Beacon Securities launched coverage of energy drink company Yerbaé Brands (Yerbaé Brands Stock Quote, Charts, News, Analysts, Financials TSXV:YERB.U) on Wednesday, starting the stock off with a “Buy” rating and $3.00 target price, which at press time translated to a projected one-year return of 76 per cent.
Founded in 2017, Yerbaé Brands is a CPG company offering naturally caffeinated beverages with zero sugar and zero calories and using yerba maté, a compound from the leaves of native holly trees in South America, as its key ingredient. Currently, its two beverage types are energy drinks in a variety of flavours and naturally caffeinated energy seltzer waters.
Beacon analyst Doug Cooper argued that the precipitous decline over the past couple of decades in soft drink consumption has opened the door for other drinks such as energy drinks, with Red Bull and Monster energy being the largest players in the space. Moreover, Cooper said the large CPG companies like Coca-Cola and Pepsico have carved out stakes in the energy drink sector by investing in and buying smaller companies, a path that a company like Yerbaé could very well travel.
Cooper said Yerbaé co-founder and CEO Todd Gibson has a background in CPG drink companies as well as a track record of selling assets to the larger CPGs. Cooper thinks that when Yerbaé reaches a revenue run-rate of $50-$100 million, Gibson has the relationships to coordinate a partnership.
“In our opinion, Yerbaé has the key attributes to be a successful company (growing brand awareness, strong and growing distribution, strong gross margin profile), perhaps most significantly that its management team has built brands and sold them to major CPGs (ie. Coca Cola and Pepsico) in the past,” Cooper wrote.
On the product, Cooper said informal surveys have confirmed a very positive reaction to Yerbaé’s drinks and they also have a “very favourable” 79 per cent D2C customer retention rate that speaks to the taste of the product as well as its other attributes.
“We believe that consumers of energy drinks are looking for three things: caffeine, zero sugar and zero calories. Yerbaé’s products fit the profile. As one can see from the following table, Yerbaé is the only brand that offers consumers all of these attributes,” he said.
On the financial end, Cooper is forecasting Yerbaé’s revenue to go from $14.9 million in 2023 to $25.9 million in 2024 and to $38.9 million in 2025. EBITDA is expected to go from negative $7.7 million in 2023 to negative $10.3 million in 2024 and to negative $7.3 million in 2025.
“We believe a sales multiple is the most appropriate measurement at this development stage. Based on that metric, YERB.U trades at a 40 per cent discount to Monster and Celsius’ 5x FY25 sales forecasts,” Cooper wrote.