The shares of this consumer brands company just rose above its 50-day moving average, pushed by its recent acquisition. Both insiders and institutions have recently shown their confidence, adding considerable shares to their holdings.
Sequential Brands Group (SQBG)
SQBG announced the closing of the Joe’s brand acquisition, just days after announcing the transaction on September 8, 2015. Joe’s adds $63M of guaranteed minimum royalties to SQBG vs. the $67M acquisition price, indicating it bought the brand rights at a very attractive price. Joe’s will add $10M of incremental licensing revenue and $7.5-$8M of adjusted EBITDA to the forward 12-month period.
As such, management now expects NTM revenue of $98-$100M (from $88-$90M previously) and adjusted EBITDA of $61-$63M (from $53.5-$55M). The majority of the incremental revenue and EBITDA will materialize in 2016 as the core licensing agreement with Global Brands Group (Li and Fung’s branded arm) will first impact the spring ’16 selling season.
While we are impressed by the speed with which management is growing the business via acquisitions, we are equally encouraged by the initiatives SQBG is taking to capitalize on the organic growth opportunities.
For instance, the company recently partnered with Delivery Agent to launch an e-commerce platform for Jessica Simpson. Subsequent launches will include shopping through Delivery Agent’s smart TV app, ShopTV, as well as social medium platforms including Twitter. We believe this partnership presents a tremendous growth opportunity for the Jessica Simpson brand and SQBG.
Given management’s stellar track record of swift execution/integration of recent acquisitions, a healthy deal environment, and ample organic growth drivers (category extension, international expansion, e-commerce), we reiterate our BUY rating and raise our target to $22.
Camilo Leon and Pallav Saini, Canaccord Genuity Research, www.canaccordgenuity.com, 617-371-3711, September 15, 2015