Costco takes TRUBAR national, Clarus says SBBC stock undervalued

TRUBAR, the flagship product from Simply Better Brands (Simply Better Brands Stock Quote, Chart, News, Analysts, Financials TSXV:SBBC) is convincing Costco and it should be convincing investors too, says Clarus Securities analyst Noel Atkinson.

In a research update to clients June 21, Atkinson maintained his “Outperform” rating and price target of $1.50 on SBBC.

The analyst noted that Costo, which is the largest buyer of TRUBAR, has expanded its reach, calling the development a “huge vote of confidence”.

“SBBC announced this morning that it is shipping a new 12-pack variety box SKU (Cookie Dough and PB&J flavors) to all 611 Costco USA stores,” Atkinson noted. “Our channel checks earlier this week revealed this new SKU shipping into Costcos in the Northeast USA as early as today. All 8 Costco USA buying regions should receive the new product over the coming weeks. Huge vote of confidence from TRUBAR’s #1 customer. We estimate Costco accounted for about US$20MM of TRUBAR’s 2023 revenues with regular listings in well under half of the Costco USA stores plus the seasonal spring national listing with an in-store coupon. Obviously, Costco was happy enough with TRUBAR’s performance to roll TRUBAR out nationwide on a regular basis. We estimate that Costco USA could now grow to US$30MM+/year of revenues for TRUBAR.”

The analyst thinks SBBC will post Adjusted EBITDA of $700,000 on revenue of $47.9-million in fiscal 2024. He expect those numbers will improve to Adjusted EBITDA of $4.8-million on a topline of $75.9-million in fiscal 2025.

“Our valuation model is 100% based on TRUBAR (target multiple of 1.75x EV/2025e TRUBAR sales). Our blue sky target of ~C$4.00/share is based on TRUBAR reaching US $100MM/year revenue runrate by early 2026e and a subsequent strategic investment or M&A exit at a value of US$300MM or more (3x revenue run-rate),” Atkinson concluded.