Jarden has initiated its research of My Food Bag with a buy rating and $1.90 target price – just above its $1.85 issue price.
The valuation is in stark contrast to the $1.32 price put on the food delivery business by investment research company ShareClarity last week.
ShareClarity released its valuation in an email sent to Jarden Securities Direct clients last Thursday but then suspended its coverage hours later after its emerged Jarden was in the process of buying ShareClarity.
Jarden Securities acted as a joint lead manager in My Food Bag’s initial public offer, along with Craigs Investment Partners and Forsyth Barr.
The research arms are kept separate from the investment banking teams at broking firms and must obey strict rules to remain independent.
In a detailed research note Jarden analysts Andrew Steele and Lily Zhuang said My Food Bag’s current trading price offered an attractive entry point and a positively skewed risk reward.
My Food Bag’s shares have declined since its listing and were trading around $1.58 at 1pm on Thursday.
“We view MFB as a highly cash generative business with low capital intensity, low working capital commitments and a scalable platform for growth.”
The analysts said their view was based on fact that there was low penetration of a large total addressable market they estimated could be worth $6.4 billion.
“We forecast underlying NPAT [net profit after tax] will grow by 145 per cent from FY20-22.”
The analysts said this growth largely reflected the increase in deliveries driven by Covid-19 lockdown restrictions and its future expansion potential.
They expect revenue to increase by 23.8 per cent this financial year before moderating in FY2022 to -1.6 per cent.
“Underpinning this forecast is the assumption that there is a normalisation in revenue as they cycle the Covid-19 lockdown period and that they retain most of the higher post-Covid-19 customer base.”
In addition to this the analysts believe My Food Bad has the potential to significantly expand its addressable market through the expansion of ready meals and grocery staples with limited capital investment.
The target price implied a forward price to earnings ratio of 22.9 and a dividend yield of 3.5 per cent.
But the buy rating was also tempered with the low barrier to entry for a sector in what was already a reasonably mature and competitive segment.
Analysts noted My Food Bag was one of the longest-standing and largest meal kit companies in New Zealand, operating in a market estimated to be worth $6.4 billion.
Jarden expects the company will make 1.5 million deliveries in FY21 and generate $189.8 million in revenue through the sale of its My Food Bag, Bargain Box, Fresh Start and Made brands.
“MFB is a relatively mature operator with a strong incumbent position within the competitive meal kit market.
“We expect the NZ meal kit market could be between $420m and $480m of annual revenue, suggesting total industry penetration of 6-8 per cent,” analysts said.
The report outlined that analysis suggested that My Food Bag had so far reached 2.9 per cent market penetration, and that in the medium term it could deliver revenue growth broadly in line with broader food retail sector at 4-5 per cent per annum.
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