GreenSpace Brands Inc., an acquisition-hungry organic and natural food company, is attracting more interest from investors amid a steady consumer shift toward healthier eating.
Shares of the Toronto-based company, behind brands such as Love Child Organics, Central Roast, Nudge and Rolling Meadow Dairy, are up more than 65 per cent over the past year.
The company has an $80-million market cap and is covered by seven analysts, all of which have a "buy" recommendation on the stock, according to Bloomberg. The analyst consensus price target for GreenSpace Brands over the next 12 months is $2.12, implying a premium of 40 per cent from the current share price of about $1.50.
Analysts like the company for its established brands and growing list of potential takeover targets in the health-food space.
"It's growing and there's a lot of runway for continued growth," says Bob Gibson, an analyst with PI Financial, who has a $1.95 target on the stock.
Analysts also like the company's experienced management team, including chief operating officer Aaron Skelton, a former manager at Loblaw Cos. Ltd., who is helping GreenSpace's brands get good placement in mainstream grocery stores.
"You have a company that's doing the right things: They've identified where they want to be in the space and now they're building on those platforms," says AltaCorp Capital analyst Keith Carpenter, who has a $2.20 target on the stock.
He also points to the company's growing margins and revenue.
"Right now it's a revenue and earnings growth story," Mr. Carpenter says.
Risks include competition, which is intense in the grocery aisle. The company also needs to keep costs down and maintain good relationships with retailers carrying its products. What brands it buys next, and how it incorporates those into the business, are also risks.
"There is a huge pipeline of potential acquisitions," says GreenSpace chief executive officer Matthew von Teichman, who started the company, formerly known as Life Choices Natural Food Corp., about 15 years ago.
It went public in May, 2015, with four brands; Life Choices, Rolling Meadow Dairy, Holistic Choice for pets and a now discontinued line, Yamba Yogurts. Also in 2015, GreenSpace acquired Love Child, a company that became well-known after its appearance during season eight of CBC TV's Dragons' Den, and Central Roast. Its most recent acquisition was Nothing But Nature, an organic juice company behind the Kiju brand.
Mr. von Teichman says the company is looking to make two or three acquisitions a year, ranging in value from about $2-million to $15-million. The size of the deal will grow as the company grows, Mr. von Teichman says. GreenSpace is aiming to hit $100-million in annual sales in the next 18 months or so, which is about double its current volume.
The bigger GreenSpace gets, the more attractive it will be as a takeover target, analysts say.
"It is both possible and likely that eventually someone comes and makes an offer on the business," Mr. von Teichman says, pointing to the many large U.S. consumer products companies buying smaller players like his – at big premiums.
"I think once we get to scale, we'll see those same companies show a lot of interest in us. It hasn't happened yet. We aren't having any dialogue. It just makes sense that their attention would come over to a business like ours at some point – when we get to a certain size."
Meantime, investors shouldn't expect GreenSpace to start paying a dividend any time soon.
"In the short term, our view is that we want to use any free cash and any capital that we generate for acquisitions and to continue to grow the brands we have," Mr. von Teichman says.
Bruce Campbell, portfolio manager at StoneCastle Investment Management, has owned GreenSpace shares on and off since it went public. He sold his stake again a couple of months ago, taking some profit, but remains interested in the stock.
"If it pulled back we would certainly look at it," Mr. Campbell says. " It's an interesting story, but the stock doesn't get the respect it could if it had a little bit higher margins."
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