month report, the company made $7.48 million in revenue, a near-tenfold increase from the comparative period from November 2019 to June 2020.

The company’s business has increased significantly, as JustKitchen operators registered 214,744 retail customer food orders in the quarter, good for 67 per cent sequential growth. Cooper also noted an expanding gross margin, with the third quarter yielding a 57 per cent margin compared to 53 per cent in the previous quarter and 51 per cent in the first quarter.

“Given that the company opened its first ghost kitchen less than one year ago, we believe the performance is outstanding and speaks to management’s acumen,” Cooper said.

Meanwhile, an overall increase in business activities led to a heightened negative adjusted EBITDA of $2.1 million compared to $630,000 negative adjusted EBITDA for the same period in 2020. Delivery costs accounted for 22 per cent of the company’s revenue, while advertising costs accounted for 14 per cent, up from ten per cent in the same period last year.

“We are pleased with the financial and operating results for the third quarter of 2021 as they are beginning to more accurately reflect JustKitchen’s rapid and continuing growth. The significant increase in revenues by way of the step-change in food order volume reflects our growing number of ghost kitchen locations, food brands and menu offerings,” said Jason Chen, Co-Founder and CEO, in the company’s August 31 press release.

“Our investments in new locations, partnerships and markets, as well as into our people and technology, are generating a steady pipeline of development opportunities for JustKitchen to pursue for the foreseeable future,” Chen said.

JustKitchen has remained busy in its expansion efforts with a particular emphasis on Hong Kong, having signed agreements with Foodpanda, the premier customer food order fulfilment platform in the region, and Zeek, which provides smart logistics with integrated on-demand delivery services for Hong Kong and Southeast Asia.

The company also launched multiple delivery-only desserts with Paul Café, a global chain of bakeries and cafés with operations in 47 countries, as well as acquiring the virtual branding rights to Japanese barbecue cuisine chain Hutong, as well as the virtual branding rights to Taiwanese shaved ice dessert shop Ice Monster.

Cooper foresees continued growth for JustKitchen, with an expectation of $12.7 million in revenue for 2021, followed by a 193 per cent potential year-over-year increase to $37.2 million for 2022, followed by a potential 48.4 per cent year-over-year jump to $55.2 million for 2023.

Meanwhile, Cooper expects the company to achieve annual positive EBITDA by 2023 with a projection of $6.1 million after forecasted losses of $7 million in 2021 and $1.5 million in 2022. Consequently, Cooper’s EV/EBITDA multiple also doesn’t present itself until 2023, where he projects a 15.1x multiple.

Further valuation data shows JustKitchen’s potential, with Cooper forecasting the EV/Sales multiple to drop from a projected 7.2x in 2021 to a projected 2.5x in 2022, then to 1.7x in 2023.

With $24.3 million in cash available, Cooper believes the company is in a good position to continue its growth and expansion.

“Given the number of spokes that have been opened, we believe the company is on-track to reach our FY21 revenue forecast of $12.7 million. As we noted in our initiation report, consumer behaviour has changed over the past decades such that delivery/take-out is growing 300 per cent faster than dine-in (even prior to the pandemic) with 60 per cent of American households ordering-in at least two per week. Such strong macro tailwinds have recently been confirmed by the results of the large food delivery companies.”

JustKitchen’s share price has performed well on the market in 2021, up 49 per cent for the year to date with a high point of $1.90/share on August 6. With the update, Cooper has reiterated both his “Buy” rating and $3.40/share target, which at press time represented a projected one-year return of 121 per cent.