Simply Better Brands is good for a double, says Clarus

Clarus Securities analyst Noel Atkinson maintained a “Speculative Buy” rating on CPG company Simply Better Brands (Simply Better Brands Stock Quote, Charts, News, Analysts, Financials TSXV:SBBC) in a Tuesday report where he reviewed the latest quarterly financials from the wellness, nutrition and beauty company.

Vancouver-based Simply Better Brands, which has product lines such as CBD-focused PureKana and nutrition bar TRUBAR, announced on May 4 its financials for the 2022 year, featuring Q4 revenue up 254 per cent year-over-year to $23.0 million and an EBITDA loss of $0.6 million. (All figures in US dollars except where noted otherwise.)

“Our strategic priorities remain to lead consumer-centric innovation and relentlessly acquire customers to these emerging brands by driving category and channel expansion. With our recent $7 million finance raise, we are aptly fuelled to deliver the 2023 outlook of $80 million in revenue and $3-4 million in adjusted EBITDA at a gross margin target range of 58-60 per cent,” says SBBC CEO Kathy Casey in a statement. 

Looking at the results, Atkinson said the Q4 put the icing on the cake for a monster year for PureKana, which drove SBBC’s sales strength in the quarter. At the same time TRUBAR sales reached $10 million for 2022, about 20x in terms of year-over-year growth, and will likely dominate in 2023, according to Atkinson.

“We continue to view TRUBAR as both the main revenue driver for 2023 as well as the business line with the most medium-term opportunity, so long as the FDA and Congress continue to dither on issuance of regulations governing ingestible CBD products,” Atkinson wrote.

Atkinson is expecting bigger and better things this year and next, estimating SBBC sales to go from $65.4 million in 2022 to $82.2 million in 2023 and to $92.3 million in 2024. On adjusted EBITDA, the call is for the $1.2 million in 2022 to be improved to $3.1 million in 2023 and then $5.7 million in 2024.

“There is no direct public comparable to SBBC in terms of having a large CBD-based consumer product line and then a range of non-CBD health and wellness products that also contribute meaningful revenue,” Atkinson said.

With the update, the analyst reiterated a 12-month target price of C$1.00, which at press time represented a projected return of 108 per cent.

“Another way to look at the current share price versus our target valuation is that the beauty and TRUBAR assets contribute C$0.90/share of equity value to our target per-share valuation – almost double the current share price – and then investors effectively receive the PureKana CBD business as a ‘free call option,’” Atkinson said.