Echelon Capital Markets analyst Amr Ezzat lowered his target price on Canadian beverage company GURU Organic Energy Corp (GURU Organic Energy Stock Quote, Charts, News, Analysts, Financials TSX:GURU) in a Thursday update to clients, saying sequentially lower revenues speak to the challenges facing the company. At the same time, Ezzat is still bullish on the stock, reiterating a “Buy” rating and arguing that the company still shows a lot of promise in the North American energy drink market.
Montreal-based GURU Organic has plant-based energy drinks and markets its products in Canada and the US. The company currently has a 13-15 per cent share of the energy drink market in the province of Quebec, while its penetration in recent years in the San Francisco Bay Area has made it the fastest-growing energy drink brand and the top organic energy drink in that area.
The company announced on Thursday its fourth quarter fiscal 2022 financials for the period ended October 31, 2022, coming in with net revenue of $6.8 million compared to $8.5 million a year earlier and an adjusted EBITDA loss of $4.0 million compared to a loss of $5.7 million a year ago. For the full fiscal 2022, GURU’s revenue was down to $29.1 million compared to $30.2 million for fiscal 2021, while adjusted EBITDA at negative $17.2 million was more than double the loss of $8.7 million in fiscal 2021.
GURU President and CEO Carl Goyette said expansion efforts have resulted in the company’s products now distributed in more than 96 per cent of convenience and gas stores across Canada and 77 per cent of gracery, drug and mass stores. At the same time, he noted that that focus on building out its brand had an impact on the company’s financial performance over the short term.
“We firmly believe that [the expansion activities] will pay off in the long run, as we near the completion of our transition period in early 2023,” Goyette said in a press release. “The fourth quarter bore the biggest impact of the transition, mainly due to non-recurring factors, including the bulk of the initial pipeline fill in Q4 2021, portfolio rationalization to focus on our core energy drinks upon entering our agreement, and the intentional postponement of our next innovation to a more strategically-timed Q2 launch in the subsequent fiscal year.”
For his part, Ezzat said the $6.8 million in revenue came in under his expectation at $7.1 million, while the consensus call was at $6.9 million. But Adjusted EBITDA at negative $4.0 million was better than his forecast at negative $7.0 million and the Street’s $6.9 million, due to lower SG&A and better gross margin performance.
The analyst noted that Canadian sales dropped by 16.8 per cent year-over-year and by 7.7 per cent sequentially to $6.2 million, while US revenues dropped 42.9 per cent year-over-year and 43.0 per cent sequentially to $0.6 million.
Ezzat said the US sales drop was mainly due to a one-time price discount of $0.4 million to a club wholesaler, while Canadian sales declines were primarily due to an initial pipeline fill related to the Canadian distribution agreement with PepsiCo, which had a positive impact of $2.7 million in the fourth quarter fiscal 2021.
“GURU Organic Energy Corp’s FQ422 results reflect, as anticipated, continued headwinds hampering top-line growth. We went into the quarter expecting spillover from FQ322, which was impacted by industry-wide logistics constraints,” Ezzat wrote. “We are lowering our target price to $5.25/shr from $9.00/shr on a tempering of our medium-term forecasts, as well as a recalibration of our valuation parameters.”
At press time, Ezzat’s new $5.25 target represented a projected 12-month return of 94.4 per cent.
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