Yowie Group Ltd sales rocket 104% – is it a buy?

Are shares in Yowie Group Ltd (ASX:YOW) good value?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

After a tumultuous 12 months for its share price, today's quarterly report seems likely to light a fire under shares of US chocolatier Yowie Group Ltd (ASX: YOW).

Here's what you need to know:

  • Sales were US$4.9 million in the first quarter, up 104% compared to the same quarter last year
  • Production volumes also doubled to 3.3 million units, or ~13 million units annual run rate
  • Yowie was a #1 selling item with market share of 0.7% of the market (excluding convenience stores) over the 52 weeks, according to Nielsen data
  • Plans to expand internationally in Q3 or Q4 this year
  • Expected to launch Yowie book series in Q3 this year
  • $1.7 million operating cash loss due to increased spending on inventory as well as higher staff and admin costs
  • Cash at bank of $30 million as at 30 September 2016
source: Company report
Source: Company report

So What?

Yowie has changed the way it reports its quarterly cash flow data, as it now breaks its expenses down into more individual items. This is likely to increase the clarity of these company reports going forwards. As has been the trend in the last few quarters, the company has had to spend heavily on increasing its production of chocolate to meet anticipated demand as the number of active accounts (retail businesses that sell Yowies to consumers) increases.

This is a good problem to have (provided sales keep growing) but it does act to mask some of the value in the business. The recent increase in staff costs as well as the commissioning of the second chocolate wrapper, which will double production to 40 million units per annum, have also contributed to higher costs. Management expects to be able to deliver $500,000 worth of productivity savings over the next year or so, which could make a meaningful difference for a company as small as Yowie.

What's next?

Well funded and with a wealth of new executive expertise, Yowie is in a good position to keep growing sales while management works on brand-building. The entry into publishing is a new venture for the company however, and it remains to be seen what kind of returns Yowie can generate from its increased investment in media, webisodes, and so on.

I'm also cautious about the proposed expansions into Europe and/or Asia. Australia would have been the obvious next choice given that the Yowie brand retains at least some consumer awareness here, but I think that management has its eyes on the biggest prize possible. Which is fine, but I am wary that trying to conquer a second market while the US is still ramping up could both divide executive attention, and do some ugly things to the balance sheet and cash flow statement.

I do remain cautious about some of Yowie's new ventures, but the core chocolate business is performing very strongly, and the company is in a good position. I recently identified Yowie as my top pick for October, and today's report confirms my belief that shares are attractive at today's prices.

Motley Fool contributor Sean O'Neill owns shares of Yowie Group Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »