good natured Products (TSXV:GDNP) is a Compelling Growth Story: Ubika Research

Equity Research | Plastics and Packaging | Canadian Small Cap August 15, 2018
Alp Erdogan | Senior Analyst | Ubika Research Alp@UbikaResearch.com | 1 (647) 479-5690
William Xiao | Associate | Ubika Research William@UbikaResearch.com | 1 (647) 828-4632

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Market Data (TSXV:GDNP)

Price (August 9, 2018 close): $0.13

52 Week Range $0.08 – $0.15

Market Cap (M) $12.7M

Shares Outstanding93.9M

Free Float 67%

Average Daily Volume (3 months) 58K

Total Debt$5.7M

Cash:$4.7M

Total Assets:$6.9M

Revenue (FY2016)$2.1M

Revenue (FY2017)$3.2M

Revenue (FY2018E)$4.6M

Headquarters Vancouver, BC., Canada

Website www.goodnatured.ca/

Top Shareholders

Yaletown Ventures II, LP26.1%

Paul Antoniadis5.3%

Management and Insiders 2%

Michael Thomson1.0%

Jim Zadra0.4%

Noel Harvey0.2%

Management

Paul AntoniadisCEO & Executive Chair

Don HolmstromCFO & EVP

Michael Labonté CTO

Noel HarveyVP – Business Development

Kevin LeongVP – Finance & Operations

Jim Zadra Director: Finance & Audit Commitee Chair

Salil MunjalDirector: Member of Audit & Finance

Michael ThomsonDirector: Member of Audit & Finance

Tom HaglinOwner & President of LINDAR Corp

William RiesbeckBoard Observer: President of Ex-Tech Plastic

Jon RobyAdvisor: Independent

Micheal FeolaAdvisor: Independent

Price Performance

good natured Products Inc. (TSXV:GDNP)

Bioplastics: Disrupting the Petro-Chemical Plastic Market, One Package at a Time

Company Description: good natured® Products Inc. (TSXV:GDNP) develops eco-friendly and renewable bioplastic (plant-based) packaging and products. The Company’s primary value proposition is to source and develop proprietary plant-based materials, and then make products utilizing the highest possible percentage of renewable content, as opposed to traditional petroleum-based plastics. Currently, the Company targets high growth in the bioplastics space by leveraging the increasing demand for plant-based packaging and products. Offering a suite of over 130 products, GDNP serves more than 100 national, regional and small business retailers, food producers & packaging distributors.

Investment Highlights

  • Only pure-play stock for eco-friendly and renewable plastics. The Company’s largest competitors are petroleum plastics packaging and product manufacturers and resellers. For good natured® the most comparable industry sectors are container packaging and durable consumer goods. As the only Canadian small-cap growth stock in the space, good natured® offers investors a compelling story with an attractive risk/reward profile for the next 12-24 months.
  • Amazon.com’s acquisition of Whole Foods sparked the emergence of many smaller companies that want to fight in the ready-to-eat (“prepared foods”) space. Prepared food packaging constitutes the good natured® key product offering, enabling a significant first-mover advantage opportunity to access growth vehicles and make acquisitions. As opposed to the overall packaging industry, which has a 3% CAGR, ready-made meal products have grown at a rate of 30%. Prepared food products offer the highest margins for the Company, as the average luxury meal prices could range from $13 – $18. Today, there are an estimated 22 companies in Vancouver producing or delivering prepared foods to homes or offices. The Company projects that the online delivery market will generate $100M to $200M in the Vancouver market alone. GDNP is laser-focused on this highgrowth segment and we expect the Company to launch new innovative packaging designs & assortments to serve the space, in addition to its existing extensive product offerings of 100 different food packages.
  • The global packaging market is expected to grow to $998 billion by 2020, with an implied CAGR of 3.5%. In addition, the U.S. home organizational market was $16B in 2016 and has grown at a rate of 5% CAGR since 2012. To illustrate the growing concern for eco-friendly products, out of 688 billion lbs. of globally produced plastics, less than 14% are actively recovered from our recycling bins. As such, increasing government regulations on the industry and robust demand for environmentally-friendly products are expected to be the key growth levers in the sector.

Financial Analysis & Valuation

On a relative valuation basis, good natured Products Inc. currently trades at 3.2x forward EV/Sales, a discount to the 6.2x commanded by its industry peers. We believe that at current levels, GDNP shares have an attractive risk/reward profile, given the embedded growth profile in the next 12-24 months.

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