eResearch is pleased to publish an Initiation Equity Research Report on Organic Garage Ltd. (TSXV:OG).
You can download our 29-page Initiation Report by clicking on the following link: eR-OG-IR-2020-11-11_FINAL
We are Initiating Coverage with a Buy rating and a one-year price target of $0.30
COMPANY DESCRIPTION:
Organic Garage is an independent, Canadian chain of organic and natural product grocery stores that operate in Toronto and the Greater Toronto Area in southern Ontario, Canada. The Company focuses on providing customers with healthy choices at a low cost. Its ability to efficiently source organic products allows it to pass along the savings to customers. Its store concept checks multiple boxes with today’s food customer: healthy food, good value, small store convenience, and an overall premium shopping experience.
INVESTMENT HIGHLIGHTS:
- Recent COVID-19 sales bump should continue. With the upswing in food retail due to the stay-at-home measures from the current COVID-19 health crisis, Organic Garage recognized revenue increases in the past two quarters of 19% and 29% year-over-year. We believe this sales trend should continue for at least 3 more quarters.
- Online ordering and delivery strategy meet COVID-19 demands. The timing of the Company’s partnership with Cornershop was fortuitous in meeting the demand brought about by the COVID-19 health crisis. Online sales, currently representing 6.0% of total sales, should continue to increase.
- New Leaside store should increase revenue in CY2021 and beyond. The Company’s fifth store, slated to open in the first half of CY2021, should boost revenue by 10-20% in F2022 and 15-25% in F2023. After the new Leaside store is operational, Organic Garage plans to open a new store annually.
- Focus on cost savings should continue to improve margins. The Company leverages its strong relationships with its suppliers to keep prices low. Cost reductions implemented during F2020 and the shift to a decentralized distribution model should help with margins in F2021 and beyond.
- Experienced management team. Organic Garage has established a highly experienced team of professionals in the retail food industry.
- Valuation discount should improve. There is a valuation discount with its peers that we believe should lessen as revenue continues to uptick, online sales grow, margins continue to improve, and once the new Leaside store is open.
FINANCIAL ANALYSIS & VALUATION:
- We estimated Organic Garage’s financials as:
- F2021E: Revenue $29.5 million; EBITDA $2.2 million;
- F2022E: Revenue $32.7 million; EBITDA $3.2 million.
- We calculated an equal-weighted price per share of $0.28 from a multiple of 0.6x the one-year forward Revenue of $30.0M, a multiple of 9x the one-year forward EBITDA of $2.3M, and a DCF from a multiple of 9x the five-year forward terminal EBITDA of $3.9M of at a 10% discount rate.
We are Initiating Coverage with a Buy rating and a one-year price target of $0.30
You can download our 29-page Initiation Report by clicking on the following link: eR-OG-IR-2020-11-11_FINAL
CHART 1: Organic Garage 1-Year Stock Chart
