Turning Point Brands, Inc.

TPB Details

Turning Point Brands, Inc. (NYSE: TPB) is a producer, marketer, and distributor of branded consumer products, such as alternative smoking accessories and active-ingredient consumables, through its iconic core brands Zig-Zag and Stoker's, as well as its growing brands in the NewGen category. It sells its products in over 210,000 stores across North America and on www.zigzag.com, www.nu-x.com, and www.solacevapor.com. As of October 25, 2021, the company's market capitalization stood at USD 919.90 million.

Latest News:

• Share Repurchase Program: TPB stated that on October 25, 2021, it increased its share repurchase authorization by USD 30.7 million to USD 50.0 million, with about USD 19.3 million available for repurchases under its prior approval granted on February 25, 2020.
• FDA Revocation of MDO: The US Food and Drug Administration (FDA) informed TPB on October 11, 2021, that the agency revoked its September 14 Marketing Denial Order (MDO) for some of TPB's vapor products with pending Premarket Tobacco Product Applications (PMTAs) under consideration.

Q3FY21 Results:

• Minor Improvement in Revenues: The company's net sales increased by 5.50% to USD 109.90 million in Q3FY21 (ended September 30, 2021) compared to USD 104.17 million in Q3FY20.
• Progress in Bottomline: TPB witnessed an increase in consolidated net income to USD 13.44 million in Q3FY21 vs. USD 9.02 million in Q3FY20.
• Leveraged Balance Sheet: As of September 30, 2021, the company's cash balance was USD 130.55 million, and total debt amounted to USD 421.04 million.

Key Risks:

• Dependence on Third-Party Suppliers: TPB's activities heavily rely on a small number of long-term contracts with third-party suppliers and producers. As a result, any interruption in the company's connection with suppliers and producers and failure to renew contracts or the discovery of a new supplier might substantially influence the company's capacity to distribute product quantities, resulting in a drop in financial indicators.

Outlook:

• Revenue Estimate: TPB estimates FY21 net sales to be in the range of USD 433 – 443 million as of October 26, 2021, assuming double-digit solid sales growth for Zig-Zag products, mid-to-high single-digit sales increase for Stoker's products, and sales decline in NewGen products.
• Adjusted EBITDA and CAPEX: It also expects adjusted EBITDA to be in the range of USD 104 – 108 million, with a capital expenditure of USD 6 million.

• Q4FY21 Estimate: TPB anticipates net sales of USD 90 – 103 million in Q4FY21, with growth in the Zig-Zag and Stoker's segments and a double-digit decline in NewGen.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

TPB Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

TPB's share price has surged 47.62% in the past twelve months and is currently trading at a mid-band of the 52-week range of USD 31.27 to USD 61.08. The stock is currently trading above its 50 and 100 DMA levels, and its RSI Index is at 61.42. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 46.32.

Considering the significant uptick in the stock price, highly leveraged balance sheet, and weak Q3FY21 results, we believe the decent business fundamentals are adequately reflected at the current trading levels. Hence, we recommend a "Sell" rating on the stock at the closing price of USD 48.61 as of October 25, 2021.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

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