Adding Stryve Foods as a new long (ANDA)
We are adding Andina Acquisition Corp. (ANDA) to our long list. Andina Acquisition Corp. is merging with Stryve Foods in a SPAC transaction. Stryve produces and sells biltong, an air-dried meat snack. Steve's product checks several boxes in current growth categories in food, including snacking, better-for-you, no sugar, no carbs, and Keto/Paleo diets.
- Secular growth category. Snacking has secular growth drivers as more Americans consume a greater share of their calories from snacking.
- Nutritional advantage. Stryve’s biltong products are in the better-for-you category with no preservatives or nitrates, more protein per ounce, and no sugar (carbs). Traditional beef jerky has up to 10 grams of sugar per ounce.
- Popular diets are a tailwind. Keto and Paleo are two of the more popular diets currently. Stryve’s meat product without sugar fits well with both diets. During the pandemic, consumers' weight gains and increased snacking while returning to pre-pandemic work routines will be tailwinds.
- Stryve has significant distribution growth ahead. Currently, Stryve’s products are only distributed in ~10% of doors compared to competitor products at ~60%. This year, Stryve is being added to Dollar General, Target, Costco, and Wawa.
- Styve has a competitive moat. Stryve has the only USDA-approved large-scale facility to produce biltong. Biltong can not be imported into the US, providing Stryve significant barriers to entry for the category. The company’s current capacity is $100M.
Stryve is early in its product awareness and distribution growth but past the proof of concept and infrastructure investments. At the current share price just slightly above the $10 merger price, we see asymmetric returns. At $10, the 1.8x 2022 EV/Sales multiple represents a significant discount to peer “disruptive food” companies (CELH, FRPT, BYND, OTLY, SMPL, LSF, VITL, TTCF). That gap should narrow as the merger closes and management executes upon its growth plan.
For more details, please see our separate note. We plan on publishing more research in the coming weeks ahead of the de-SPAC.
Our updated position monitor:
Higher trucking costs (KR)
Spot market trucking volumes ticked down again in the last week, but available capacity continues to tighten. Capacity continues to tighten on the West Coast, where record container volumes are arriving from Asia. In Los Angeles, where volumes were down 17%, rates increased $.01 per mile to an average of $3.07 per mile to all destinations. Spot rates moved up $.04 per mile to $2.39 per mile over the post-Memorial Day week. Dry van spot rates are still $.83 per mile higher than this time last year and $.43 per mile higher than the same week in 2018.
The Cass Freight Index’s May report had a shipment reading of 1.269, up 35.3% YOY, outpacing April’s 27.6% increase. It was the index’s second-highest reading, trailing only May 2018. Freight expenditures in May grew at their fastest pace on record, up 49.9% YOY compared to 45.1% in April. May had the easiest comparisons, so the increase going forward should slow. Higher trucking expenses are being absorbed across a wide range of industries. CPG companies tend to have a lower value per truckload, making the impact greater.
First public results (HNST)
The Honest Company reported its first quarterly results as a public company. The company reported a $.05 loss per share, $.01 better than consensus expectations. Total revenue grew 12% YOY. The Diapers & Wipes category decreased 2% YOY, but 35% above 2019. The Skin & Personal Care category increased 42% YOY. The Household & Wellness category grew 53% YOY. By channel, digital grew 2% while retail grew 25%. Gross margins contracted 100bps due to normalized trade spend and higher product costs.
The Honest Company has large growth opportunities in new products, new categories, new retail customers, and digitally. We are looking for visibility in the timing and drivers to get the conviction we need to add the company to our long list. The company’s targets of consistent double-digit revenue growth and 1,000bps of gross margin expansion are not reflected in the current valuation if achievable.
