GURU Organic Energy Corp. (GURU:TSE) Second quarter fiscal 2022 (FY22) results were mixed, leading ROTH Capital Partners to lower its price target on the beverage company to C$14 per share “to reflect lower sales estimates and multiple compression”. analyst Sean McGowan reported in a June 15 research note. However, things are looking up for the beverage company.
GURU, which manufactures and sells organic energy drinks made from plant-based ingredients, currently trades at around C$9.53 per share.
On the positive side, GURU continues to grow its market share outside of Quebec, where it is headquartered, largely due to its successful launch of guayusa-based beverages. During the quarter, it increased its sales in the United States by 94%, beyond the 30% increase expected by ROTH. A 60% increase in consumer purchases in California and a 30% increase in the United States overall drove this growth. The volume has also increased in Canada, by a percentage of teenagers.
The company’s gross margin in the second quarter of FY22 was a beat, hitting 54.3% versus ROTH’s forecast of 52%, McGowan relayed. Gross margin, however, was lower than a year ago, when it was 62.7%, due to the impact of GURU’s change as Pepsi’s distribution partner.
The analyst expects GURU’s price increase from mid-May to “offset inflationary pressures, allowing the company to maintain class-leading gross profit margins,” it said. -he declares.
In addition, GURU is well positioned financially. The company had approximately C$53 million (C$53 million) in cash and short-term investments at the end of the second quarter of FY22.
“We believe this war chest will be enough to bring the business to the point of having positive EBITDA and operating cash flow, which we believe will occur in 2025,” McGowan wrote.
On the negative side, GURU’s overall sales in the second quarter of FY22 were 15% lower than ROTH’s estimate. GURU attributes this shortfall primarily to consumers purchasing fewer beverages due to ongoing COVID restrictions in schools and some workplaces.
Taking this trend into account, GURU decided to spend less on marketing in the second quarter than ROTH had expected and to double its spending and marketing efforts in the second half of the year. Already, the company has its first-ever cap campaign lined up for July at the stores of a major US retailer. McGowan is optimistic that this H2-focused marketing strategy will be successful.
The second half is “a seasonally stronger period which we believe should see a return to more ‘normal’ consumer buying patterns,” McGowan wrote.
As GURU sales in the second quarter of FY22 and valuation multiples for small cap beverage stocks have further contracted, ROTH has revised its future sales estimates and target price for GURU. ROTH now estimates GURU’s FY22 sales at around C$36.5 million, down from C$37.3 million previously, but is maintaining its buy rating on the beverage company.
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Disclosures for Roth Capital Partners, GURU Organic Energy, June 15, 2022
Regulatory Analyst Certification (“Reg AC”): The research analyst primarily responsible for the content of this report certifies the following under Reg AC: I hereby certify that all opinions expressed in this report accurately reflect my personal opinions on the company or companies concerned and its or their securities. I also certify that no part of my remuneration has been, is or will be, directly or indirectly, related to the specific recommendations or opinions expressed in this report.
General Disclosures: ROTH creates a marketplace in the stock of Celsius Holdings, Inc. and as such buys and sells clients on a principal basis.
ROTH Capital Partners, LLC expects to receive or intends to seek compensation for investment banking or other business dealings with the covered companies mentioned in this report within the next three months. Material, information and facts discussed in this report, other than information about ROTH Capital Partners, LLC and its affiliates, are from sources believed to be reliable, but are in no way guaranteed to be complete or accurate. This report should not be relied upon as a comprehensive analysis of the company, industry, or security discussed in the report. Additional information is available upon request. However, this is not an offer or solicitation of the securities in question. Any opinions or estimates contained in this report are subject to change without notice. An investment in the shares may involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Additionally, an investment in the stock may involve a high degree of risk and may not be suitable for all investors. No part of this report may be reproduced in any form without the express written permission of ROTH.