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>A Winning Recipe?&nbsp;— Initiate at OUTPERFORM</h2>
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<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>
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<h3>Activating the customer reservoir</h3>
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<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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<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>
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<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>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>
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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>
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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: 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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