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