“Set and forget” status

In times of turbulence across equity markets, brought on by higher inflation and now interest rates, the analysts of CIBC World Markets John Zamparo and Mark Petrie view Jamieson Wellness Inc. (TSX—JWEL) as an ideal stock for investors to capture predictable earnings growth.


A safe haven from inflation

Founded in 1922 and headquartered in Toronto, Jamieson Wellness is a manufacturer, distributor and marketer of natural health products in Canada and in select international markets.

In the opinion of the analysts (as of May 6), the supplements and vitamins business that Jamieson Wellness provides continues to prove it can withstand heightened cost inflation. That gives it a “set-and-forget” status, they highlight. Meanwhile they say its brand power has international appeal.

While domestic industry growth should moderate, they suggest the company can take market share from China. Furthermore, they praise JWEL’s management team for its proven ability to not only operate but also accurately forecast in a challenging environment. Such reliability, they say, is uncommon, even within the consumer staples space.

Get your vitamins

Though the vitamins category should see more traditional growth (low-to-mid-single-digit) in 2022 and 2023, they believe this is sufficient for Jamieson to hit its guide of four-to-seven per cent growth in Canada.

Jamieson Brands’ gross margin expanded 189 basis points year-over-year in the first quarter of 2022, once again exhibiting JWEL’s ability to manage costs and pass on pricing. Another price increase is set for second-half 2022. Even if inflation continues to rise, the analysts foresee little risk of margin contraction.

FCF (free cash flow) conversion is on the rise. It has averaged just 23 per cent of EBITDA (earnings before interest, taxes, depreciation and amortization) from 2019 through 2021. But the analysts forecast conversion of 45 per cent this year and 52 per cent next year, potentially increasing the probability of larger dividend increases. It currently pays $0.60 a year, yielding 1.75 per cent.

Thus Messrs. Zamparo and Petrie maintain their conviction in JWEL, calling it their favourite name in their small-cap universe (it has a market capitalization of $1.34 billion). They also reiterate their “outperformer” recommendation for the company.

Moving up in China

Jamieson listed China as a primary source of international growth that reached 12 per cent in the first quarter. It is the company’s most important international market, but has low visibility.
Some investors have questioned the longevity of Chinese consumers’ affinity for Canadian brands. Messrs. Zamparo and Petrie do not yet view this as a risk, and expect the country to remain the largest source of international growth for some time.

John Zamparo and Mark Petrie are equity analysts for CIBC World Markets.

This is an edited version of an article that was originally published for subscribers in the June 3, 2022, issue of Investor’s Digest of Canada. You can profit from the award-winning advice subscribers receive regularly in Investor’s Digest of Canada.

Investor’s Digest of Canada, MPL Communications Inc.
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