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

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.

If you are prefer high quality dividend shares, then I would recommend this top dividend share instead. A strong yield and potential share price gains make this a great investment idea in my opinion.

Our Top Dividend Stock for Smart Investors

Our resident dividend expert names his Top Dividend Share. Not only are the shares dirt cheap, the company is trading on a fat fully franked dividend yield. Simply click here to gain access to this comprehensive FREE investment report, including the name of this fast growing ASX dividend share. No credit card required!

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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.