Marley Spoon AG

 

MMM Details
 
Surge in Demand due to COVID-19: Marley Spoon AG (ASX: MMM) is a subscription-based meal kit service provider, currently operating in Australia, the United States and Europe. In a recent announcement, the company updated that Pie Funds Management Limited became a substantial shareholder with a voting power of 5.05%. Perennial Value Management Limited also became a substantial shareholder with a voting power of 7.80%.
 
COVID-19 Update: In an announcement dated 24^th March 2020, the company updated the market about the surge in demand for its home delivered meal kits in all its markets. The sudden rise in demand came in as a result of the outbreak of coronavirus and subsequent measures taken by the government to curb the spread. The company has taken the necessary preventive measures to ensure health safety of the employees and customers. At the same time, the company has also expanded the workforce, to enable supply of food. The company has not faced any disruptions with respect to the food supply chain and has witnessed smooth border movements catering to food shortages or price increases across all its regions.
 
Financial Impact:As a result of the above rise in demand, the company expects Q12020 revenue to be above €42.0 million, depicting a growth of over 40% on the prior corresponding quarter. For the first quarter, the benefit of a surge in demand has been factored in the last two weeks. Going forward, the company expects the benefits to move into the second quarter along with the added advantage of a drop in customer acquisition costs and marketing expenses.
 
FY19 Full Year Results for the Period Ended 31^st December 2019: During the year, the company reported net revenue amounting to €130 million, representing a growth of 41% on the prior corresponding period. H2 revenue along was reported at €68 million, with a growth of 30% on pcp.Topline growth was supported by lower customer acquisition costs as a result of increase in active customers, basket size, and continued strong repeat purchases. Marketing expenses also reduced as a percentage of revenue for FY19 to 26%, from 33% in the prior corresponding year. Net loss for the period came in at 34.9 million euros, representing an improvement of €6.3 million on yoy basis. During the year, the company reported an improved performance in all its segments and has strong foundations in place to support robust revenue growth and an improving profit trajectory.
 

Income Statement (Source: Company Reports)
 
Outlook: During FY19, the company reported operating EBITDA of €29.7 million, with a first ever improvement in EBITDA reported in the second half. The trend is expected to continue in 2020 with the business transforming into an operating EBITDA positive by the end of the year.
 
Stock Recommendation: The stock of the company gave positive returns of ~182% and ~115% over a period of 3 months and 6 months, respectively. Currently, the stock is trading very close to its 52-week high level of $1.060. The company reported a strong performance in FY19, with revenue exceeding the guidance provided. Going forward, financial performance of the business will be benefitted from the surge in demand due to COVID-19. Considering the returns on stock and current trading levels, we are of the view that most of the positive factors have been discounted at the current levels and suggest investors to book profits. Hence, we give a “Sell” recommendation on the stock at the current market price of $1.0, up 5.82% on 7^th April 2020.

 
MMM Daily Technical Chart (Source: Thomson Reuters)

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