Positive EPS Turnaround and Expansion Plans

• DHB’s share price is up 93% YTD, outperforming the S&P Personal Care Index, which fell 11%.
• Q1-FY2026 (ended September 2025) revenue grew 1% YoY, driven by Dream Water sales, but came in 2% below our estimate due to softer sales of LivRelief Infused. Management expects LivRelief Infused sales to rebound in H2 following the transition to a new distributor.
• EPS turned positive: ($0.018) → $0.001, aided by higher revenue and lower depreciation, while we had anticipated a small loss. We are raising our FY2026 EPS forecast, and now expect EPS to turn positive this year.

• Although revenue was below our estimate, we are not overly concerned, as Q1 is not always indicative of full-year performance. Historically, quarterly revenue has been volatile due to the timing of large customer orders, and distributor/retailer shipments; for example, last year, Q1 revenue fell 14%, while full-year revenue grew 8%.
• Management remains confident in achieving YoY revenue growth, following five consecutive years of growth: 2% in FY2021 and FY2022, 20% in FY2023, 26% in FY2024, and 8% in FY2025.
• The company is planning M&A activity to expand its product portfolio; a strategy we view positively. With robust distribution channels, we believe DHB can quickly increase shelf space for acquired products, boost revenue, and deliver accretive value. 
• DHB has a healthy balance sheet, well-positioned to fund expansion. We expect robust organic growth driven by rising awareness of sleep’s role in health, alongside further gains from geographic expansion. The sector is also set to accelerate, with consensus revenue growth rising to 10% in 2025, from 8% in 2024.
• We’re excited to launch our new video series —  Stocks in Real Life — connecting the world of capital markets to relatable, real-world stories and concepts. Check out our first episode, featuring Delivra.

Price and Volume (1-year)

* Delivra Health has paid FRC a fee for research coverage and distribution of reports. All figures in C$ unless otherwise specified. See last page for other important disclosures, rating, and risk definitions. 

Overview

Products

DHB’s product portfolio consists of sleep aid/anxiety relief formulations, and pain relief products

Follows an asset-light model by outsourcing manufacturing and packaging to established entities in North America

Two Primary Brands: Dream Water (sold in the U.S./Canada/the Middle East), and LivRelief (sold in Canada)

Dream Water drove ~90% of revenue this quarter, vs 84% a year ago

Extensive Distribution

Source: Company

Available at 30k+ outlets in the U.S., and Canada, including major retailers, airports, and pharmacy chains 

Financials (Year-End: June 30th)

Q1 revenue rose 1% YoY, missing our estimate by 2%

Canadian revenue remains pressured by softer sales of DHB’s licensed cannabis infused products

Gross margins fell 4 pp, missing our estimate by 2 pp; management cited channel, customer, and product mix, though details were not disclosed. We will monitor whether the decline is temporary or longer-term

* Historically, quarterly revenue has been volatile due to the timing of orders from large customers

SG&A expenses rose 9% YoY, in line with our estimate

Marketing expenses fell 8 pp YoY to 13% of revenue, following last year’s unusually high spend on a major marketing program; for context, industry peers spend 10–20% of revenue; we expect expenses to pick up in coming quarters, trending back toward last year’s ~15% level

Depreciation expenses fell as the company fully amortized its intangible assets and PPE. With no new CAPEX planned due to its asset-light business approach, we are lowering our depreciation estimates 

EPS turned positive: ($0.018) → $0.001, aided by higher revenue and lower marketing & depreciation expenses, while we were anticipating a small loss

Balance sheet strength remains intact

Source: Company Filings, FRC

No outstanding options/warrants are in-the-money

FRC Projections and Valuation

We now expect EPS to turn positive this year, supported by lower depreciation despite softer revenue

Source: FRC

As a result of lower revenue, our DCF valuation declined from $0.92 to $0.86/share

Comparables Valuation

Source: FRC / S&P Capital IQ

The average sector forward EV/Revenue is down 3% since our previous report in October

DHB is trading at a 54% discount to comparables

Using the average sector EV/Revenue, we arrived at a comparables valuation of $0.59/share (previously $0.62/share)

We are reiterating our BUY rating, while adjusting our fair value estimate from $0.77 to $0.73/share (the average of our DCF and comparables valuations). Valuation metrics suggest DHB remains modestly priced relative to peers. We believe DHB is well-positioned for growth through its strong distribution network, and planned M&A. Robust organic growth is expected, supported by rising awareness of sleep’s role in health, and expansion into new geographic markets.

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

We are maintaining our risk rating of 3 (Average)

APPENDIX