New Zealand Professional Investment Services Firm, Forsyth Barr

Forsyth Barr

New Zealand Professional Investment Services Firm

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

Equity Bottom-Up

<h2>My Food Bag<br>FY21 Result&nbsp;— Delivered as Ordered</h2>
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<p><strong>OUTPERFORM</strong></p>
<p>My Food Bag's (MFB) debut result was in-line with guidance and provided no surprises, delivering normalised EBITDA of NZ$29m. More importantly, the first seven weeks of FY22 have also been in-line with expectations and MFB has reiterated its FY22 prospectus guidance (EBITDA NZ$34m). Underlying dynamics in the business are positive with MFB's customer mix shifting towards customers with higher utilisation and retention rates, and cost pressures being mitigated by better procurement and recipe flexibility. MFB has an appealing value proposition, strong customer loyalty, and is trading on a 12 month forward PE of 17x with a gross yield of 6.6%. We see current levels as attractive versus the wider market. OUTPERFORM.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/208/321/original/image_42442365971621815424811.png?1621815427" class="editor-image img-responsive" data-smartkarma-image-id="208321"></figure>
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<h3>Delivering to plan</h3>
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<p>MFB's FY21 result provided minimal surprises, slightly exceeding guidance while reaffirming FY22 prospectus forecasts. The key positive was slightly higher revenues driven by increased delivery volumes and average order value. This was partially offset by higher than expected marketing spend, albeit broadly in line as a percentage of revenue. Dividend guidance was also confirmed, with MFB expecting to pay an interim dividend of 3cps (full year 6.5cps).&nbsp;</p>
<p>MFB reported contribution profit of NZ$49m, up +49% on the prior year as revenue growth was compounded by margin expansion.&nbsp;MFB's&nbsp;FY21 contribution margin&nbsp;lifted +4.3 percentage points to 25.6% and tracked&nbsp;higher&nbsp;in 2H21 (28.2%), enabled by product procurement optimisation and improved contract terms. Further margin expansion is expected as new contracts are&nbsp;annualised.</p>
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<h3>Positive shift in customer mix&nbsp;</h3>
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<p>Customer dynamics were encouraging, with the mix of total active customers shifting towards a higher weighting of retained customers (as opposed to those who are recently acquired/reactivated). One driver of improved order frequency and retention rates was the launch of its My Choice product. Bargain Box Choice has now also been launched and is expected to provide further order frequency benefits in FY22. &nbsp;</p>
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<h3>Investment thesis unchanged, OUTPERFORM</h3>
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<p>With no notable changes in the underlying environment, and MFB meeting expectations thus far, we make no changes to our earnings outlook, with our investment view unchanged from our recent initiation note, A Winning Recipe? — Initiate at OUTPERFORM, published 8 April. We remain attracted to 1) its strong cash generation, 2) demographic trends towards convenience and online product offerings, and 3) future growth opportunities available through leveraging its brand equity into adjacent markets. An update on MFB's strategic initiatives is expected at its AGM in August.&nbsp;</p>
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<div>
<div><strong>Guy Hooper</strong></div>
<div><a href="mailto:guy.hooper@forsythbarr.co.nz" target="_blank" rel="noopener">guy.hooper@forsythbarr.co.nz</a></div>
<div>+64 4 495 5255</div>
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<div><strong>Ashton Olds, CFA</strong></div>
<div><a href="mailto:ashton.olds@forsythbarr.co.nz" target="_blank" rel="noopener">ashton.olds@forsythbarr.co.nz</a></div>
<div>+64 9 368 0127</div>
</div>
</div>

My Food Bag FY21 Result&nbsp;— Delivered as Ordered

OUTPERFORM
My Food Bag's (MFB) debut result was in-line with guidance and provided no surprises, delivering normalised EBITDA of NZ$29m. More importantly, the first seven weeks of FY22 have also been in-line with expectations and MFB has reiterated its FY22 prospectus guidance (EBITDA NZ$34m). Underlying dynamics in the business are positive with MFB's customer mix shifting towards customers with higher utilisation and retention rates, and cost pressures being mitigated by better procurement and recipe flexibility. MFB has an appealing value proposition, strong customer loyalty, and is trading on a 12 month forward PE of 17x with a gross yield of 6.6%. We see current levels as attractive versus the wider market. OUTPERFORM.


Delivering to plan


MFB's FY21 result provided minimal surprises, slightly exceeding guidance while reaffirming FY22 prospectus forecasts. The key positive was slightly higher revenues driven by increased delivery volumes and average order value. This was partially offset by higher than expected marketing spend, albeit broadly in line as a percentage of revenue. Dividend guidance was also confirmed, with MFB expecting to pay an interim dividend of 3cps (full year 6.5cps).&nbsp;
MFB reported contribution profit of NZ$49m, up +49% on the prior year as revenue growth was compounded by margin expansion.&nbsp;MFB's&nbsp;FY21 contribution margin&nbsp;lifted +4.3 percentage points to 25.6% and tracked&nbsp;higher&nbsp;in 2H21 (28.2%), enabled by product procurement optimisation and improved contract terms. Further margin expansion is expected as new contracts are&nbsp;annualised.


Positive shift in customer mix&nbsp;


Customer dynamics were encouraging, with the mix of total active customers shifting towards a higher weighting of retained customers (as opposed to those who are recently acquired/reactivated). One driver of improved order frequency and retention rates was the launch of its My Choice product. Bargain Box Choice has now also been launched and is expected to provide further order frequency benefits in FY22. &nbsp;


Investment thesis unchanged, OUTPERFORM


With no notable changes in the underlying environment, and MFB meeting expectations thus far, we make no changes to our earnings outlook, with our investment view unchanged from our recent initiation note, A Winning Recipe? — Initiate at OUTPERFORM, published 8 April. We remain attracted to 1) its strong cash generation, 2) demographic trends towards convenience and online product offerings, and 3) future growth opportunities available through leveraging its brand equity into adjacent markets. An update on MFB's strategic initiatives is expected at its AGM in August.&nbsp;



Guy Hooper
guy.hooper@forsythbarr.co.nz
+64 4 495 5255





Ashton Olds, CFA
ashton.olds@forsythbarr.co.nz
+64 9 368 0127



My Food Bag: FY21 Result — Delivered as Ordered

<h2>My Food Bag<br>A Winning Recipe?&nbsp;— Initiate at OUTPERFORM</h2>
<div></div>
<p><strong>OUTPERFORM</strong></p>
<p>We initiate coverage of My Food Bag (MFB) with an OUTPERFORM rating and a 12 month target price of NZ$1.85. MFB offers investors exposure to a developing segment of the defensive food retail space. We are attracted to 1) its strong cash generation, 2) demographic trends towards convenience and online product offerings, 3) future growth opportunities available through leveraging its brand equity into adjacent&nbsp;markets, and 4) trading at a -24% discount to the market we view current valuation as attractive. While the product premise appears similar to an online grocer, we believe meal kit providers are a lifestyle product and offer a value proposition to the customer beyond convenience and price, with room to further disrupt the traditional grocery and&nbsp;foodservice&nbsp;markets.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/199/426/original/image_5167512821617840955208.png?1617840960" class="editor-image img-responsive" data-smartkarma-image-id="199426"></figure>
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<h3>Activating the customer reservoir</h3>
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<div id="m_-4173333262724642596ih49i-2-2-2-2-2-2-2-2-2-2-2-2-2">
<p>MFB and other meal kit providers experienced a surge in customer acquisition and reactivation over the last 12 months, with greater adoption of the online convenience offering. Having served over 300,000 individual customers (c. 17% of New&nbsp;Zealand&nbsp;households), we expect customer acquisition growth for MFB to moderate. Deliveries, and therefore new growth, will be dictated by MFB’s ability to tap into its customer reservoir to maximise utilisation. We view shifts towards more flexible (My&nbsp;Choice) and goal based (Fresh Start) offerings as key drivers of the strategy.</p>
<p>Leveraging its brand, future growth opportunities exist through cross selling and expansion into additional channels/beyond food. While we recognise the significant market opportunity these represent, at this stage we do not expect to see a material contribution within the explicit forecast period and therefore represent upside to our base valuation.​​​​​​​</p>
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<h3>Margin expansion significant, but not out of step with peers</h3>
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<p>Near-term earnings growth is to be driven primarily&nbsp;by material margin expansion as a result of 1) improved product pricing, 2) favourable product mix changes,&nbsp;and 3) better procurement contract terms which are expected to unleash a material reduction in COGS per bag. Whilst the margin uplift is significant (FY19 contribution margin 21%, FY22E 29%), it is not out of step with global&nbsp;meal-kit peers, providing comfort in the prospectus forecasts.</p>
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<h3>Valuation attractive</h3>
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<div id="m_-4173333262724642596iwpzcf-2-2-2-2-2-2-2-2-2-2-2-2-2">
<p>MFB currently trades on a 12 month forward PE ratio of 17.5x&nbsp;on our estimates, a -24% discount to the market median (22.9x), which we view as attractive given its growth characteristics and strong cash generation. While there are a number of listed meal-kit companies, globally direct&nbsp;comparisons are difficult at this stage&nbsp;given the various growth stages and market exposures.&nbsp;HelloFresh&nbsp;(<a href="http://hfg.gr/" target="_blank" data-saferedirecturl="https://www.google.com/url?q=http://HFG.GR&amp;source=gmail&amp;ust=1617926977257000&amp;usg=AFQjCNFuyIkOhvVPcyb50gVfhafOI9a5Vg" rel="noopener">HFG.GR</a>), its closest competitor in New Zealand, trades on a 12 month forward PE ratio of 37.9x.&nbsp;</p>
</div>
<div>
<div>
<div><strong>Guy Hooper</strong></div>
<div><a href="mailto:guy.hooper@forsythbarr.co.nz" target="_blank" rel="noopener">guy.hooper@forsythbarr.co.nz</a></div>
<div>+64 4 495 5255</div>
<div></div>
</div>
</div>
<div>
<div>
<div><strong>Chelsea Leadbetter CFA</strong></div>
<div><a href="mailto:chelsea.leadbetter@forsythbarr.co.nz" target="_blank" rel="noopener">chelsea.leadbetter@<wbr>forsythbarr.co.nz</a></div>
<div>+64 4 495 5262</div>
<div></div>
</div>
</div>
<div>
<div>
<div><strong>Ashton Olds CFA</strong></div>
<div><a href="mailto:ashton.olds@forsythbarr.co.nz" target="_blank" rel="noopener">ashton.olds@forsythbarr.co.nz</a></div>
<div>+64 9 368 0127</div>
</div>
</div>

My Food Bag A Winning Recipe?&nbsp;— Initiate at OUTPERFORM

OUTPERFORM
We initiate coverage of My Food Bag (MFB) with an OUTPERFORM rating and a 12 month target price of NZ$1.85. MFB offers investors exposure to a developing segment of the defensive food retail space. We are attracted to 1) its strong cash generation, 2) demographic trends towards convenience and online product offerings, 3) future growth opportunities available through leveraging its brand equity into adjacent&nbsp;markets, and 4) trading at a -24% discount to the market we view current valuation as attractive. While the product premise appears similar to an online grocer, we believe meal kit providers are a lifestyle product and offer a value proposition to the customer beyond convenience and price, with room to further disrupt the traditional grocery and&nbsp;foodservice&nbsp;markets.


Activating the customer reservoir


MFB and other meal kit providers experienced a surge in customer acquisition and reactivation over the last 12 months, with greater adoption of the online convenience offering. Having served over 300,000 individual customers (c. 17% of New&nbsp;Zealand&nbsp;households), we expect customer acquisition growth for MFB to moderate. Deliveries, and therefore new growth, will be dictated by MFB’s ability to tap into its customer reservoir to maximise utilisation. We view shifts towards more flexible (My&nbsp;Choice) and goal based (Fresh Start) offerings as key drivers of the strategy.
Leveraging its brand, future growth opportunities exist through cross selling and expansion into additional channels/beyond food. While we recognise the significant market opportunity these represent, at this stage we do not expect to see a material contribution within the explicit forecast period and therefore represent upside to our base valuation.​​​​​​​


Margin expansion significant, but not out of step with peers


Near-term earnings growth is to be driven primarily&nbsp;by material margin expansion as a result of 1) improved product pricing, 2) favourable product mix changes,&nbsp;and 3) better procurement contract terms which are expected to unleash a material reduction in COGS per bag. Whilst the margin uplift is significant (FY19 contribution margin 21%, FY22E 29%), it is not out of step with global&nbsp;meal-kit peers, providing comfort in the prospectus forecasts.


Valuation attractive


MFB currently trades on a 12 month forward PE ratio of 17.5x&nbsp;on our estimates, a -24% discount to the market median (22.9x), which we view as attractive given its growth characteristics and strong cash generation. While there are a number of listed meal-kit companies, globally direct&nbsp;comparisons are difficult at this stage&nbsp;given the various growth stages and market exposures.&nbsp;HelloFresh&nbsp;(HFG.GR), its closest competitor in New Zealand, trades on a 12 month forward PE ratio of 37.9x.&nbsp;



Guy Hooper
guy.hooper@forsythbarr.co.nz
+64 4 495 5255





Chelsea Leadbetter CFA
chelsea.leadbetter@forsythbarr.co.nz
+64 4 495 5262





Ashton Olds CFA
ashton.olds@forsythbarr.co.nz
+64 9 368 0127



My Food Bag: A Winning Recipe? — Initiate at OUTPERFORM

New Zealand

My Food Bag Group Limited provides catering services. The Company offers food bags and meal kits. My Food Bag serves customers in New Zealand.

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My Food Bag Group Ltd (MFB NZ)

My Food Bag: FY21 Result — Delivered as Ordered

My Food BagFY21 Result — Delivered as Ordered OUTPERFORM My Food Bag's (MFB) debut result was in-line with guidance and provided no surprises,...

Forsyth Barr

My Food Bag: A Winning Recipe? — Initiate at OUTPERFORM

My Food BagA Winning Recipe? — Initiate at OUTPERFORM OUTPERFORM We initiate coverage of My Food Bag (MFB) with an OUTPERFORM rating and a 12...

Forsyth Barr

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