During the COVID-19 pandemic, many people have increased their focus towards maintaining a healthy lifestyle. Jamieson Wellness (TSE:JWEL) is a Canadian company that is a leading manufacturer, distributor, and marketer of high-quality natural health products.
The health products include a line of branded vitamins, minerals, and supplement (VMS) products and certain over-the-counter remedies. Its brands include Jamieson, Smart Solutions, Progressive, Precision and Iron Vegan. The company was founded in 1922 and is available in more than 10,000 retail locations across Canada and major ecommerce platforms.
The company operates through a multi-channel distribution strategy that caters to grocery & drug stores, specialty stores (i.e., sporting goods), health food shops, wholesale clubs, big box retailers, and ecommerce. More recently, it has expanded into gas stations, convenience stores, and dollar stores. This large multi-channel distribution allows ample opportunitiesy for customers to purchase its products and also helps with growing awareness of the Jamieson brand.
I am bullish on Jamieson Wellness stock.
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Strong Domestic Business in Canada
Jamieson Wellness has strong brand and category penetration in the Canadian market. Jamieson household penetration increased 5% from 2015-2020. The current household penetration in Canada sits at around 40%, which represents a solid brand presence but also room for increased growth within VMS. The total VMS penetration is about 74%, but individual categories have room for more growth.
This strong presence in Canada acts as a positive testament to its high-quality products and lays the foundation for international growth. Competitors in the Canadian market include private label brands in large stores and other VMS brands across the industry.
International Business Growth
Apart from its strong Canadian presence, Jamieson has shown the ability to grow its brand internationally. The company currently sells Jamieson branded products in more than 45 countries worldwide. International sales is the fastest growing segment, with 20-25% guided growth on a constant currency basis.
This international revenue is coming from China, Eastern Europe, Middle East, and Southeast Asia. The international segment is expected to generate $55.4-57.9 million in revenue for 2021, which represents a growth rate of 7.5-12.5% from 2020. Historically speaking, Jamieson has shown a compound annual growth rate (CAGR) of 23.7% between 2016 and 2020.
A key international growth driver for the company is its presence in China. China stands to be its second largest international market at US$20 billion, mainly because Chinese consumers show a strong preference for foreign brands such as Jamieson. The company has planned to grow through cross-border e-commerce (CBEC) platforms, with over 175 SKUs in distribution currently. Furthermore, Jamieson has shown the ability to manage regulations and expand into the Chinese market through brick-and-mortar channels.
Moreover, Jamieson has successfully made a strategic partnership with Costco, which allows it to sell its products in the U.K., Iceland, Spain, France, Taiwan, and China, through Costco stores.
Capital Allocation
Since its IPO in 2017, Jamieson as a public company has demonstrated an excellent ability to allocate capital towards growth and returning capital to shareholders. Jamieson Wellness has shown a consistent revenue compound annual growth rate (CAGR) of 10.3% from 2017-2020 and a 8.3% CAGR from 2000-2020. In addition, the company has grown its dividend every year since its IPO, despite pandemic pressures, to an estimated dividend of $0.55 per share in 2021.
Another positive is the direction of its investments. The company has a consistent track record of investing into research and development (R&D): from 2017-2020, the company has shown on average 2.4% of total branded domestic revenue to be growth from innovations.
Also, from 2016-2020, the company made investments into driving increased efficiencies in the business, which resulted in a margin expansion of 3% from 2016-2020. In terms of acquired growth, the company has a disciplined criteria of $100M in revenues and 20% required IRR on its acquisitions.
This has shown that JWEL has the potential for long-term value creation for shareholders. In the last twelve months ending June 30, 2021, JWEL has produced an attractive return on equity (ROE) of 15.5%, which is higher than the ROE in previous years.
Bottom Line
The increased focus on health and vitamins during the pandemic positions Jamieson Wellness to benefit from this trend. In Canada, it has a leadership position and will likely continue to increase its household penetration.
Furthermore, the bulk of its growth runway is from international expansion, where the company has demonstrated considerable success in China and through global retail partnerships with Costco.
When it comes to management, the team has shown over two decades of growth and successful performance as a public company since its IPO in 2017, with investments in R&D and acquisitions fueling growth. This causes me to be bullish on the stock going forward.
What Analysts are Saying about JWEL Stock
From Wall Street analysts, JWEL earns a Strong Buy consensus rating, based on 3 Buy ratings and 0 Hold ratings. Additionally, the average JWEL price target of C$45.25 puts the upside potential at 16.6%.
Disclosure: The author works as a manager at National Bank Financial. The author had no position in any of the companies discussed in this article.
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