EMERGE Commerce keeps Buy rating with Raymond James

A business update from EMERGE Commerce (EMERGE Commerce Stock Quote, Charts, News, Analysts, Financials TSXV:ECOM) has Raymond James analyst Steven Li looking forward to first quarter numbers from the company. In the meantime, Li is staying bullish on EMERGE by reiterating his “Outperform 2” rating in a report to clients on Thursday.

EMERGE is a Toronto-based acquirer and operator of direct-to-consumer (D2C) brands for the North American market. The company looks to acquire e-commerce names in niche verticals and currently has businesses in domains such as grocery, golf experiences and products, nearby vacations, coupon discount sites, outdoor apparel and pet supplies.

Over the fourth quarter of 2021, EMERGE acquired both WholesalePet, a business-to-business pet marketplace, and BattlBox, an outdoor gear subscription service, and EMERGE recently provided an update on progress with the new pickups through both a press release and a webcast with CEO and Founder Ghassan Halazon.

“We are pleased with the acquisitions we closed in 2021 and look forward to extracting synergies under our shared services model, this year and beyond,” said Halazon in a March 31 press release. “In parallel, we continue to seek other proven, profitable businesses to add to our family of brands in the near-term.”

On WholesalePet, EMERGE said it’s now the company’s largest business in terms of Gross Merchandise Sales (GMS) and that continuing high demand for pet products made for “strong profitability” for WholesalePet over the Q1 2022. On BattlBox, EMERGE said it has been facing challenges related to advertising and supply-side environments in the D2C sector but that the brand has been performing well nonetheless.

“WholesalePet continues to exhibit terrific operational consistency with positive organic growth and strong cash flow conversion through its first full quarter under EMERGE. WholesalePet’s sticky B2B marketplace model, which includes average customer tenures of 10 years for its best clients, has encouraged us to look into other similar models, both organically and via potential acquisitions down the line,” said Halazon.

“BattlBox drove significant profitability in its first-quarter under EMERGE, exceeding management’s expectations. The BattlBox team has demonstrated their ability to remain ahead of the curve in a turbulent digital advertising climate, diversifying customer acquisition channels by growing its TikTok to have over 3 million likes, along with over 392K followers, and continuing to receive brand awareness through the Netflix show, Southern Survival, where it was featured,” he wrote.

In his report, Li said EMERGE currently has about $5.9 million in cash on hand to help advance its acquisition strategy and holds net debt of $20 million. 

Looking at the numbers, Li estimated EMERGE’s full 2021 revenue and EBITDA at $34 million and $1 million, respectively, and 2022 revenue and EBITDA at $64 million and $7 million, respectively. The analyst sees EMERGE’s EPS going from negative $0.07 per share in 2020 to negative $0.06 per share in 2021 and to positive $0.03 for 2022. 

On valuation multiples, Li pegs EMERGE’s EV/EBITDA at 13.8x for 2022, while EV/Revenue he sees as going from 11.2x in 2020 to 3.0x in 2021 and to 1.6x for 2022.

“The WholesalePet and BattlBox 1Q updates indicate to us a solid in-line 1Q22. We are looking for 1Q22 revenues of $13.8 million (+94 per cent year-over-year) and Adjusted EBITDA of $1.1 million (versus last year’s $0.3 million). We note that the company plans to release 4Q21 results during the last week in April. ECOM has already positively pre-announced the 4Q21,” Li wrote.

In recent news from its other brands, EMERGE announced in February the launch of a loyalty program for truLOCAL, the company’s Canada-based premium meat subscription business. The truLOCAL loyalty program gives customers reward points for every subscription shipment along with bonus milestone points, with the points redeemable for free products through the truLOCAL online store.

“Offering an impeccable all-around customer experience is at the heart of what makes truLOCAL stand out. With the introduction of this loyalty rewards program, we are giving members both existing and new yet another reason to shop and stick with truLOCAL,” said Halazon in a press release.

Disclosure: EMERGE Commerce is an annual sponsor of Cantech Letter.