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Else Nutrition
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=== Faster and slower roll-out scenarios === In terms of presence in physical stores, Else’s products are currently sold in smaller and more niche grocers that tend to have a greater focus on natural products and healthier eating. Under its faster roll-out scenario, Edison assumes there is a big win in terms of obtaining an in-store listing at a major US retailer, which leads to a successful roll-out across other US major retailers and subsequent successful expansion to other geographies. Edison notes that Else started selling its products on Walmart.com and Kroger.com in January 2022, which could pave the way for an expansion into physical stores. Successful listing in-store at a major US retailer would lead to increased sales per store, as the major retailers tend to have a wider reach, thus enhancing the target market. Edison accounts for the increased cash flow requirements to support the faster growth. Edison also assumes the infant milk formula product is more successful than in its base case scenario, thus driving faster growth from FY27. Edison assumes EBIT margins do not benefit from the greater scale and faster growth as Edison expects management would choose to reinvest in the business to continue to drive growth. Under the slower roll-out scenario, Edison assumes uptake of the product is somewhat slower than its central assumption. Edison assumes Else products are only listed in niche retailers and health stores and it therefore continues to grow, but at a much slower pace, as it struggles to expand beyond this in terms of physical store presence. The products gain less traction with consumers and hence remain restricted to a more niche audience of babies with severe intolerances, rather than expanding also to picky eaters and families looking to adopt a flexitarian diet. Edison still assumes the infant milk formula is launched, though Edison assumes a two-year delay and hence assume this does not occur until FY27. Again, Edison accounts for the impact of the slower growth on the cash flow. Edison illustrates its revenue assumptions under each scenario in Exhibit 4. '''Exhibit 4: Revenue assumptions under various scenarios<ref name=":0" />''' [[File:Revenue assumptions under various scenarios.png|600x600px]] Edison now consider the valuation implications of the scenarios it has examined. Under the faster roll-out scenario, its DCF value rises to C$10.4. Edison illustrates the sensitivity to WACC and terminal growth under this scenario in Exhibit 5. Even if we apply a WACC of 14.0% to reflect higher risk, Edison's fair value reduces to C$8.0, which is still materially above the current share price (C$1.16). Separately, Edison notes there is a significant number of options and warrants in issue (13m options and 46m warrants), many of which have demanding performance conditions attached. A large portion of warrants (32m) was issued in 2019 and will vest in stages on the business reaching certain milestones by June 2025. These include generating C$60m in revenues in a consecutive 12-month period and FDA or equivalent regulatory approval permitting marketing and sale of Else’s plant-based infant milk formula. The options and warrants have varying strike prices, between $0.0001 (for the performance warrants) and C$4.04. {| class="wikitable" |+Exhibit 5: Faster roll-out scenario DCF sensitivity to WACC and terminal growth rate (C$/share)<ref name=":0" /> ! ! ! colspan="5" |Terminal growth |- ! ! !1.0% !1.5% !2.0% !2.5% !3.0% |- ! rowspan="8" |WACC !14.0% |7.8 |7.9 |8.0 |8.2 |8.3 |- !13.5% |8.4 |8.6 |8.7 |8.9 |9.1 |- !13.0% |9.2 |9.3 |9.5 |9.7 |10.0 |- !12.5% |10.0 |10.2 |10.4 |10.7 |10.9 |- !12.0% |10.9 |11.2 |11.4 |11.7 |12.1 |- !11.5% |12.0 |12.3 |12.5 |12.9 |13.3 |- !11.0% |13.1 |13.5 |13.8 |14.3 |14.8 |- !10.5% |14.5 |14.9 |15.3 |15.9 |16.5 |} Under the slower roll-out scenario, its DCF value falls to C$4.2. Edison illustrates the sensitivity to WACC and terminal growth under this scenario in Exhibit 6. Importantly, the current share price appears to be discounting significantly more bearish conditions than its slower roll-out scenario, and is discounting a terminal growth of 0% and a WACC of 23%. {| class="wikitable" |+Exhibit 6: Slower roll-out scenario DCF sensitivity to WACC and terminal growth rate (C$/share)<ref name=":0" /> ! ! ! colspan="5" |Terminal growth |- ! ! !1.0% !1.5% !2.0% !2.5% !3.0% |- ! rowspan="8" |WACC !14.0% |3.1 |3.1 |3.2 |3.2 |3.3 |- !13.5% |3.3 |3.4 |3.5 |3.5 |3.6 |- !13.0% |3.7 |3.7 |3.8 |3.9 |4.0 |- !12.5% |4.0 |4.1 |4.2 |4.3 |4.4 |- !12.0% |4.4 |4.5 |4.6 |4.7 |4.8 |- !11.5% |4.8 |4.9 |5.0 |5.2 |5.4 |- !11.0% |5.3 |5.4 |5.6 |5.8 |6.0 |- !10.5% |5.8 |6.0 |6.2 |6.4 |6.7 |}
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