GDNP.V - Still bullish.

Updated: Apr 5


Good Natured Products Inc (GDNP.V) produces and distributes one of North America's widest assortments of better everyday products® made from the highest possible percentage of renewable, plant-based materials and no BPAs, phthalates or other chemicals of concern potentially harmful to human health and the environment.

GDNP.V offers over 400 products and services through wholesale and retail channels, including e-commerce stores. From plant-based home organization products to compostable food containers, bioplastic industrial supplies and medical packaging, we're focused on delivering a great customer experience to make more plant-based products readily accessible to more people as the path to deliver meaningful environmental and social impact..

Coverage was initiated on November 2018 with notes on June 2019. April 2020. and November 2020 and July 2021.


News Releases

Aug. 17 - Expands Line of Plant-based Kitchen Products: Launch of its plant-based Bin Bags, Zipper Bags, and retail-packed Compostable Tableware. This launch represents ongoing diversification effort into a broad range of plant-based materials including fiber and flexible film, which is underpinned robust technical and supply chain capabilities.


Aug. 26 - Announces Results for the Three and Six Months Ended June 30, 2021.


Sep. 9 - Takes a Bite Out of the Growing Meal Kit Industry: Highlights two additional specialty meal kit providers that have partnered with good natured® to increase the use of sustainable packaging in the growing meal kit industry.


Sep. 16 - Provides High-tech Growers with Plant-based Packaging to Maximize Positive Environmental Impact


Sep. 28 - Transforming Canada’s Pharmaceutical Industry with Jones Healthcare Group™: New partnership focused on expanding sustainable packaging solutions. Jones’ blister packaging products will now be made with good natured® Bio-PET, a food-safe, curbside recyclable bioplastic. This new plant-based solution allows Jones to optimize its package design, removes chemicals of concern, and ensures its packaging is readily recyclable in most households.

Oct. 12 - Announces $50 Million Financing and Commercial Agreement with US Food Producer: Filed a preliminary short form prospectus with the securities regulatory authorities in connection with an anticipated offering of $15 million aggregate principal amount of convertible unsecured subordinated debentures maturing October 31, 2026.


The Company also announces that it has received a committed term sheet from National Bank of Canada and is negotiating a credit agreement that contemplates up to $35.8 million in financing, including a revolving working capital facility, capital expenditure financing, mortgage and a $10 million accordion facility.


Commercial Agreement with Large US Food Producer: Commenced shipping commercial quantities of product to a large US food producer that is replacing petroleum-based packaging with multiple Bio-PET packaging products. The Company expects to sign a commercial agreement, which would outline a multi-year relationship that, based on a framework of open purchase orders, would produce approximately USD$13 million in revenue in the first year.


Oct. 13 - Announces Pricing of Convertible Debenture Offering: The conversion price will be $1.06 per common share.


Oct. 28 - Announces Closing of Convertible Debenture Offering and Signing of Senior Credit Facility: For aggregate gross proceeds of $17.25M which includes the exercise in full by the underwriters of their over-allotment option to sell up to an additional $2.25M principal amount of Debentures. The debentures mature on October 31, 2026, and accrue interest at the rate of 7.00%, payable semi-annually in arrears on April 30 and October 31, commencing April 30, 2022.


The Company also announced the signing of the previously announced $35.8M senior credit facility with National Bank of Canada. The secured senior credit facility consists of: i) $15M revolving working capital facility with a 2-year term and an uncommitted $10M accordion available at the discretion of National Bank; ii) $4M revolving term credit facility to finance capital expenditures, amortized over 84 months; and iii) $6.755M non-revolving credit facility.

Oct. 29 - Host Investor Webcast on November 4th, 2021:

Nov. 2 - Heats Up the Zero-Waste Packaging Market with Support from the Government of Canada: A full assortment of versatile Microwavable To Go Containers available for order online. Initial deliveries are anticipated within the next 90 days to address a variety of expected single-use plastic bans rolling out across Canada and the US.

In addition to providing a zero-waste end-of-life option for problematic packaging, the Microwavable To Go Containers from good natured® are made from 97% plant-based materials and contain no chemicals of concern.


This was made possible with financial support from the Government of Canada's Western Innovation Initiative (WINN) in 2018, currently known as Business Scale-up and Productivity (BSP).


Nov. 17 - Deloitte Ranks GDNP.V Among the Fastest Growing Clean Technology Companies in North America:


Nov. 30 -Announces Financial Results for the Three and Nine Months Ended September 30, 2021


Dec. 21 - Acceleration of Expiry Date of Warrants: As of December 16, 2,694,575 Warrants remained outstanding at $0.21 cents. If all outstanding warrants are exercised, $0.61M is expected in proceeds.


Dec. 23 - Announces Filing of Preliminary Base Shelf Prospectus: For an aggregate offering amount of up to $200,000,000 during the 25-month period that the Shelf Prospectus is effective.


Jan. 19 - Announce Filing of Base Shelf Prospectus:


Jan. 20 - Announces Preliminary Unaudited Results for the Fourth Quarter and Full Year Ended December 31, 2021: Preliminary revenue for Q4 2021 is anticipated at $21.0 million to $23.0 million, an increase of approximately 300% to 330%, compared to $5.3 million for the three months ended December 31, 2020 (“Q4 2020”).


Revenue for FY2021 is expected in the range of $59.3 million and $61.3 million, an increase of approximately 255% to 270%, compared to $16.7 million for the twelve-month period ended December 31, 2020 (“FY2020”).


Jan. 25 - Partners with Plant-based Divvies for Sustainable Packaging: Divvies’ products are carried in 3000+ stores across the United States and will now be wrapped in good natured® BPI certified compostable* packaging.


Feb. 15 -Annual Letter to Owners Covers 2021 Highlights and Outlook for 2022.


Feb. 25 - Announces Grant of Equity Incentive Compensation: Options to purchase 689,875 common shares were granted, with an exercise price of $0.66 per common share. Twenty-five percent (25%) of each grant vests on February 21, 2023 with the balance vesting in equal monthly increments over the following three years.

Also granted an aggregate of: 1,720,367 PSU + 1,828,277 RSUs vesting 1/3 per year on each of February 21, 2023, February 21, 2024 and February 21, 2025. Each PSU and RSU entitles the holder thereof to receive either one Common Share, the cash equivalent of one Common Share or a combination of cash and Common Shares, as determined by the Company.


Mar. 9 - Announces US Patent-Pending Innovation, GoodGuard™: Filed for patent protection of its novel tamper evident design, GoodGuard™, optimized for compostable and biobased materials.


GoodGuard™ dual-sided tamper evident containers will be available in both commercially compostable PLA and curbside recyclable Bio-PET, both of which make use of renewable, plant-based materials to deliver an industry leading and exclusive assortment of tamper evident food packaging in the US and Canada. These multi-purpose tamper evident containers will be available in 6 versatile sizes including 8, 12, 16, 24, 32 and 48oz.


In addition, this US patent pending design includes an intuitive feature with no tear-away strips or small pieces that can escape waste/recycling streams to accumulate in land and marine environments.


Mar. 30 - Reducing the Footprint from Farm to Plate with ForageGirl Fiddleheads:


Summary


Selected Milestones

August 2021. GDNP.V expanded it line of plant-based kitchen products with the launch of bin bags, zipper bags, and retail-packed compostable tableware.


September 2021, in roads were made with the meal-kit industry (SimpleFeast, Vegano), high tech growers (Heron Farms;Sea Beans, ColdAcre; Indoor Farming), as well as, with pharmaceutical packaging (Jones Health Group).


October 2021, a commercial agreement with a large US Food Producer to ship commercial quantities of products using multiple Bio-PET Packaging products was announced with USD $13M in revenue anticipated inthe first year!


November 2021, Good Natured Products launched "microwavable to go containers" and January 2022, the company partnered with Divvies BPI certified compostable* packaging. Recently (March 2022), GDNP.V filed for patent protection of its novel tamper evident design, GoodGuard™, optimized for compostable and biobased materials.


It is important to highlight that much of the milestone are a results of prior innovations made by GDNP.V, specifically:

Bio-PET (March 2021) and Microwaveble Plant Packaging (May 2021).


Bio-PET (March 2021)

Bio-PET material will be used to make packaging and extruded rollstock sheet containing 20-30% plant-based content, up to 50% recycled content and is readily accepted in curbside recycling programs across both Canada and the US.


Microwaveble Plant Packaging (May 2021)

This is one of the first available hot food packaging options on the market that combines the zero-waste benefits of commercial composting with affordable price points.


Financing

GDNP.V filed a preliminary short form prospectus ($15M) convertible unsecured debentures ($1.06) and committed term sheet from National Bank of Canada ($35.8M) including a working capital facility of $10M. Late-October 2021, an the convertible unsecured debentures ($17.5M) closed and the senior credit facility was signed.


Earlier this year (January 2022), GDNP.V filed another base shelf prospectus ($200M for 25months).


Earnings

GDNP.V has delivered on its fast-growth revenue path.



In Late January, GDNP.V provided Preliminary Unaudited result for Q4 2021 and FY 2021.


Preliminary revenue for Q4 2021 is anticipated at $21.0 million to $23.0 million, an increase of approximately 300% to 330%, compared to $5.3 million for the three months ended December 31, 2020 (“Q4 2020”).


Revenue for FY2021 is expected in the range of $59.3 million and $61.3 million, an increase of approximately 255% to 270%, compared to $16.7 million for the twelve-month period ended December 31, 2020 (“FY2020”).




If GDNP.V delivers to plans, it will not only quadruple its revenue in Q4 2021 but also FY 2021. To put this in perspective, Q3 2021 and Q4 2021 revenues both exceed revenues for all of FY 2020.


Given the growth in revenue, net income should be monitored to determine if it scales in proportion to prior years.


Awards

Named to the Deloitte’s North American Technology Fast 500; and given the Deloitte’s Clean Technology Award; a new award category in the Technology Fast 50 program that recognizes Canada’s top clean innovators (November 2021).


Stock Options

February 2022, 689,875 common shares were granted at $0.66 cents. In addition, 1,720,367 performance share units (“PSUs”) + 1,828,277 restricted share units (“RSUs”) were also granted.


In short

After reporting seven consecutive record revenue quarters, GDNP.V lost more than a third of its valuation in 2022.


This seems unjustified given the exceptional performance in FY2021. Of course, macro-economics factors such as energy, materials, logistics and human resources are at play but is the market assigning a lower multiple because it is expecting less of a revenue growth rate going forward? Canaccord and Raymond James seemed less optimistic.

In contrast, Beacon is quite bullish: "maintains a $90.5 million revenue estimate for 2022" or 50% growth. This may be possible but is certainly very aggressive. Hence, this actual price target is considered rather elevated.


In the Annual Letter to Owners:

Executing our 2022 plan will also result in a re-balancing of our revenue mix by business group. With the recent IPF and Ex-Tech acquisitions, our Industrial business group became a larger percentage of our total revenue. As we deploy more manufacturing capability toward our own operations, we anticipate our packaging, general merchandise, commercial/business supplies, and associated services will contribute higher percentages of overall revenue mix in 2022.


Was this seen as a bearish signal? Also, another base shelf prospectus ($200M for 25months) was filed January 2022.

Overall, looking at the outstanding share data (Q3 2021), there's not much to be concerned with. Options, Other Equity Incentives, Warrants and Convertible Debentures are currently manageable. Even if one includes the additional grant (February 2022). In fact, outstanding warrants after February 2022 seems quite diminished at one third of the total 6M.

Granted, it is likely that GDNP.V will go to the market for subsequent acquisitions and perhaps this is the cause for a lower multiple. Of course, additional financing could generate another resistance point from the $1.20 warrants and the $1.06 convertible debentures. GDNP.V closed at $0.58 today, which is significantly well below these levels.


Debt? Current Ratio is at 1.58 as of Q3 2021. And subsequently to September 30, 2021, the company refinanced.


The completion of the Financing would reduce annual combined interest rate across all its debt facilities by 2.37%, reduce principal payments (>$8M) through the end of 2024, and increase net working capital between $25M to $30M.


Given the pace of revenue growth, net income could be of concern for Q4 2021 and FY 2021.

At issue, will it scale in proportion of revenue growth? This is soon to be determined.


Nonetheless, the current market seems to discount all possible tailwind (organic growth, regulation, and moat). As such, sentiment and valuation multiples may be down but overall the case for GDNP.V is considerably still bullish.


DISCLAIMER: The work included in this article is based on current events, technical charts, and the author’s opinions. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. This publication contains forward-looking statements, including but not limited to comments regarding predictions and projections. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements. The content of rally is provided for informational and entertainment purposes only and is not a recommendation to buy or sell any security. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions - rally cannot take responsibility for your investment decisions.

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