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 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):
We are maintaining our risk rating of 3 (Average)
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