Posts Record Revenue, Eyes Continued Growth

Report Highlights

• Products are available at 30k+ distribution points including established retail/pharmacy chains such as Shoppers Drug Mart, Walmart (NYSE: WMT), Kroger (NYSE: KR), Sobeys (TSX: EMP), and online platforms such as Amazon (NASDAQ: AMZN),  and Shopify (NYSE: SHOP). 
• EBITDA rose 68% YoY, with adjusted net loss decreasing, and FCF turning positive, driven by higher revenue. 
• Gross margins were up 1 pp YoY, aligning with our estimate. However, adjusted EPS was 31% lower than our estimate due to higher than expected SG&A expenses. 
• Upcoming catalysts include new product launches, geographical expansion, and the potential launch of LivRelief in the U.S. 
• DHB is trading at just 0.2x revenue vs the Personal Care Products sector average of 3.1x. 

Price Performance (1-year)

Background

DHB’s product portfolio consists of sleep aid/anxiety relief formulations, and pain relief products. The company is also trying to license its patent-pending proprietary transdermal delivery technology platform to pharma companies. 

Follows an asset-light model by outsourcing manufacturing and packaging to entities in North America. Two Primary Brands: Dream Water (sold in the U.S./Canada/the Middle East), and LivRelief (sold in Canada) 

Available at 30k+ outlets in the U.S., and Canada, including major retailers and pharmacy chains. DHB’s annual revenue per store is approximately $350, which we believe is on the higher end of small health and wellness companies; larger brands generate $1k+

Financials (Year-End: June 30th) 

In FY2024, revenue was up 26% YoY, coming in just 0.5% below our estimate, driven by strong Dream Water sales in the U.S. Gross margins were up 1 pp, aligning with our estimate

Marketing expenses increased 5 pp YoY to 13% of revenue, aligning with our estimate, but remained significantly lower than the 20%-35% range of comparables (Source: S&P Capital IQ

We believe the company will raise its marketing budget to remain competitive with its peers. SG&A expenses were up 8% YoY, and 10% higher than our estimate due to higher head count 

EBITDA was up 68% YoY, and net loss decreased, while FCF turned positive due to higher revenue. Adjusted EPS was 31% lower than our estimate due to higher SG&A expenses . Debt/Capital decreased due to higher retained earnings

FRC Projections and Valuation 

It is estimated that the global sleep aids market will grow from US$59B in 2023, to US$64B in 2024, and to US$89B by 2030, reflecting a CAGR of 6% (2023-2030)

It is estimated that the global pain management therapeutics market will grow from US$85B in 2024, to US$123B by 2034, reflecting a CAGR of 4% 

We are maintaining our revenue forecasts, while raising SG&A expenses, resulting in lower EPS estimates

As a result, our DCF valuation changed slightly from $0.10 to $0.095/share

Comparables Valuation

We are reiterating our BUY rating, and raising our fair value estimate from $0.08 to $0.09/share (the average of our DCF and comparables valuations). Shares are trading at a 95% discount relative to the average sector EV/Revenue of 3.1x. Given the growing demand for natural health and wellness products, we believe DHB's focus on sleep aids and pain relief aligns with a significant market trend.

The average sector forward EV/Revenue is up 11% since our previous report in May 2024. DHB is trading at a 90% discount (previously 21%) relative to its comparables. Using the average sector EV/Revenue, we arrived at a comparables valuation of $0.08/share (previously $0.06/share)

Risks

We believe the company is exposed to the following key risks (not exhaustive):

• Operates in a highly regulated industry subject to government intervention
• Competition
• Product recall and liability 
• Like any business involved in consumer product sales, we believe hefty marketing budgets are critical for growth

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