Sector financial performance:

This company, who primarily produces home and office delivery bottled water and office coffee has been grouped into non-alcoholic beverage sector.

Home and office bottled water and coffee delivery demand seems to be steady but, according a typical company, the sales grow at small pace to probably driven more by increasing price than by increasing volume.

Consolidation activities have been increasing in the past several years as companies pursued scale advantage to deal with increasing costs. The typical gross margin seems to be 50%, which generates 5% operating margin (2018).

Market values this sector with a very positive enterprise price/EBI ratio of about 60-70 (interest/EBITDA of 30%).

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Company performance:

It seems that this company continues to gain increase in sales by acquisition from its DDS and HOD bottled water segment. Demand for its coffee and tea related products seems to be declining in 2018. Data indicates that its sales from its traditional business including CSD, juice (shelf stable), or packaging manufacture had been continuingly decreasing between 2015 and 2017 due to decrease in sales volume and shifting of product mix away from  beverages. And this company sold its CSD and juice business eventually in early 2018.

For the first nine months of fiscal 2018 compared with same period of 2017(ended 20180929)

The net sales (excluding currency) of this company increased 5% primarily attributable to the increase in water delivery business resulted from acquisitions rising price offset by decrease in coffee &tea volume.

For fiscal 2017 compared with 2018

The net sales (excluding currency) of this company increased 39% primarily attributable to the increase resulted from acquisitions and increase in coffee volume.

The net sales ( excluding currency) of this company increased 33% in first half year of 2017 compared with the same period of 2016  primarily attributable to the increase resulted from acquisitions offset by decrease in private label CSD, juice, and packaging due to reduced sale volume and products mix. 

The net sales ( excluding currency) of this company increased 13% in 2016 compared with 2015  primarily attributable to the increase resulted from acquisitions offset by decrease in private label CSD, juice, and packaging due to reduced sale volume and products mix. 

The net sales ( excluding currency) of this company increased 45% in 2015 compared with 2014  primarily attributable to the increase resulted from acquisitions offset by decrease in private label CSD, juice, and packaging due to reduced sale volume and products mix. 

This company’ current gross margins is 50% presenting improvement from acquisition, spinning off, and shifting to packaging manufacturing, which has higher margin. Its operating margin is about 3.5%.

Stock price

This stock currently has an enterprise price/EBI ratio of about 60($14.6/share), which we think, is relatively overvalued considering its shrinking demand in coffee and tea solution product.