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 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
Financials (Year-End: June 30th)
Q3-FY2025 revenue grew 1% YoY, in line with our estimate. Growth continues to be driven by Dream Water product sales in the U.S., and the Middle East
Canadian revenue continues to be impacted by softer sales of cannabis-infused LivRelief topical creams; management is currently developing a renewed marketing strategy to revitalize sales of these products. Gross margins were down 3 pp, driven by a higher proportion of low-margin product sales, missing our estimate by 1 pp
SG&A expenses were up 4% YoY, primarily due to higher head count. In FY2025 (9M), marketing expenses were up 5 pp YoY to 18% of revenue, compared to 10%-20% for industry peers (Source: S&P Capital IQ)
Lower gross margins, and higher G&A expenses impacted EBITDA, EPS, and free cash flows. Healthy balance sheet
No outstanding options/warrants are in-the-money.
FRC Projections and Valuation
Although Q3 revenue was in line with expectations, higher-than-anticipated expenses prompted us to raise our full-year expense forecast, and lower our EPS estimate accordingly. As a result, our DCF valuation decreased from $0.91 to $0.87/share
Comparables Valuation
DHB remains one of the most undervalued stocks on our list within the Personal Care products sector. The average sector forward EV/Revenue is up 3% since our previous report
DHB is trading at a 61% discount to comparables. Using the average sector EV/Revenue, we arrived at a comparables valuation of $0.57/share (previously $0.55/share
We are reiterating our BUY rating, while adjusting our fair value estimate from $0.74 to $0.72/share (the average of our DCF and comparables valuations), due to lower near-term EBITDA estimates.
While higher marketing expenses have pressured near-term profitability, product launches, and an expanding market presence, position the company well for FY2026. The company trades at a significant valuation discount to peers, especially since it operates in an industry which benefits from the growing awareness of the importance of sleep.
Risks
We believe the company is exposed to the following key risks (not exhaustive):
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