Initiation on Marley Spoon (MMM)
Marley Spoon (MMM) is a European based meal kit service provider founded in 2014. It sells and delivers meal kits containing ingredients it sources from producers and suppliers, and recipes it creates in-house, through a weekly subscription-based service to customers in Australia, United States and Europe.
MMM is managed by an entrepreneurial management team and led by Fabian Siegel who has experienced achievements in the global online restaurant food delivery service. Fabian was a co-founder of Delivery Hero, which is a EUR 33b global online restaurant food delivery service listed in Germany.
MMM’s reach of 190 million households today based on its existing fulfillment centers and logistics network provides great potential for growth given the currently low penetration of 0.2%.
We consider MMM a market leader given its relatively large scale with the only other global competitor who executes the same business model being HelloFresh, the first player in the meal kit sector generating 15X revenue compared with MMM.
MMM is currently in a 5-year strategic partnership with Woolworths (WOW) which enables the group to leverage capabilities including sourcing from WOW’s suppliers, using WOW’s logistics arms and marketing to WOW’s customers. This partnership provides MMM operating leverage and large customer base while providing understanding of online direct to consumer subscription service to WOW.
Marely Spoon’s financial metrics are supported by the structurally favourable benefits of a negative working capital model which underpins strong cashflow generation and attractive gross margins.
MMM is currently trading on a 12 month forward ~1 times Enterprise Value to Sales with positive net cash from operating activities less maintenance capital expenditure and the standstill marketing to fund further growth.
MMM share price fell sharply following the release of its 1H21 results which highlighted some supply chain challenges in its US operations. Notwithstanding this, the company re-affirmed guidance to deliver 30-35% year-on-year Net Revenue growth. The share price weakness has provided the opportunity to initiate a position in MMM and provides the portfolio exposure to a nascent growth category.
Reduce Healius (HLS)
HLS has benefited from a +200% uplift in COVID-19 PCR testing volumes in Australia since the March quarter 2021. Supported by the June Medicare data, we have also seen HLS’s base businesses in pathology and diagnostic imaging continue to show good growth on pre-COVID-19 levels. Compared to the same period in CY19 (Jan-Jun) and excluding COVID-19 testing, pathology and imaging for the whole healthcare sector achieved a 2-year compounded annual growth rate (CAGR) of 6.7% and 7.6%, respectively. HLS’s improving operational uplift has now been recognised in its strong share price performance over 2021.
We appreciate HLS’s strong fundamentals and improved balance sheet. However, given the 600 basis points in active weight for HLS in our Blended Australian Equities Portfolio, we have reduced our overweight position in HLS from ~6.2% to ~4.3%. We are using part of the proceeds from the sale of HLS to fund the new position in Marely Spoon (MMM).