Disclosure: Delivra Health Brands Inc. has paid FRC a fee for research coverage and distribution of reports. See last page for other important disclosures, rating, and risk definitions.
Price Performance (1-year)
*See important disclosures at the bottom of this report rating and risk definitions. All figures in C$ unless otherwise specified.
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+
In Q3-FY2024, revenue was up 31% YoY, aligning with our estimate. Both brands reported robust sales growth. Gross margins were down 1 pp, but 1 pp higher than our estimate
EBITDA, EPS, and FCF improved due to higher revenue. EBITDA was 2% higher than our estimate
Marketing expenses increased 1 pp YoY to 13% of revenue, but remained significantly lower than the 20%-35% range of comparables. Maintains a reasonably healthy balance sheet
According to management, their focus on digital marketing allows them to maintain a low budget; nonetheless, we believe DHB must raise its marketing budget to remain competitive with its peers.
We believe near-term revenue growth will be driven organically, plus licensing fees from Canopy. We are raising our 2025 and long-term EBITDA and EPS forecasts slightly, driven by higher gross margins
As a result, our DCF valuation increased from $0.09 to $0.10/share
The average sector forward EV/Revenue is up 17% since our previous report in February 2024.
DHB is trading at a 21% discount (previously 28%) relative to its comparables
Using the average sector EV/Revenue, we arrived at a comparables valuation of $0.06/share (previously $0.05/share
We are reiterating our BUY rating, and raising our fair value estimate from $0.07 to $0.08/share (the average of our DCF and comparables valuations). Shares are trading at a 67% discount relative to the average sector EV/Revenue of 3.1x. Anticipating record revenue this year driven by organic growth, and new product launches, we believe EBITDA will turn positive next year. We believe these developments will improve market sentiment, serving as catalysts for the share price.
We believe the company is exposed to the following key risks (not exhaustive):
