Key Points: – The Duckhorn Portfolio is being acquired by private equity firm Butterfly in an all-cash deal valued at $1.95 billion, offering a 65.3% premium to shareholders. – The acquisition will return Duckhorn to private ownership and includes popular luxury wine brands such as Decoy, Sonoma-Cutrer, Kosta Browne, and Duckhorn Vineyards. – Butterfly, a private equity firm with a focus on the food and beverage industry, aims to accelerate Duckhorn’s growth, adding it to a portfolio that includes companies like QDOBA and Chosen Foods.
The Duckhorn Portfolio (NYSE: NAPA), a leading luxury wine producer, announced that it has entered into a definitive agreement to be acquired by Butterfly, a private equity firm, in an all-cash transaction valued at $1.95 billion. This acquisition marks a significant milestone for Duckhorn, which will transition from a public to a private company.
Transaction Details and Shareholder Premium
As part of the deal, Duckhorn shareholders will receive $11.10 per share, representing a 65.3% premium over the volume-weighted average stock price for the 90-day period ending on October 4, 2024. Duckhorn originally went public five years ago, and this acquisition will once again return the company to private ownership. The transaction is expected to close this winter, subject to customary regulatory approvals and closing conditions.
Duckhorn’s board will have the right to terminate the agreement if a better proposal from a third party is made during the 45-day “go-shop” period, which expires on November 20, 2024.
Continued Growth for Duckhorn’s Premium Brands
The Duckhorn Portfolio, established in 1976, is recognized as a premier luxury wine producer in the United States, with popular brands like Decoy, Sonoma-Cutrer, Kosta Browne, and Duckhorn Vineyards. The company reported fiscal year sales growth of 0.7%, reaching $406 million through July 2024. With distribution to over 50 countries, Duckhorn has cemented its position as a leader in the high-end wine market.
This transaction is expected to accelerate the company’s growth and expansion under Butterfly’s ownership. Butterfly’s strategy of partnering with leading food and beverage companies aligns with Duckhorn’s ambitions to expand its luxury wine portfolio.
Butterfly’s Expanding Food and Beverage Investments
Butterfly is a private equity firm focused on investments in the “seed-to-fork” food ecosystem across North America. Its diverse portfolio includes companies like Milk Specialties Global, Chosen Foods, MaryRuth Organics, and QDOBA. Butterfly’s goal is to collaborate with category-leading food and beverage businesses and deliver consistent returns for its investors.
This deal also marks the third time Duckhorn has been under private equity ownership. GI Partners initially invested in Duckhorn in 2007, while TSG Consumer Partners took control in 2016 for approximately $600 million before the company filed for an IPO in 2021.
Key Points: – Mars acquires Kellanova for $36 billion, creating a snacking powerhouse – Deal combines iconic brands like M&M’s, Snickers, Pringles, and Pop-Tarts – Merger aims to boost market share and navigate changing consumer trends
Mars Inc. has announced its acquisition of Kellanova for a staggering $36 billion, sending shockwaves through the global snack industry. This landmark deal, the largest of 2024, is set to reshape the landscape of the packaged food sector and create a snacking behemoth that combines some of the world’s most beloved brands.
The all-cash transaction, which values Kellanova at $83.50 per share, represents a significant 33% premium over the company’s recent stock price. This bold move by Mars, the family-owned confectionery giant, signals a strategic push to expand its snacking platform and strengthen its position in an increasingly competitive market.
As consumers continue to reach for convenient, branded snacks despite economic pressures, this merger capitalizes on the enduring appeal of household names. The deal brings together Mars’ iconic candies like M&M’s and Snickers with Kellanova’s popular offerings such as Pringles, Cheez-It, and Pop-Tarts. This diverse portfolio positions the combined entity to cater to a wide range of snacking preferences and occasions.
Mars CEO Poul Weihrauch emphasized the company’s commitment to maintaining price stability, stating, “We hope to be able to absorb more costs in our structure and help alleviate the issues we have in an inflationary environment.” This consumer-friendly approach could help the newly formed snacking powerhouse navigate the challenges of price-sensitive shoppers and increased competition from private label brands.
The merger also presents exciting opportunities for global expansion. Kellanova’s strong presence in Africa opens new doors for Mars to introduce its confectionery products to the continent. Conversely, Mars’ established foothold in China could pave the way for Pringles to significantly expand its reach in the world’s most populous market.
Industry analysts view this deal as a potential catalyst for further consolidation in the packaged food sector. As companies seek to achieve economies of scale and enhance their competitive edge, we may see more strategic acquisitions and mergers in the near future.
However, the road ahead is not without challenges. The combined company will need to navigate changing consumer preferences, including a growing demand for healthier snack options. Mars has indicated that about half of its portfolio will consist of “wholesome” snacks, such as low-calorie Special K, Kind bars, and Nutri-grain, addressing this trend.
Another potential hurdle is the impact of weight loss drugs like Ozempic and Wegovy on snack consumption. While Mars currently has no plans to develop products specifically for users of these medications, the company’s diverse portfolio may help mitigate any potential downturn in certain product categories.
As the deal moves forward, subject to regulatory approvals, the snack industry watches with bated breath. The creation of this new snacking giant is poised to reshape market dynamics, influence product innovation, and potentially redefine the way we indulge in our favorite treats.
With the transaction expected to close in the first half of 2025, consumers and investors alike are eager to see how this sweet merger will transform the future of snacking. As Mars and Kellanova join forces, one thing is certain: the snack aisle will never be the same again.
Key Points: – Starbucks replaces CEO Laxman Narasimhan with Chipotle’s Brian Niccol. – The move comes amidst struggling sales and pressure from activist investors. – Niccol’s successful track record at Chipotle raises hopes for Starbucks’ turnaround.
Coffee giant Starbucks (NASDAQ: SBUX) has announced a major leadership change, replacing CEO Laxman Narasimhan with Chipotle’s (NYSE: CMG) Brian Niccol. This unexpected move sent Starbucks’ stock soaring over 20%, marking its best day since its 1992 IPO.
The coffee chain’s board of directors had been contemplating this change for several months, according to Starbucks’ lead independent director Mellody Hobson. The decision comes as Starbucks faces challenges in its two largest markets, the United States and China, with same-store sales declining 3% in the latest quarter.
Niccol, who has led Chipotle since 2018, brings a wealth of experience in the restaurant industry. Under his leadership, Chipotle’s stock surged an impressive 773%, defying industry trends with climbing traffic and sales even as other restaurants reported consumer spending pullbacks.
The transition marks a pivotal moment for Starbucks, which has been grappling with weakening demand and operational issues. Former CEO Howard Schultz, who handpicked Narasimhan as his successor, had recently penned an open letter addressing the company’s challenges without mentioning Narasimhan by name.
Activist investors have also been circling the coffee behemoth. Elliott Management and Starboard Value both recently acquired stakes in Starbucks, adding pressure for change. Elliott’s managing partner Jesse Cohn and partner Marc Steinberg called the CEO switch “a transformational step forward for the Company.”
Niccol’s appointment is seen as a strategic move to leverage his expertise in digital ordering and operational efficiency. At Chipotle, he successfully implemented a second assembly line for mobile orders and introduced “Chipotlanes” for digital order pickup, addressing issues similar to those plaguing Starbucks’ mobile ordering system.
The leadership change also signals Starbucks’ board’s reluctance to engage in deals with activist investors. Despite Elliott’s offer of a settlement that would have protected Narasimhan’s position, the board moved forward with the CEO switch without prior notification to the hedge fund.
Starbucks’ CFO Rachel Ruggeri will serve as interim CEO until Niccol officially takes the reins on September 9. The coffee chain’s shares had fallen 21% during Narasimhan’s tenure, excluding the recent surge following the announcement.
As Starbucks embarks on this new chapter, all eyes will be on Niccol to see if he can replicate his Chipotle success and breathe new life into the struggling coffee giant. With his track record of navigating challenging market environments and driving digital innovation, expectations are high for a swift turnaround in Starbucks’ fortunes.
In a new development that’s set to shake up the casual dining landscape, Darden Restaurants has announced its acquisition of Tex-Mex chain Chuy’s Holdings for approximately $605 million. This all-cash deal, revealed on Wednesday, July 17, 2024, marks Darden’s strategic entry into the vibrant Tex-Mex dining category and significantly expands its already impressive restaurant portfolio.
Under the terms of the agreement, Darden will acquire all outstanding shares of Chuy’s at $37.50 per share, representing a substantial premium over recent trading prices. The acquisition is expected to close during Darden’s fiscal second quarter, subject to customary closing conditions.
Darden, the powerhouse behind popular chains such as Olive Garden, LongHorn Steakhouse, and the recently acquired Ruth’s Chris Steak House, has long been a dominant force in the casual dining sector. With the addition of Chuy’s, Darden is poised to diversify its offerings and tap into the growing demand for authentic Tex-Mex cuisine.
Founded in Austin, Texas, in 1982, Chuy’s has built a loyal following with its made-from-scratch Tex-Mex dishes and quirky, eclectic restaurant atmospheres. The chain has expanded to 101 locations across 15 states, generating over $450 million in total revenues for the 12 months ended March 31, 2024. This impressive growth trajectory and strong brand identity caught the eye of Darden’s leadership.
Rick Cardenas, CEO of Darden Restaurants, expressed enthusiasm about the acquisition, stating, “Based on our criteria for adding a brand to the Darden portfolio, we believe Chuy’s is an excellent fit that supports our winning strategy.” Cardenas highlighted Chuy’s strong performance and growth potential as key factors in the decision.
The acquisition brings more than just a new cuisine to Darden’s table. It also adds 7,400 team members to the Darden family, further solidifying the company’s position as a major employer in the restaurant industry. This influx of talent and expertise in the Tex-Mex category could prove invaluable as Darden looks to expand Chuy’s reach.
For Chuy’s, the acquisition represents an opportunity to accelerate growth and reach new markets. Steven Hislop, CEO of Chuy’s, shared his excitement about the deal, saying, “Together we will accelerate our business goals and bring our authentic, made-from-scratch Tex-Mex to more guests and communities.”
The market’s reaction to the news was swift and significant. Chuy’s stock surged by 47.61% following the announcement, reflecting investor enthusiasm for the premium offered by Darden. Conversely, Darden’s stock saw a 3.37% dip, a common occurrence for acquiring companies as the market adjusts to the news of a major purchase.
This acquisition comes at a time when the restaurant industry is seeing increased consolidation as companies seek to diversify their portfolios and achieve economies of scale. Darden’s move to acquire Chuy’s is a prime example of this trend, as it allows the company to enter a new dining category without the need to build a brand from scratch.
As the dust settles on this major deal, all eyes will be on Darden to see how it integrates Chuy’s into its operations and leverages its resources to drive growth. For Chuy’s loyal customers, the hope is that the chain will maintain its unique character and quality while benefiting from Darden’s extensive industry experience and resources.
With this strategic acquisition, Darden Restaurants has not only added a flavorful new dimension to its portfolio but has also positioned itself to capitalize on the enduring popularity of Tex-Mex cuisine in the American dining landscape.
In a strategic move to bolster its position in the North American specialty food market, Lassonde Industries Inc. has announced an agreement to acquire Summer Garden Food Manufacturing for $235 million USD. This acquisition marks a significant step in Lassonde’s ambition to become a more diversified food and beverage powerhouse in North America.
Summer Garden, operated by The Zidian Group and based in Boardman, Ohio, is a renowned manufacturer and distributor of premium sauces and condiments. With a workforce of approximately 200 employees, the company has built a strong reputation for its high-quality products, including pasta sauces, BBQ sauces, dipping sauces, and dressings. The acquisition brings popular brands such as Gia Russa, Little Italy in the Bronx, and G Hughes – a leader in the sugar-free BBQ sauce segment – under the Lassonde umbrella.
The deal structure includes an initial payment of $235 million USD at closing, with the potential for additional payments of up to $45 million USD over the next three years, contingent on meeting certain financial targets and conditions. This approach aligns the interests of both parties and incentivizes continued growth and performance.
Financially, the acquisition appears promising for Lassonde. Summer Garden reported impressive figures for the 12-month period ending May 2024, with sales of $148 million USD and adjusted EBITDA of approximately $27.9 million USD. Lassonde expects the transaction to be accretive to margins and earnings, even before considering potential synergies. The company also anticipates that the acquisition’s internal rate of return will exceed its weighted-average cost of capital, indicating a sound financial investment.
Moreover, the transaction structure allows Lassonde to benefit from tax deductibility, generating an estimated $30 million USD in net present value. Post-acquisition, Lassonde projects its pro forma net debt to adjusted EBITDA ratio to remain under 2.20 to 1, providing ample room for future strategic initiatives.
Nathalie Lassonde, CEO and Vice-Chair of Lassonde’s board of directors, emphasized the strategic importance of the acquisition, stating that it supports the company’s ambition to diversify and grow its specialty food activities. She also highlighted the cultural alignment between the two family-owned businesses, noting their shared entrepreneurial spirit and commitment to stakeholders.
For Summer Garden, this acquisition ensures the continuation of its legacy under the stewardship of a larger, like-minded organization. Thomas Zidian, President and CEO of Summer Garden, expressed confidence that the partnership would benefit customers through enhanced products and offer employees new opportunities for development and advancement.
The acquisition is expected to close within 30 to 45 days, subject to regulatory clearance and other closing conditions. Lassonde plans to finance the transaction through its available credit facilities, demonstrating its strong financial position and commitment to growth.
This move by Lassonde Industries represents a significant consolidation in the specialty food sector and aligns with broader trends of larger food and beverage companies expanding their portfolios through strategic acquisitions. By integrating Summer Garden’s products, brands, and manufacturing capabilities, Lassonde is poised to enhance its market presence, diversify its product offerings, and potentially realize operational synergies.
As the food industry continues to evolve, with consumers increasingly seeking premium, specialized products, this acquisition positions Lassonde to capitalize on these trends and reinforce its status as a leading player in the North American food and beverage landscape.
FAT Brands (NASDAQ: FAT) is a leading global franchising company that strategically acquires, markets, and develops fast casual, quick-service, casual dining, and polished casual dining concepts around the world. The Company currently owns 17 restaurant brands: Round Table Pizza, Fatburger, Marble Slab Creamery, Johnny Rockets, Fazoli’s, Twin Peaks, Great American Cookies, Hot Dog on a Stick, Buffalo’s Cafe & Express, Hurricane Grill & Wings, Pretzelmaker, Elevation Burger, Native Grill & Wings, Yalla Mediterranean and Ponderosa and Bonanza Steakhouses, and franchises and owns over 2,300 units worldwide. For more information on FAT Brands, please visit www.fatbrands.com.
Joe Gomes, Managing Director, Equity Research Analyst, Generalist , Noble Capital Markets, Inc.
Joshua Zoepfel, Research Associate, Noble Capital Markets, Inc.
Refer to the full report for the price target, fundamental analysis, and rating.
New Development Deals. FAT Brands has announced a number of new development deals. We view these announcements positively as they highlight the continued interest by existing and new franchisees for the Company’s portfolio of restaurant themes. The new deals add to the existing 1,100+ pipeline of new locations.
Co-Branding Deal. FAT Brands announced a new development deal to open 40 new franchised Fatburger locations across Northern California in partnership with franchisee California Burger, Inc. Fatburger will be added to 40 existing Round Table Pizza locations over the next 10 years with the first location set to open in 2024.
Equity Research is available at no cost to Registered users of Channelchek. Not a Member? Click ‘Join’ to join the Channelchek Community. There is no cost to register, and we never collect credit card information.
This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).
*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary. Proper due diligence is required before making any investment decision.
FAT Brands (NASDAQ: FAT) is a leading global franchising company that strategically acquires, markets, and develops fast casual, quick-service, casual dining, and polished casual dining concepts around the world. The Company currently owns 17 restaurant brands: Round Table Pizza, Fatburger, Marble Slab Creamery, Johnny Rockets, Fazoli’s, Twin Peaks, Great American Cookies, Hot Dog on a Stick, Buffalo’s Cafe & Express, Hurricane Grill & Wings, Pretzelmaker, Elevation Burger, Native Grill & Wings, Yalla Mediterranean and Ponderosa and Bonanza Steakhouses, and franchises and owns over 2,300 units worldwide. For more information on FAT Brands, please visit www.fatbrands.com.
Joe Gomes, Managing Director, Equity Research Analyst, Generalist , Noble Capital Markets, Inc.
Joshua Zoepfel, Research Associate, Noble Capital Markets, Inc.
Refer to the full report for the price target, fundamental analysis, and rating.
NobleCon19. FAT Brands Chairman Andy Wiederhorn presented at NobleCon19. Highlights included a review of organic growth, the potential monetization of Twin Peaks, and the manufacturing facility. A rebroadcast is available at https://www.channelchek.com/videos/fat-brands-noblecon19-replay.
Organic Growth. With 96 restaurants opened through the end of 3Q, FAT Brands remains on track to open between 130-150 new locations in 2023. The organic pipeline exceeds some 1,100 locations, with 145 already lined up for opening in 2024. Organic growth alone could generate an additional $50 million of annual adjusted EBITDA by 2025.
Equity Research is available at no cost to Registered users of Channelchek. Not a Member? Click ‘Join’ to join the Channelchek Community. There is no cost to register, and we never collect credit card information.
This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).
*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary. Proper due diligence is required before making any investment decision.
Instacart experienced a red-hot debut on the public markets as shares soared 40% in its first day of trading. The grocery delivery pioneer opened at $42 per share on the Nasdaq exchange, well above its IPO price of $30.
The opening trade valued Instacart at nearly $14 billion, up from the $10 billion valuation set by its IPO pricing on Monday. Demand from investors seeking exposure to the future of grocery commerce drove the shares sharply higher out of the gate.
Trading volume was heavy early on, with over 18 million shares changing hands in the first 30 minutes. The stock traded as high as $47.57 at its peak, showcasing strong appetite for the newly minted public company.
Instacart (CART) raised $420 million through the IPO by selling 14.1 million shares, representing just 8% of its total outstanding shares. Existing shareholders also sold 7.9 million shares in the offering for liquidity.
The blockbuster debut delivered significant returns for IPO participants during a volatile time for tech stocks. But Instacart’s valuation remains below the $39 billion mark it reached at the height of pandemic demand in 2021, reflecting more measured recent tech valuations.
Still, the strong first day pop is a promising sign for Instacart as it embarks on the public market journey. The company priced its offering conservatively to allow room for an impressive inaugural rally.
The offering adds Instacart to the ranks of publicly traded ecommerce innovators disrupting traditional retail models. It joins the likes of DoorDash, Uber, and Amazon in leveraging technology to unlock the potential of online grocery delivery.
Instacart is at the forefront of transforming the $1 trillion grocery industry through its on-demand digital marketplace. Its platform connects customers with personal shoppers who handle orders from partner grocers and deliver items in as fast as an hour.
Founded in 2012 by an Amazon veteran, Instacart was early to recognize the coming wave of grocery ecommerce. The company scaled rapidly when the pandemic accelerated adoption of online ordering and delivery.
Instacart seized its first-mover advantage to emerge as a leader in the space. It has partnered with prominent national, regional, and local grocers to build a retail network covering over 85% of U.S. households.
The company aligned with shifting consumer preferences for convenience and digital experiences. Busy lifestyles and smartphone ubiquity make grocery delivery a killer app of modern ecommerce.
Instacart smartly invested to expand services like fast unstaffed delivery and self-service pickup. Its Instacart Ads platform also lets brands promote products through sponsored listings.
The company rapidly grew revenue to over $7 billion in 2021 during the pandemic-driven surge. More recently it has focused on boosting profitability as demand normalizes post-Covid.
Instacart generated $14 billion in gross merchandise volume in 2021. Its net revenue neared $2 billion, doubling from 2020. But losses have narrowed dramatically since the company turned EBITDA positive last year.
As the first major tech IPO of 2023, Instacart’s trading provides a blueprint for startups and venture investors awaiting public debuts this year. The initial reception indicates persistent investor appetite for innovative tech names with strong growth narratives.
The blockbuster debut opens an exciting new chapter for Instacart and the future of digital grocery. Its first trading day validated Instacart’s pioneering business model and resilient growth prospects.
Consumer foods giant J.M. Smucker has agreed to purchase bakery company Hostess Brands for $5.6 billion in a major food industry acquisition. The deal will expand Smucker’s snacks and sweets portfolio with the addition of iconic Hostess brands such as Twinkies, Ding Dongs, and Donettes.
Under the terms of the acquisition, Smucker will pay $34.25 per share for Hostess in a cash and stock deal. This represents a premium of about 20% over Hostess’ closing share price on Friday. Smucker will also take on approximately $900 million of Hostess’ debt.
For Smucker, the deal provides an avenue for growth as demand for its key categories like jam and peanut butter has slowed. Twinkies and other Hostess snacks can tap into rising consumer appetites for nostalgic comfort foods. The acquisition also boosts Smucker’s presence in the in-store bakery section and convenience stores.
Meanwhile, Hostess Brands has faced slipping sales volumes after raising prices to offset inflationary pressures. As growth stalled, larger rivals circled with takeover interest to tap into the strong consumer awareness of brands like Twinkies. Hostess ultimately opted for Smucker’s buyout offer.
The transaction comes amid a wave of deal-making in the food industry, as companies look to acquisitions for expansion. With the Hostess deal, Smucker follows in the footsteps of rivals like Campbell Soup, Mars, and Unilever which have all acquired brands in recent months to spur growth.
The Hostess acquisition is expected to close in January 2024 after customary approvals. It will add an estimated $1.4 billion in Hostess net sales to Smucker’s portfolio upon completion.
Take a look at Fat Brands Inc., a leading global franchising company that acquires, markets and develops fast casual and casual dining restaurant concepts around the world.
Blockchain Beyond Cryptocurrency: The Potential of Distributed Ledger Technology
Does blockchain have a future beyond crypto? Since its beginning as the underlying technology for Bitcoin (BTC) and later other cryptocurrencies, blockchain has been the necessary, behind-the-scenes, engine that allow these fintech currencies to function. Dogecoin (DOGE), Ethereum (ETH), and even the 18 G20 countries developing a central bank digital currency (CBDC) need blockchain to exist.
But what non-finance industries are being impacted or will be disrupted by blockchain? It is not with exaggeration to say blockchain has the power to revolutionize various industries and redefine everyday transactions, manage data, and establish trust. Long-term investing requires knowledge of current trends and where the future may take them. Below we explore many of the possibilities of blockchain aside from cryptocurrency and delve into its promising future.
What is Blockchain?
At its core, blockchain is a decentralized (no single control) and immutable (unable to be changed) ledger that records activity across multiple computers. This distributed character replaces the need for institutional intermediaries to ensure transparency, security, and efficiency. A person or an entity can function, even across borders directly, without the need for a middleman. Verification of activity is recorded and remains a part of a blockchain ledger.
Uses beyond cryptocurrency, or the speculative investment that crypto and non-fungible tokens (NFT) have become, include health care, finance, voting, real estate titles, and smart communities.
Health Care
The HIPAA Privacy Rule sets national standards to protect individuals’ medical records and other identifiable health information. It applies to health plans, healthcare clearinghouses, and healthcare providers that conduct certain medical transactions electronically. The purpose is to keep data ownership from improperly being passed and to maintain privacy in the industry. Current centralized systems are not able to meet the many needs of patients, health service providers, insurance companies, and governmental agencies. Blockchain technology enables a decentralized system for access control of medical records where all stakeholders’ interests are protected.
Blockchain systems not only allow healthcare service providers to securely share patients’ medical records but patients may also track who has accessed their records and determine who is authorized to do so. If blockchain-driven, all transactions can become transparent to the patient.
And blockchain-powered interoperability can enable the seamless sharing of medical data between healthcare organizations, improving patient care, research, and drug development.
Supply Chain Management
Complex global supply chains involve numerous stakeholders, some sending, others receiving, and others verifying the source of food or products. Verifying the authenticity and improving traceability of products can be a challenging task. Blockchain’s ability to create an immutable record of every transaction and movement along the supply chain enables transparency and accountability. A company will be able to securely track the origin, manufacturing process, and movement of goods. Consumers can be equipped with verified information, among other benefits, this will increase trust and reduce the risk of receiving counterfeit products.
Storing information regarding movement on a blockchain improves integrity, accountability and traceability. For example, IBM’s Food Trust uses a blockchain system to track food items from the field to retailers. The participants in the food supply chain record transactions in the shared blockchain, which simplifies keeping track.
Entertainment Products
As technology has allowed greater reproduction and distribution, including music and art, blockchain may provide creators with more control over their work. The whole entertainment industry may undergo a significant transformation with blockchain technology. Artists can tokenize their efforts, creating a digital certificate of ownership that can be bought, sold, and shared on blockchain platforms. This will enable artists to have tight control over their intellectual property, receive fair compensation, and even establish a direct connection with their followers. Beyond ownership infringement, blockchain can facilitate transparent royalty distribution, this could ensure that artists receive their rightful earnings without an intermediary and the cost that comes with anyone getting in the middle of a transaction.
The Energy Sector
Blockchain is likely to play a transformative role in all forms of energy. As renewable energy sources continue their trend, blockchain can enable peer-to-peer energy trading. Individuals and organizations will be able to directly exchange surplus energy with those expecting an energy deficit. This could create a decentralized energy market.
Smart contracts executed on the blockchain can automatically verify and settle transactions, ensuring transparency. This democratization of energy, if broadly implemented, could accelerate the adoption of sustainable practices, provide energy where needed, and reduce waste.
Governments
While the government is often the intermediary that the blockchain makes less needed or unneeded, recognizing the potential of blockchain to enhance transparency and efficiency in public services may become its greatest use. Land registries, taxation, voting systems, and identity certainty can all be improved through blockchain’s tracking and tamper-resistant design. Immutable records of land ownership can reduce disputes and increase trust in property transactions. Digital identities stored on a blockchain can streamline processes such as passport verification and border control, making them more secure and efficient. Blockchain-based voting systems have the potential to eliminate voter fraud, ensuring fair and transparent elections.
Potential
Much of what is described above has either barely been implemented or has not been put to use. This is a period in any technological advancement when most long-term investors would like to be involved. Efficiencies and improved products are poised to help the industries mentioned, and pure blockchain companies, large and small, can benefit from developing uses for their technology.
Despite its potential, blockchain technology still faces challenges. Scalability, energy consumption, and regulatory frameworks require further development and refinement. However, ongoing research and collaborations among businesses, academia, industry, and policymakers are actively finding avenues around these concerns, driving the maturation of blockchain technology.
Take Away
Blockchain is still in its infancy, and industries are just becoming aware of its power to help them. As the paradigm shifts, it could become a technology businesses could not imagine doing without. Blockchain’s decentralized, transparent, and secure nature makes it a powerful tool for revolutionizing healthcare, supply chain management, entertainment, governing, and energy sectors. As the technology evolves, we can expect innovative use and widespread adoption of blockchain that serves to elevate trust, efficiency, and transparency. And maybe the now-developed cryptocurrencies will survive within these changes.
Investors Have Far Fewer Reservations Against Investing in Leisure
Memorial Day Weekend in the U.S. marks the beginning of the travel season. After a few years on hiatus, as a result of Covid-19 restrictions, travel in 2023 is expected to surpass pre-pandemic numbers. While many investors are focused on the debt ceiling, less accommodative monetary policy, and looking for an entry point to invest in AI technology, post-pandemic travel plans are increasing – and the returns of some companies reflect this. One segment of the travel sector has benefitted and provided double-digit YTD stock returns. Below we discuss this segment and the potential for the future.
Travel Booking Stocks
When was the last time you went to an airline website to book a flight with them, or even a hotel for that matter? Most of us now find ourselves on a booking website when we’re planning a vacation. On these platforms, we can compare prices more easily, and if we’d like, add on extras like a car rental. Some even have proprietary package deals.
Technological advancements have created even greater efficiencies among booking and vacation travel package companies. Other positives for growth are pent-up demand, diversified revenue streams, and valuations still considered attractive. These all provide a backdrop and potential for the medium and long-term growth of the travel booking industry.
The chart above is a year-to-date sampling of examples of stocks in this leisure segment that have outperformed the overall market (S&P 500). Below, from weakest performer to strongest, are details of each company’s unique business, market cap, and other interesting investor information:
Expedia (EXPE) is a global travel company that provides a wide range of travel services, including flights, hotels, car rentals, and vacation packages.
This is a large cap stock with a current market cap of $14.33 billion, at $96.85 per share.
The company is headquartered in Seattle, Washington.
Booking Holdings (BKNG) is a travel company that owns a number of popular travel brands, including Booking.com, Priceline.com, and Kayak.com.
This is a large-cap stock with a current market cap of $97.61 billion, at $45.41 per share.
The company is headquartered in Norwalk, CT.
Allegiant Travel (ALGT) is a leisure travel company that provides travel services and other products to under-served cities in the U.S. This includes flights between vacation destinations. As of February 1, 2023, Allegiant operated a fleet of 122 Airbus A320 series aircraft.
This is a small cap stock with a current market cap of $1.85 billion, at a price of $99.96 per share.
The company is headquartered in Las Vegas, Nevada.
Travelzoo (TZOO) has a unique business model as it operates as an Internet media company that provides travel, entertainment, and deals from travel and leisure businesses worldwide. Publication products include the Travelzoo Top 20 email newsletter, Travelzoo emails, Travelzoo Network, Travelzoo mobile applications, Jack’s Flight Club website, Jack’s Flight Club mobile applications, and Jack’s Flight Club newsletters.
The year-to-date performance of TZOO is 10x that of the S&P 500.
In a research report dated April 28, 2023, Michael Kupinski, the senior research analyst for media and entertainment, had this to say about Travelzoo, “We believe that there is a disconnect with investors and the improved fundamentals at the company. Near current levels, the TZOO shares appear compelling, trading at 5.3 times Enterprise Value to our 2024 cash flow estimate or below the low end of the company’s 10-year and 15-year average trading ranges.” See the report here.
Current market cap is $133.05 million, at $8.69 per share.
The company is headquartered in New York, NY.
Image: “This Memorial Day weekend could be the busiest at airports since 2005” – AAA Newsroom
Take Away
Travel booking companies are well-positioned to benefit from the recovery of the overall leisure industry. Small cap travel booking companies are often more nimble and innovative than larger companies; this could give them an advantage in the travel booking market.
People are spending more money on travel. Companies like those mentioned above welcome the opening of China, allowing citizens to travel and return. In addition to the overall post-pandemic volume of business, travelers are spending more money on trips than they did before the restrictions.
Noble Capital Markets SPACtrac Report Thursday, March 02, 2023
Joe Gomes, Managing Director – Generalist Analyst, Noble Capital Markets, Inc.
Joshua Zoepfel, Research Associate, Noble Capital Markets, Inc.
Refer to the full report for the price target, fundamental analysis, and rating.
The Deal. Better World Acquisition Corp. will be merging with Heritage Distilling Company, Inc. in a deal that will bring Heritage Distilling public. The deal, which values Heritage Distilling at an enterprise value of $122.2 million, provides growth capital to achieve Heritage Distilling’s aim to become the leading national craft spirits company.
The Target. Founded in 2012, Heritage Distilling is a leading, fast-growing distiller of innovative premium brands, with a history of award winning, innovative products. The Company is expanding its wholesale footprint nationwide in conjunction with RNDC, the second largest spirits distributor in the U.S., while its proprietary Tribal Beverage Network provides the potential of developing a “local” presence across the nation that will generate high margin, tax advantaged recurring revenue license streams.
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*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary. Proper due diligence is required before making any investment decision.
Michael Kupinski, Director of Research, Noble Capital Markets, Inc.
Patrick McCann, Research Associate, Noble Capital Markets, Inc.
Jacob Mutchler, Research Associate, Noble Capital Markets, Inc.
Refer to the bottom of the report for important disclosures
Overview: Entertainment and Leisure stocks have had a good start to the New Year, but the better performance has not erased the disaster that was 2022. We believe that stocks appear to be baking in a mild economic downturn, a soft landing, so to speak. Given that we are skeptic of the conventional thought, we take a cautious stance regarding the recent lift in valuations and encourage investors to take an accumulation approach.
Entertainment:Bowlero on a roll. The Noble Entertainment Index performed well, up 1.5% in the last 12 months, compared with negative returns for the S&P 500 (-7.1%). Although there were broad economic challenges over the past year, entertainment companies benefited from the general public’s return to “normal” following the COVID pandemic. We believe that in-person experiential entertainment recovery is still in its early stage and should continue into 2024.
Gaming: Looking for value in the rubble.The Noble Gaming Index is down 53.1% in the past year, well below the S&P 500, down 7.1%. But, recently, the Noble Gaming Index increased 12.9% in the last quarter, outperforming the 3.2% increase in the general market, as measured by the S&P 500 Index. A reflex bounce? Short squeeze? Or, were the shares oversold? We encourage investors to play it safe.
Esports: Motorsport Games revs its engine. The company was full steam ahead in investing in its new product launches in 2023, but it was running out of cash. Fortunately, a couple of favorable moves to add liquidity set the stock soaring, up 1,600% in one day, creating further opportunities to raise cash. Now, flush with cash, investors look toward the product rollouts.
Leisure: Travel to new heights. The U.S. Travel Association updated its 2023 outlook, projecting a resilient domestic leisure travel market. Consumers appear eager to splurge on travel, in spite of the economic headwinds. We focus on one of our favorite internet media plays, Travelzoo. The company recently updated Fourth Quarter 2022 guidance with revenues expected to be roughly $18.5 million, a strong 31% increase year over year.
Overview
Have economic prospects improved?
The Entertainment & Leisure industries performed better since the beginning of the year, providing some relief to the downturn that investors suffered in 2022. As Figure #1 Entertainment 12 Month Trailing Stock Performance highlights, the Entertainment and Leisure Indices are still recovering and many have yet to offset the 2022 declines, except for the Entertainment stocks. The Entertainment stocks not only have performed well in the first quarter, but have beat the general market as measured by the S&P 500 Index over the past year. The Noble Entertainment Index is up a modest 1.5% in the past year, better than the general market’s 7.1% decline. It is important to note that the Noble Indices are market cap weighted. As such, not all stocks reflected the favorable relative performance.
What is driving the improved stock performance in the latest quarter? We believe that investors have become more positive about the economic outlook, with conventional wisdom now anticipating a soft economic landing or a mild economic recession. This is a shift toward an optimistic tone from one that anticipated a severe economic recession. The Federal Reserve caused the dire outlook. The Fed signaled that it will continue to raise interest rates until inflation is arrested, in spite of the adverse impact on the economy and jobs. But, since then, conventional wisdom on the economy has brightened as inflation seems to have subsided. The more favorable economic outlook is exemplified by a Wall Street firm that decreased the risk of an economic recession in 2023 by a sizable 25%.
We tend to be skeptics and conservative. As such, we tend not to buy into strength. Our view is that the stocks were oversold and reflected recessionary type valuations. But, have the economic prospects really improved that much? We encourage investors to take an accumulation approach, focusing on some of our favorite stocks highlighted in this report, including Bowlero, Codere Online Luxembourg, Engine Gaming and Media, and Travelzoo.
Figure #1 Entertainment 12 Month Trailing Stock Performance
Source: Capital IQ
Entertainment
Bowlero on a roll
The Noble Entertainment Index performed well, up 1.5% in the last 12 months, compared with negative returns for the S&P 500 down 7.1%. Although there were broad economic challenges over the past year, entertainment companies benefited from the general public’s return to “normal” following the COVID pandemic. We believe that the trend toward social gathering and in-person activities are helping to offset broader macroeconomic headwinds. While some industries received a boost during late 2020 and 2021 when consumers were spending stimulus checks on online shopping, the recovery for in-person entertainment has been more recent. In our view, the recovery in experiential, in-person entertainment appears to be gaining traction and the recovery could continue into 2024.
As Figure #2 Entertainment Revenue Growth illustrates, virtually all of the experiential entertainment companies reported strong revenue growth in the latest reported quarter, (the calendar third quarter end September 2022). One of the examples of the in-person recovery is in bowling centers, in general, and Bowlero, specifically. The company recently announced that it eclipsed $1 billion in Trailing Twelve Month (TTM) revenue as of December 31, 2022, which included 48% same store sales growth over the prior year. Additionally, Bowlero added 40 bowling centers over the past 18 months as it continues to successfully execute on its roll-up strategy. As revenues have improved, so too have margins. As Figure #3 Entertainment EBITDA Marginsillustrates, Bowlero delivered industry leading margins in the latest reported quarter at 24.8%.
Bowlero is on a roll. With the BOWL shares up roughly 50% in the past 12 months, the shares have outperformed both the Noble Entertainment Index up 1.5%, as well as the broader market, as measured by the S&P 500, which decreased -7.1%. In spite of the favorable fundamental tailwind, the shares trade in line with its experiential entertainment peers. Figure #4 Entertainment Comparables illustrates that the BOWL shares trade at 9.7 times Enterprise Value to our estimated 2023 adj. EBITDA, below the peer average of 10.7 times, despite the company’s industry leading fundamentals. Given its favorable fundamental outlook, prospects for enhanced revenue and cash flow growth through acquisitions and favorable internal growth, and compelling stock valuation, the BOWL shares lead our list for favorites in the Entertainment industry.
Figure #2 Entertainment Revenue Growth
Source: Company 10Qs
Figure #3 Entertainment EBITDA Margins
Source: Company 10Qs
Figure #4 Entertainment Comparables
Source: Company filings and Noble estimates
Gaming
Looking for value in the rubble
The Noble Gaming Index is down 53.1% in the past year, well below the S&P 500, down 7.1%. In our view, the poor performance of Gaming stocks was the result of investors trying to take risk off the table. Many Gaming companies are still in developmental stages, with high marketing and customer acquisition costs. As such, many in the industry are unprofitable and rely on the balance sheets to fund operations. Before Covid, these companies benefited from the easy money policies and favorable capital markets, which many relied on for funding. But, with the recent sharp rise in interest rates and difficult general market conditions to raise capital, the music has stopped. Gaming stock valuations are now more scrutinized, in an environment of increasing cost of capital. As such, we believe industry players that are already profitable, and those with little to no debt and ample cash on the balance sheet are best positioned for to lead the industry.
Our focus is on the shares of Codere Online Luxembourg, CDRO. The CDRO shares are down 42.4% in the last year, underperforming the S&P 500’s -7.1% return. However, despite a tough 12-month period, the CDRO shares outperformed the Noble Gaming Index, which dropped 53.1%. We believe that the relative outperformance of the CDRO shares over the past year reflects its better financial position than most of its peers. Most recently, the Noble Gaming Index improved, as illustrated in Figure #5 Three Month Stock Performance. The Noble Gaming Index increased 12.9%, outperforming the 3.2% increase in the general market, as measured by the S&P 500 Index. A reflex bounce? Short squeeze? Or, were the shares oversold? It appears to be all the above for many of the stocks in the index. The largest gains were from companies that appeared to be struggling and had favorable news. We believe that investing in struggling companies with limited access to capital is a dangerous place to be.
In terms of Codere Online Luxembourg, the fundamentals of the company appear favorable. Codere Online’s cash burn has been within expectations and the company had a strong cash balance of €72 million and virtually no long-term debt as of September 30, 2022. As such, the company appears positioned to continue executing its growth strategy in Latin America, which for the time being consists of broadening its presence in key markets such as Mexico and Columbia, and aggressively expanding in Argentina.
The company’s growth could be bolstered if Brazil begins regulating sports betting in 2023. Importantly, Entain CEO Jette Nygaard-Anderson, recently stated that she expects Brazil to complete process of regulating sports betting in 2023, citing new administration of President Lula. In summary, Codere Online is distinguished from many of its peers, with an established foothold in key Latin American markets, flush with cash to penetrate existing markets and enter new ones. It has the ability to become the industry leader in many of its markets.
Near current levels, the iGaming industry peer group is trading at 5.0 times Enterprise Value to 2023 revenues, illustrated in Figure #6 Gaming Comparables. Codere Online Luxemburg (CDRO) is one of our favorite plays in the iGaming industry due to several factors. As mentioned above, the company has virtually no long-term debt and €72 million in cash, as of September 30, 2022. We believe that the company has a favorable runway to reach cash flow breakeven while continuing to fund its expansion in the meantime. Furthermore, in our view, given its ability to invest in its developing markets, the company appears to have the ability to become the preeminent online gambling leader in many Latin American markets. Finally, the CDRO shares appear compelling, trading near 2.6 times expected 2023 revenue, well below peers. As a result, we view the CDRO shares as among our favorite online gambling plays, with the shares rated Outperform with $9 price target.
Figure #5 Three Month Stock Performance
Source: Capital IQ
Figure #6 Gaming Comparables
Source: Company filings and Noble estimates
Esports
Motorsport revs its engine
The Noble Esports Index was down 53% over the past year, underperforming the broader market, which was down 7%, as as measured by the S&P 500 Index. Not unlike many other emerging industries, Esports has been battered by macroeconomic headwinds over the past year. Investors are placing more importance on companies that are generating positive cash flow, rather than speculating on future profitability, given recessionary concerns and elevated interest rates. While the Esports industry has shown favorable trends in the number of viewers and hours watched, many companies are still burning cash and may need to raise additional capital. Total hours watched of esports content was up 40% in Q3 of 2022, illustrated in Figure #7 Esports Viewership.
The best performing stock in the Esports index was HUYA, which only declined by 9.7% on a TTM basis. Huya is the largest Esports live streaming platform in China and recently expanded into a variety of real-time events. Huya benefits from the favorable growth trends of the Esports and live streaming industries, as it does not rely on the popularity of a single game or tournament. The worst performing stock in the Esports index is Esports Entertainment Group (GMBL), which declined 97.2% on a TTM basis. The company burned through its cash and had limited access to additional capital.
In the latest quarter, however, the Noble Esports Index rebounded, up a strong 47.9%, as depicted in the earlier in Figure #5 Three Month Stock Performance. The strength in the quarter was due to a relatively few number of stocks, including HUYA (up 135.8%) and two of our favorite plays, Motorsport Games (MSGM) and Engine Gaming and Media (GAME), which increased 68.9% and 149.8%, respectively. In fact, Motorsport Games increased a stunning 1,618.8% with a trading day following news of a debt for equity swap.
Motorsport Games revs its engine
Motorsport Games is a publisher of motorsport video games, with the rights to iconic racing franchises such as NASCAR and 24 Hour of LeMans. The company recently completed a debt for equity swap which led to a surprisingly strong increase in the stock valuation. This allowed the company to complete several direct offerings, eliminating all company debt and raising over $11 million in cash. The capital raise alleviated liquidity concerns, allowing the company to continue developing games. In our view, the launch of several games in 2023 should allow the company to swing toward cash flow break even. We have moved our rating to Market Perform given that the shares blew through our $9 price target. Our rating is under review as the company updates investors on its product rollout roadmap and the level of cash burn until it launches its upcoming products.
Engine Gaming & Media
Another one of our favorites is Engine Gaming & Media (GAME). Engine Gaming & Media is a multi-platform media company engaged in most aspects of the Esports industry. The company’s media division coordinates video access and advertising, data analytics, and connects advertisers to social influencers in the gaming industry. Figure #7 Esports Viewership and Figure #8 Esports Live Streaming are from Stream Hatchet, the company’s live streaming data and Esports analytics business.
The company reported its fiscal first quarter results on January 17, 2023, which beat our expectations. Notably, the company’s influencer and gaming analytics software as a service revenue, a key growth vehicle, grew revenue by a strong 34.6% on a year over year basis. In addition, the company plans to merge with GameSquare Esports, which it expects will provide scale and provide cost synergies. Management indicated that the combination should accelerate the new company’s path toward profitability. We plan to update our models as more details emerge regarding the upcoming merger.
Figure #9 Esports Comparables highlight the stock valuations in the Esports industry. The valuations of many of the stocks, including Motorsport Games and Engine Gaming and Media are in flux. As mentioned, Motorsport Games significantly improved its financial position with recent equity raises and debt for equity swaps. Engine Gaming and Media’s fundamentals likely will change with a planned merger. In our view, the latest quarter has been a watershed moment for these companies. We look forward toward reevaluating our models, ratings and price targets upon more details on the developments from the respective companies.
Figure #7 Esports Viewership
Source: Stream Hatchet
Figure #8 Esports Live Streaming
Source: Stream Hatchet
Figure #9 Esports Comparables
Source: Company filings and Noble estimates
Leisure
Travel to new heights
Once again, we focus on the travel industry in our Leisure section due to some favorable developments and outlook. Notably, the U.S. Travel Foundation forecasts an increase in travel spending in 2023 above both 2022 and 2019 levels. This would indicate that the travel industry has fully recovered from the depressed Covid impacted levels. Airline flights are full and there is high demand for hotels, even though pricing for those rooms are significantly higher. What is driving the demand and will it continue?
For the U.S., there are three factors influencing the relatively favorable outlook for the U.S. travel industry. The domestic leisure travel has been resilient in spite of higher gas prices, hotel rooms and airline tickets. A recent article from Forbes suggests that U.S. leisure travel is rebounding despite inflation as it is one area where people are willing to splurge. A second contributing factor to the favorable outlook is Business travel. Business travel is expected to be somewhat weaker in 2023 given the prospect of a mild economic recession in 2023. But, the business travel outlook is improved as a severe economic downturn appears less likely. The weak area has been international inbound travel to the U.S. We believe that this is a function of the strong U.S. dollar relative to other major currencies. On the flip side, international travel from the U.S. appears to be favorable given the U.S. dollar strength.
We believe that the inflationary trends, higher airline fares and hotel rates, as well as sluggish international travel, all have prompted travelers to seek travel deals. Consequently, one of our favorite plays on the travel industry, Travelzoo, has seen fundamental improvement. As an internet media company, its business is derived from its advertisers and travel partners to offer travel deals to its customers. This is different from travel suppliers and online travel agencies that rely on travel demand. Notably, Travelzoo recently updated its fourth quarter revenue guidance to be roughly $18.5 million, an increase of a strong 31% year over year, in line with our forecast.
Travelzoo is one of our favorite plays for the recovering travel industry. The shares are down roughly 46% in the past year, which we believe could present an attractive entry point for investors. Since reaching lows in December near $4.11 per share, the TZOO shares have rallied, up roughly 25% since that time. In our view, the shares may have reacted to a recent merger involving its founder, Ralph Bartel. The merger brought with it an influx of cash, but increased Mr. Bartels ownership of the company from slightly over 50% to over 60%. We view the move favorably as it provides increase liquidity for the company. Given the prospect for a favorable environment for travel deals, we view Travelzoo as among our favored ways to play the travel industry and the subsequent improved advertising from its travel partners. We rate the shares Outperform with a $9 price target.
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Senior Equity Analyst focusing on Basic Materials & Mining. 20 years of experience in equity research. BA in Business Administration from Westminster College. MBA with a Finance concentration from the University of Missouri. MA in International Affairs from Washington University in St. Louis. Named WSJ ‘Best on the Street’ Analyst and Forbes/StarMine’s “Best Brokerage Analyst.” FINRA licenses 7, 24, 63, 87
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