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EMERGE Commerce keeps “Outperform” rating at Raymond James

Raymond James analyst Steven Li still likes the look of Canadian e-commerce consolidator EMERGE Commerce (EMERGE Commerce Stock Quote, Charts, News, Analysts, Financials TSXV:ECOM) but a pullback across the sector has prompted a target reduction. Li updated clients on the company in a May 2 report and reviewed EMERGE’s fourth quarter numbers, which came in at the high end of management’s pre-announced range.

EMERGE Commerce is developing a network of niche, direct-to-consumer (D2C) e-commerce brands in North America and the company released Q4 2021 numbers on May 2, showing record revenue at $14.9 million, representing a 531 per cent year-over-year increase.

“In our first year as a public company, our revenues more than tripled and we delivered three quality acquisitions, significantly enhancing the portfolio’s scale and profitability,” said Ghassan Halazon, Founder and CEO of EMERGE, in a press release. “Our Q4 results came in at the high end of the preliminary ranges we previously shared and are the culmination of the team’s hard work all year round. We are most proud of the record Adjusted EBITDA and strong positive operating cash flow during the quarter. We will continue to prioritize profitability in 2022 and beyond.”

EMERGE had Q4 adjusted EBITDA of $1.4 million compared to $0.1 million a year earlier, while cash flow from operations doubled from $1 million to $2 million. For the 2021 year, revenue was $34.8 million compared to $9.2 million in 2020, while adjusted EBITDA climbed to $1.2 million compared to $0.8 million a year earlier. EMERGE said it ended the fourth quarter with cash of $7.8 million and net debt of $24 million after deferred and contingent consideration of about $8 million.

In terms of M&A, the 2021 year saw EMERGE complete the acquisitions of meat subscription service TruLocal, outdoor camping and survival gear subscription service BattlBox and B2B e-commerce marketplace WholesalePet. Looking ahead, management said the climate for acquisitions looks good and that its current pipeline of opportunities “remains robust” and includes a number of signed LOI’s of both the tuck-in and anchor business variety.

“The Company anticipates the recent market climate could result in more attractive acquisition opportunities and pricing. A key area of focus in 2022 is integrating acquired brands by centralizing vendor software solutions, administrative and analytics functions, as well as cross-selling opportunities. As the Company has grown, it has continued to invest in the team as well as infrastructure,” EMERGE said in the quarterly press release.

Li called the quarterly results strong, with the $14.9 million topline coming in ahead of his $14.0 million forecast and adjusted EBITDA at $1.4 million also a beat of Li’s $0.9 million. The analyst noted the 216 per cent year-over-year growth in gross merchandise sales to $26.2 million, driven mostly by the three acquisitions mentioned above in TruLocal, BattlBox and WholesalePet.

Li wrote, “Management also noted that the reopening of the economy has mixed impact on its portfolio, with verticals like local experiences and traveling showing improvement, while golf experience continues to face headwinds (fully booked golf courses run less promotions). Expect 1Q22 results to be reported last week in May.”

“Inflation has had some impact on ECOM’s operations, especially the meat products. While ECOM has planned multiple initiatives to mitigate the pressure (e.g. increasing subscription price for TruLOCAL), it is something to watch,” he said.

 Li noted that EMERGE is set on expanding its debt facilities as both BattlBox and Wholesalepet begin contributing to the company’s adjusted earnings and potentially at lower rates. EMERGE’s current facility maturity date is June 29, 2023, while Li also noted management’s observation of more attractively-priced M&A opportunities, with cheaper prices and lower upfront requirements.

Looking ahead, Li is now calling for EMERGE to hit full 2022 revenue and adjusted EBITDA of $64 million (unchanged) and $7 million (unchanged), respectively, and for 2023 revenue and EBITDA of $72 million (unchanged) and $8 million (previously $10 million), respectively.

With the update, Li has reiterated his “Outperform 2” rating for ECOM while lowering his target price from $2.25 to $1.00 per share, which at press time represented a projected one-year return of 127.3 per cent.

“With e-commerce peer valuations down substantially in the last three months (down by ~20 per cent on average), we have lowered our target multiple to 2.0x (from 2.5x) NTM revenues, still at a discount to other e-commerce companies. Our target moves lower to $1.00 based on 2.0x NTM revenues,” Li wrote.

Last month, EMERGE announced the launch of US-based BattlBox to Canadian consumers. 

“Battlbox has a compelling track record of cost-effectively scaling their business in the US and now as an EMERGE brand they will have access to our extensive Canadian audience across the portfolio,” said Halazon in a press release. “Over time, BattlBox will be able to leverage our local warehouse assets for fulfilment, among other shared services available to them.”

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

About The Author /

Jayson is a writer, researcher and educator with a PhD in political philosophy from the University of Ottawa. His interests range from bioethics and innovations in the health sciences to governance, social justice and the history of ideas.
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