Simply Better Brands is simply undervalued, Clarus says

After a second quarter beat, Clarus Securities analyst Noel Atkinson still thinks there is money to be made on Simply Better Brands (Simply Better Brands Stock Quote, Chart, News, Analysts, Financials TSXV:SBBC).

On August 29, SBBC reported its Q2, 2023 results. The company posted an Adjusted EBITDA loss of (US) $2.4-million on revenue of $23.6-million, a topline that was up 40 per cent over the same period last year.

“As our Q2 2023 financial and commercial results illustrate, we are positioned for continued revenue growth, profit improvement, and debt reduction in 2023. Our strategic priorities remain to lead consumer-centric innovation and relentlessly acquire customers to these emerging brands by driving category and channel expansion. Even with our marketing and capability investments in Q2, we remain confident in delivering the current 2023 outlook of $80 million in revenue and $3-4 million in adjusted EBITDA at a gross margin target range of 58-60%.” says SBBC CEO, Kathy Casey.

Atkinson says this was a “solid Q2 beat” that was driven by the TRUBAR ramp up and better-than-expected PureKana revenue.

“Total revenues for Q2/23 were US$23.6MM, up +40% Y/o/Y and beating our US$21.0MM forecast. TRUBAR sales of US$9.1MM were +350% Y/o/Y, due mainly to a strong seasonal listing performance at Costco USA. PureKana sales were US$12.2MM, well ahead of our US$10.0MM forecast. SBBC invested heavily in marketing to drive PureKana customer growth in the second half of the quarter after changing bank and payment processor partners earlier in the year. The filings note that PureKana’s revenue in the first half of Q3/23 was up +50% Y/o/Y. Gross margin of 58.0% was well ahead of our 48.8% forecast with solid contribution from PureKana, Vibez and TRUBAR. SG&A spend was above forecast, mainly due to strident PureKana marketing. Adj. EBITDA of (US$2.4MM) beat our (US$3.2MM) estimate.”

In a research update to clients August 30, Atkinson maintained his “Speculative Buy” rating and one-year price target of $1.25 on Simply Better Brands, which closed at $029.5 on August 29.

The analyst thinks SBBC will post Adjusted EBITDA of (US) $2.0-million on revenue of $90.5-million in fiscal 2023. He expects those numbers will improve to EBITDA of $6.4-million on a topline of $103.2-million the following year.

“Overall, our 2023e revenue forecast of US$90.5MM is basically unchanged and remains well above Company guidance,” the analyst concluded. “We would not be surprised to see the Company upgrade their 2023 revenue guidance once Q3 is in the books. Our 2023e Adj. EBITDA estimate of US$2.0MM is unchanged and
remains below Company guidance as it seems like SBBC continues to spend sizably on PureKana marketing so far in Q3. To us, the most important metrics when evaluating SBBC are revenue growth and the increase in number of doors (especially at large U.S. retailers) for TRUBAR and No B.S. Skin Care, because these product lines have the largest potential of any of the Company’s product lines, they seem to be getting traction with retailers (and TRUBAR is showing it can get traction with consumers), and these types of product lines tend to capture high valuation multiples in public company pure-plays and in exit events. At this stage, we would prefer to see management reinvest gross profit into brand revenue growth for TRUBAR and No B.S. Skin Care in a cost-effective manner and maintain break-even Adj. EBITDA, rather than focus on maximizing Adj. EBITDA.”