heatguy - i would like to take casey's post (numbers) a little further and put some meat on the bones. in order to do so - i am looking for some information on SSS (same store sales). this is a long, detailed post so for any of those that get glossed over on more than five lines - skip over.
from casey's post: "100 dealers X 100 stores = 10,000 stores. Even at an average of 1 shot per day for each location it equals $12,500 in revenue for HJOE each day based on $1.25 per shot (what the dealer pays HJOE). That's $4,562,500 in revenue for HJOE in a year."
heatguy - i realize some of this might be too much to share but i will try to stay away from anything proprietary or strategic information.
on the 70% counter placement - is that in the stores you currently have and/or the overall goal of the 100+ stores you are targeting? probably the biggest question in terms of long term viability/revenue generation - what type of turns are you seeing at the current stores? early trial results presented by the company and what i had individually confirmed was around a case to case and half a week IF placed by/near the counter/register. this would be 12-18 bottles a week or closer to 2 bottles a day vs. one bottle a day (which would effectively double casey's #s). since you/your customers are new it may be too early to really know but this will be critical for the company/investors moving forward.
lets go half way and say 1.5 bottles/day and call Casey's # and even $6MM in revenues for 100 dealers*100 stores/dealer * 1.5 bottles/day * $1.25/bottle * 365 days/year = $6.84MM revs/year in dealer network. (company/SMS goal is closer to 300 stores/dealer)
CK is $10MM/3 years and per original contract - would ramp up. obviously that was delayed from 2015 and only 1-2 shipments went out but assuming that is still moving forward per company tweets late 2015 (early 4Q15?), lets assume $1.5MM in rev for 2016. Canada was announced several times as well as starting 2016. dont have a feel for that but lets assume a very conservative $0.5MM rev for 2016. (if US is showing close to $7MM thru dealer network in ramp up - this should be conservative.)
for the sake of numbers - lets say the US dealer network is 50% there by end of 2016 so take originaly $6.84 and scale it down by half to take into account roll out so $3.42MM.
finally - if HJOE gets around 50% of SMS contract fees and there are 100 dealers by year end (which money is paid up front) - all that would show upas revenues for 2015. if min dealer contract is $24.8K - lets assume avg (considering larger markets which would be 3-5X that) would be closer to $40K. if HJOE gets half of that that is $20K/dealer * 800 dealers = $1.6MM (looks like 20 -25dealers or so were sgined in 2015).
that gives: $3.42MM dealer rev + $1.5MM CK + $0.5MM Canada + $1.6MM dealer contract rev = $7.02MM in 2016 which does not include legacy contracts (such as CoreMark, 7/11, Walgreens, etc), ignores vending as i will lump that into dealer revenue in general, other countries (which really will be hard to provide a real estimate for sales in 2016), and any other large, retailers/c store type of deals (which if signed - wouldnt realistically generate substantial revenues until at least 2H16). Again, this also assumes dealer network does not generate full year revenues due to ramp up.
lets assume current OS is 1.9BB based on last reported and apparent dilution after last filing (1.8BB and dilution seemed to stop shortly thereafter). further assume they are successful in court and no further shares are diluted/converted for the sake of argument.
current market cap would be 1.9BB shares * 0.0018 = $3.42MM
that would make forward looking P/s multiple )Market cap/Revenue or Stock Price/per share Revenue) of $3.42MM / $7.02 = 0.49 Now – subjectivity comes into play when assigning a P/s multiple premium but fast growing companies often get 4-10X P/s based on expected, accelerating growth. At low end – assigning 4X P/s would mean current share price is 8X undervalued which would make fair value (on a forward looking revenue basis of $7.02MM in 2016) at $0.0018 * 4X/0.49 P/s = $0.015 PPS. If one went on the higher range at 10X P/s – that would be $0.37 PPS.
Lets assume 2017 revenues based on: 100 dealers with 300 stores/dealer doing 2 bottles/day (including both recovery and energy avgs) at $1.25/bottle * 365 days/year that providing annual revenues of $27.38MM rev/year (as they are fully up and running). CK avg $3MM/year. Canada around $3MM. Dealer contract rev would trend towards $0/year (as successful dealers would not be replaced by SMS for non performance). Let say remaining countries (Europe, SE Asia,) would be $3MM /year)
That provides revenues of $27.38 + $9MM = $36.75. using current market cap of$3.42 and applying 5X P/s multiple gives fair value (today on a 24 month forward looking basis):
P/s = $3.42 market cap / $36.75 MM for value of 0.093.
FV SP is $0.0018 * 5X/0.093 = $0.097 PPS
However, if company starts clearly trending towards that $5-10MM annual rev in 2016 – it WILL catch the attn of the big retail chains and WILL start discussions in earnest.
Now – any of these valuations are predicated on share structure remaining at/@ 1.9BB or less and revenues ramping up accordingly. We do know that 20-25 dealers have been signed and are active/ramping up. We do know another 10-12 are in the process since beginning of the year (scheduled for training). Product IS showing up in areas all over the country and the pace is accelerating. This suggests several things: first and foremost – the brand is viable. Second – the dealer network through SMS is viable and proliferating. Third, company should finally get the leverage to get traditional financing making the toxic debt go away faster/more cleanly.
Company was regularly lambasted about the SMS dealer network. It is proving its merit. I posted previously that the real driver of success is personal responsibility/customer service for the SMS model. A CoreMark rep doesn’t care if individual products sell or not. The will focus on big movers and turns as they are driven by commissions. They want a product that is already a seller – not one they have to babysit (I deal with this in my everyday job routinely). The SMS model customizes this one product for the individual stores. They stock, refresh, merchandise (which is absolutely key – and by this I mean set up displays, POS material, etc), and work directly with biz owner to make the product successful (which is where counter placement or elsewhere become critical).
So – back to Heatguy – if you can provide some further insight (albeit limited due to still early in the scale up of being a dealer) on product turns at earliest stores signed up and if these bottles/week/store numbers are legit – than the rest of the numbers speak for themselves.
Next – we can look at PE ratios. Veal put expected all in costs per bottle around $0.40 (as they ramp up). If they are getting ($1.25-0.40) $0.85 bottle GM (or $0.85/1.25 = 68% GM) they are looking at $36.75MM rev * 68% or $24.99MM GP for 2017. Assume min of 50% overhead and that leaves $12.5MM in NP. Throw in advertising at $3-5MM/year as they scale up national efforts and leaves around $9MM in Net Income. Due to carried deficits – there would be no tax liability (due to offsets) for first several years of profitable growth.
So $9MM in earnings (or $9MM * 0.6 EBITDA assuming 40 % tax) / 1.9BB gives an EPS of $0.0047. so forward looking PE ratio based on price of $0.0018 would be $0.0018/$0.0047 or 0.38. PE ratios are more defined and a PE ratio for this group would be around 15-30 depending on growth. Lets assume 20 which would give FV of current PPS of $0.0018 * 20/0.38 or $0.095 PPS which is pretty close to the P/s multiple of 5X.
So – if the company can avg 1.5-2 bottles a day per store and gets to that target of 100 dealers (in 100 largest markets), they maintain $1.25/bottle price, AND share structure remains at 1.9BB – one can rationally argue the price is currently, seriously undervalued. The R/s threat is gone. Now the company needs to eliminate the CD boogeyman, squarely finance the company for this growth, and verify these revenue numbers (through SEC filings) and stock price will certainly follow. My assumption is as these things become more clear and/or likely to happen, speculation on such will move the price ahead of the actual happenings.
I believe the company has a strong defense against the lenders that will limit/eliminate additional shares in the OS. I think current sales thru dealers and dealer signups provide legitimacy to the brand/strategy. I think the combination of these will finally allow the company to get traditional/attractive financing that will allow for the growth and finally eliminate the toxic debt (through settlement or otherwise). For these reasons and the numbers above, this is why I bought in heavy early on and why I continue to buy on major sell offs.
from casey's post: "100 dealers X 100 stores = 10,000 stores. Even at an average of 1 shot per day for each location it equals $12,500 in revenue for HJOE each day based on $1.25 per shot (what the dealer pays HJOE). That's $4,562,500 in revenue for HJOE in a year."
heatguy - i realize some of this might be too much to share but i will try to stay away from anything proprietary or strategic information.
on the 70% counter placement - is that in the stores you currently have and/or the overall goal of the 100+ stores you are targeting? probably the biggest question in terms of long term viability/revenue generation - what type of turns are you seeing at the current stores? early trial results presented by the company and what i had individually confirmed was around a case to case and half a week IF placed by/near the counter/register. this would be 12-18 bottles a week or closer to 2 bottles a day vs. one bottle a day (which would effectively double casey's #s). since you/your customers are new it may be too early to really know but this will be critical for the company/investors moving forward.
lets go half way and say 1.5 bottles/day and call Casey's # and even $6MM in revenues for 100 dealers*100 stores/dealer * 1.5 bottles/day * $1.25/bottle * 365 days/year = $6.84MM revs/year in dealer network. (company/SMS goal is closer to 300 stores/dealer)
CK is $10MM/3 years and per original contract - would ramp up. obviously that was delayed from 2015 and only 1-2 shipments went out but assuming that is still moving forward per company tweets late 2015 (early 4Q15?), lets assume $1.5MM in rev for 2016. Canada was announced several times as well as starting 2016. dont have a feel for that but lets assume a very conservative $0.5MM rev for 2016. (if US is showing close to $7MM thru dealer network in ramp up - this should be conservative.)
for the sake of numbers - lets say the US dealer network is 50% there by end of 2016 so take originaly $6.84 and scale it down by half to take into account roll out so $3.42MM.
finally - if HJOE gets around 50% of SMS contract fees and there are 100 dealers by year end (which money is paid up front) - all that would show upas revenues for 2015. if min dealer contract is $24.8K - lets assume avg (considering larger markets which would be 3-5X that) would be closer to $40K. if HJOE gets half of that that is $20K/dealer * 800 dealers = $1.6MM (looks like 20 -25dealers or so were sgined in 2015).
that gives: $3.42MM dealer rev + $1.5MM CK + $0.5MM Canada + $1.6MM dealer contract rev = $7.02MM in 2016 which does not include legacy contracts (such as CoreMark, 7/11, Walgreens, etc), ignores vending as i will lump that into dealer revenue in general, other countries (which really will be hard to provide a real estimate for sales in 2016), and any other large, retailers/c store type of deals (which if signed - wouldnt realistically generate substantial revenues until at least 2H16). Again, this also assumes dealer network does not generate full year revenues due to ramp up.
lets assume current OS is 1.9BB based on last reported and apparent dilution after last filing (1.8BB and dilution seemed to stop shortly thereafter). further assume they are successful in court and no further shares are diluted/converted for the sake of argument.
current market cap would be 1.9BB shares * 0.0018 = $3.42MM
that would make forward looking P/s multiple )Market cap/Revenue or Stock Price/per share Revenue) of $3.42MM / $7.02 = 0.49 Now – subjectivity comes into play when assigning a P/s multiple premium but fast growing companies often get 4-10X P/s based on expected, accelerating growth. At low end – assigning 4X P/s would mean current share price is 8X undervalued which would make fair value (on a forward looking revenue basis of $7.02MM in 2016) at $0.0018 * 4X/0.49 P/s = $0.015 PPS. If one went on the higher range at 10X P/s – that would be $0.37 PPS.
Lets assume 2017 revenues based on: 100 dealers with 300 stores/dealer doing 2 bottles/day (including both recovery and energy avgs) at $1.25/bottle * 365 days/year that providing annual revenues of $27.38MM rev/year (as they are fully up and running). CK avg $3MM/year. Canada around $3MM. Dealer contract rev would trend towards $0/year (as successful dealers would not be replaced by SMS for non performance). Let say remaining countries (Europe, SE Asia,) would be $3MM /year)
That provides revenues of $27.38 + $9MM = $36.75. using current market cap of$3.42 and applying 5X P/s multiple gives fair value (today on a 24 month forward looking basis):
P/s = $3.42 market cap / $36.75 MM for value of 0.093.
FV SP is $0.0018 * 5X/0.093 = $0.097 PPS
However, if company starts clearly trending towards that $5-10MM annual rev in 2016 – it WILL catch the attn of the big retail chains and WILL start discussions in earnest.
Now – any of these valuations are predicated on share structure remaining at/@ 1.9BB or less and revenues ramping up accordingly. We do know that 20-25 dealers have been signed and are active/ramping up. We do know another 10-12 are in the process since beginning of the year (scheduled for training). Product IS showing up in areas all over the country and the pace is accelerating. This suggests several things: first and foremost – the brand is viable. Second – the dealer network through SMS is viable and proliferating. Third, company should finally get the leverage to get traditional financing making the toxic debt go away faster/more cleanly.
Company was regularly lambasted about the SMS dealer network. It is proving its merit. I posted previously that the real driver of success is personal responsibility/customer service for the SMS model. A CoreMark rep doesn’t care if individual products sell or not. The will focus on big movers and turns as they are driven by commissions. They want a product that is already a seller – not one they have to babysit (I deal with this in my everyday job routinely). The SMS model customizes this one product for the individual stores. They stock, refresh, merchandise (which is absolutely key – and by this I mean set up displays, POS material, etc), and work directly with biz owner to make the product successful (which is where counter placement or elsewhere become critical).
So – back to Heatguy – if you can provide some further insight (albeit limited due to still early in the scale up of being a dealer) on product turns at earliest stores signed up and if these bottles/week/store numbers are legit – than the rest of the numbers speak for themselves.
Next – we can look at PE ratios. Veal put expected all in costs per bottle around $0.40 (as they ramp up). If they are getting ($1.25-0.40) $0.85 bottle GM (or $0.85/1.25 = 68% GM) they are looking at $36.75MM rev * 68% or $24.99MM GP for 2017. Assume min of 50% overhead and that leaves $12.5MM in NP. Throw in advertising at $3-5MM/year as they scale up national efforts and leaves around $9MM in Net Income. Due to carried deficits – there would be no tax liability (due to offsets) for first several years of profitable growth.
So $9MM in earnings (or $9MM * 0.6 EBITDA assuming 40 % tax) / 1.9BB gives an EPS of $0.0047. so forward looking PE ratio based on price of $0.0018 would be $0.0018/$0.0047 or 0.38. PE ratios are more defined and a PE ratio for this group would be around 15-30 depending on growth. Lets assume 20 which would give FV of current PPS of $0.0018 * 20/0.38 or $0.095 PPS which is pretty close to the P/s multiple of 5X.
So – if the company can avg 1.5-2 bottles a day per store and gets to that target of 100 dealers (in 100 largest markets), they maintain $1.25/bottle price, AND share structure remains at 1.9BB – one can rationally argue the price is currently, seriously undervalued. The R/s threat is gone. Now the company needs to eliminate the CD boogeyman, squarely finance the company for this growth, and verify these revenue numbers (through SEC filings) and stock price will certainly follow. My assumption is as these things become more clear and/or likely to happen, speculation on such will move the price ahead of the actual happenings.
I believe the company has a strong defense against the lenders that will limit/eliminate additional shares in the OS. I think current sales thru dealers and dealer signups provide legitimacy to the brand/strategy. I think the combination of these will finally allow the company to get traditional/attractive financing that will allow for the growth and finally eliminate the toxic debt (through settlement or otherwise). For these reasons and the numbers above, this is why I bought in heavy early on and why I continue to buy on major sell offs.
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