Are rising food costs taking a bite out of My Food Bag's profits? Photo / File
Analysts have mixed views on My Food Bag following its recent market update. The company indicated that while the business remained on track to meet revenue and earnings guidance, cost pressures were an increasing issue.
The meal kit company said its gross revenue (net of customer credits and discounts) for the half was $98.4 million and it made 808,000 deliveries for the period. Both figures were in line with expectations.
However, it added that the business had experienced inflationary pressure in recent months, particularly in ingredients and labour costs, and was having to pass that on to customers.
A big question for investors is what impact this will have on customer retention. The company is currently offering 30 per cent discounts to new sign-ups.
It's also worth remembering that My Food Bag's product disclosure statement issued ahead of its IPO this year talked about variable cost savings across the business.
The positive news in last week's market update was that the company has experienced some elevated demand due to the higher Covid alert levels in recent weeks.
At the end of the second quarter it had 76,875 active customers – up 3.3 per cent on the prior comparable period. And My Food Bag's "high value customer cohort" (those who have purchased at least 20 deliveries in the prior 12 months) increased at a similar rate.
Josh Dale, an analyst at Craigs Investment Partners, said in a research note that any concerns about the ability to retain customers acquired during the first lockdown last year have been well allayed.
But, he said the current lockdown appears substantially less beneficial to the company than the one in April 2020.
Dale also notes that aggressive discounting from My Food Bag in the first half to match rival Hello Fresh appears to have been ineffective as a method of efficiently acquiring customers.
The inflationary pressure from food prices, labour costs and Covid safety has resulted in a 5 per cent increase in its product price over the last few months – the same as competitor Woop.
Dale has downgraded his 12-month target price from $1.85 to $1.68 with a spot valuation of $1.59.
My Food Bag shares recently traded around $1.22 and have been a major disappointment since investors bought into the IPO in March at $1.85, allowing existing shareholders to sell down their holdings.
On the other hand, Andrew Steel at Jarden has maintained his target price of $1.80 a share with a buy rating. Jarden, which acted as joint lead manager of the IPO, declined to release Steel's latest report to Stock Takes.
Meanwhile Forsyth Barr, which was also a joint lead manager along with Craigs, ceased its coverage of the stock in early September.
Allbirds' initial public offer could go ahead as soon as next week, with market-watchers expecting news shortly.
The maker of environmentally friendly footwear and activewear, founded in 2006 by ex-All Whites captain and Wellington Phoenix player Tim Brown and renewables engineer Joey Zwillinger, applied to list on the Nasdaq in late August.
Its prospectus document did not say how much money it would seek to raise, and at what valuation, but last year it had a Series E round that raised US$100m at a private equity valuation of US$1.7 billion ($2.4b).
Allbirds made a net loss of US$25.86m for 2020, wider than the US$14.53m loss in the prior year as it booked higher costs associated with headcount, operations and digital advertising.
Its initial prospectus heavily talked up its offer as being the first sustainable initial public offer but earlier this month an amended document walked back some of the ESG commitments it made ahead of its planned market debut.
The San Francisco-based start-up said in its IPO prospectus in August that it would adhere to a "sustainability principles and objectives framework", which was developed with a consultancy group advised by academics, ratings agencies and charities.
However, in an update to the prospectus, filed with the US Securities and Exchange Commission, the company removed several key references to the framework. The number of references to the "SPO framework" in the document roughly halved, from 65 to 33.
Allbirds has faced questions over the genuine sustainability of its business. Its sneakers are made from naturally-derived materials and the company claims the carbon impact of making each pair is about 30 per cent less than that of its rivals.
However, it does not include the impact of shipping in the carbon footprint calculation, despite transporting materials around the world several times during the manufacturing process.
Allbirds faces a civil class-action lawsuit in the New York Southern District Court that alleges the brand has misled consumers with its sustainability claims. It has filed a motion to dismiss the suit.
Still, it seems that Kiwi investors are lining up to get a share of the company when it does list on the public market, with investment platform Hatch revealing it already has 11,000 on its waitlist to be kept updated on the listing.
Just days ahead of its investor day, a2 Milk could be set to face a second class-action lawsuit.
Shine Lawyers has reportedly launched an investigation on behalf of investors who purchased shares between August 19, 2020 and May 7, 2021.
In a statement to the stock exchange, a2 said it was aware of media reporting concerning a potential class-action against the company but it was not aware of any legal proceeding having been filed by Shine Lawyers at this time.
"The company considers that it has at all times complied with its disclosure obligations, denies any liability and will vigorously defend the proceedings. The company will respond further if and when any such legal proceedings are commenced."
Earlier this month Australian law firm Slater and Gordon filed a class claim against a2 Milk in relation to its disclosure over a nine-month period when it announced four earnings downgrades.
The claim, filed in the Supreme Court of Victoria, is being brought on behalf of shareholders who allegedly suffered losses after acquiring a2 Milk shares on the ASX and NZX between August 19, 2020 and May 9, 2021.
The class-action alleges that a2 Milk engaged in misleading or deceptive conduct in breach of the Corporations Act. The Company is also accused of breaching continuous disclosure rules in posting four downgrades on September 28 and December 18 last year, and February 25 and May 10 of this year.
A2 Milk has denied any liability and has said it will vigorously defend the proceeding.
The company is due to hold its investor day on Wednesday.
Next Wednesday is also expected to be the day the Electricity Authority will publish its review into competition in the wholesale electricity market.
The Electricity Authority has been reviewing competition in the spot and forward markets.
The review arose from concerns about the high spot prices seen this year due to dry year risks.
One fund manager noted there was some risk that this may point the spotlight at the gentailers.
The gentailers are already under pressure amid an investigation into the August 9 power outage, which saw 34,000 customers lose power during one of the coldest nights of the year.
An initial report released in September on the blackout found there were "ambiguous and at times unsatisfactory communication processes" at Transpower and a "miscalculation of demand response".
A phase of the August 9 review is ongoing and the the EA has recently published the terms of reference.
An upbeat annual meeting for Fletcher Building has failed to convince some analysts that it has handled the level 4 lockdown as well as it seems.
Chief executive Ross Taylor told the market on Tuesday that trading either side of the New Zealand lockdowns had been very solid, and at levels above the prior year.
"Provided New Zealand stays at these present lockdown levels or better, we would expect the trading conditions to remain above last year."
But Morningstar analyst Adrian Atkins said in a note that while management had highlighted the strong trading activity, he no longer expected historical high housing consents to lead to the 2022 full year being a bumper year.
"Rather, we now instead expect the boom in housing consents to provide a lasting benefit that bolsters our medium-term outlook."
Atkins modestly lowered his fiscal forecast for 2022 while slightly increasing his medium term forecasts on the company, leaving a $6 a share fair-value estimate on the stock.
That is well below analysts at Jarden and Forsyth Barr.
Jarden has a 12-month target price of $7.23 and a neutral rating while Forbarr is the most upbeat at $8.20 with an outperform rating.
Jarden analyst Grant Swanepoel noted the outlook for Fletcher's second half of its financial year implied that its margin would be impacted by lockdowns although the company was confident that its second-half margin would show good progress towards its 10 per cent EBIT margin target.
"The company's outlook implies healthy revenue growth and if our FY23 revenue estimate is achieved, then a 10 per cent EBIT margin would imply $880m. Jarden estimate for FY23 EBIT of $741m implies an 8.4 per cent margin – Bloomberg consensus at NZ$755m.
"If 2H22 achieves 9 per cent plus margin, the consensus upgrade cycle could potentially continue."
But he said the company remained at risk from rising mortgage rates affecting house-buyers' appetite, changing government plans to grow housing supply, company risk management on large contracts and momentum in Australia.
Meanwhile, Forbarr analysts said they continued to view Fletcher as attractive due to the multiple the stock was trading at, the strong outlook for construction activity and the company's balance sheet being in good shape.
Industrial projects dominate new supply, the study found, comprising 65% of new stock.