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.
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Price Performance (1-year)
Overview
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)
Q2-FY2025 revenue grew 34% YoY, missing our estimate by 4%. Nonetheless, the quarterly recovery is encouraging, given that Q1 revenue was down 10% YoY
Historically, quarterly revenue has been volatile due to the timing of orders from large customers. Gross margins were down 9 pp, driven by a higher proportion of low-margin product sales, but were in line with our estimate
Marketing expenses were up 5 pp YoY to 21% of revenue, compared to 10%-20% for industry peers (Source: S&P Capital IQ). SG&A expenses were up 4% YoY, primarily due to higher head count
Higher marketing expenses impacted EBITDA, EPS, and free cash flows
Healthy balance sheet. No outstanding options/warrants are in-the-money
FRC Projections and Valuation
It is estimated that the global sleep aids market will grow from US$78B in 2024, to US$163B in 2034, reflecting a CAGR of 5.4%
It is estimated that the U.S. pain management therapeutics market will grow from US$28B in 2024, to US$39B by 2033, reflecting a CAGR of 3.7%
As Q2 revenue was slightly lower than expected, we are lowering our full-year revenue and EPS estimates
As a result, our DCF valuation declined from $0.98 to $0.91/share
Comparables Valuation
DHB is among the most undervalued stocks on our list of companies focused on Personal Care products. The average sector forward EV/Revenue is down 15% since our previous report
DHB is trading at a 79% discount to comparables. Using the average sector EV/Revenue, we arrived at a comparables valuation of $0.55/share (previously $0.70/share)
We are reiterating our BUY rating, while adjusting our fair value estimate from $0.90 to $0.74/share (the average of our DCF and comparables valuations). We were pleased to see revenue rebound in Q2, albeit at a slightly slower pace than expected. Although higher marketing expenses weighed on EPS, we believe they will pay off in H2, and drive growth alongside new product launches. We anticipate the US$ will remain strong in the near term, benefiting DHB as 75% of revenue comes from the U.S. The current valuation indicates the market is not recognizing the company's growth potential.
Risks
We are maintaining our risk rating of 3 (Average)
We believe the company is exposed to the following key risks (not exhaustive):
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