Yowie Group Ltd. Consumer Products | Lowering Target Price 330%...

	Column 1	Column 2	Column 3
0	Yowie Group Ltd.
1	Consumer Products	Lowering Target Price[/COLOR][/FONT][/B] [/P]
2	330% FY16 revenue growth shows momentum
3
4	Column 1 0 YOW-ASX	Price A$0.70	Market Cap A$148M[/COLOR][/FONT][/P]BUY Unchanged PRICE TARGET A$1.61↓ from A$1.68

Canaccord Genuity (Australia) Limited was the Lead Manager to the Yowie Group Limited Placement of ~35.5 million shares at $0.90 per share to raise A$32 million in May 2016.

Revenue growth of 330% shows strong momentumRevenue US$12.9m vs CGAu forecast of US$14.7m (consensus US$11.8m) represents 330% growth year on year, and while below our forecast is a strong reminder of the customer uptake in the US market and the potential growth opportunity that Yowie has, given the large number of new retail store accounts acquired during the last 6 months (we estimate in excess of 25,000 stores).EBITDA loss lower than expectedThe reported underlying EBITDA loss of -US$3.5m was better than our expected loss of –US$5.0m (consensus was –US$2.7m). Admin costs were lower than expected, while distribution costs were also lower than forecast. Gross margin of 51.6% was slightly ahead of our 51.4% expectation. We forecast margins to improve to 55.2% in FY17 and remain in the 55%-56% range in future years, due to the changeover to the new manufacturer (Madelaine) early in calendar 2016.Cashed up to fund aggressive growth in FY17Operating cash flow for the year was -US$0.1m which reflects solid working capital management. The run down in inventory from US$5.2m in June '15 to US$1.1m in June '16 (estimated 1.4m units) helped operating cash flow. We hope to see inventory build higher in the 1HFY17, once the new wrapping machine is commissioned in November this year. The company had US$31.7m in cash at the end of June, which should be adequate to fund our aggressive ramp up assumptions, support a stronger marketing spend expected in FY17 and allow for international opportunities to be explored.No commentary provided to give a lead on unit sales in Sept quarterThe company has not provided any guidance around trading for the first two months of the new financial year. The presentation for the CG Growth Conference suggested 2.1m units had been sold/ordered in the month of July, which is a significant step up on 1.6m units sold during the entire 1Q in FY16. We expect 1QFY17 could be in excess of 4.0m units, or up to +166% higher than last year, which would put the company on track to achieve our forecasts, should the pattern of quarterly sales mirror that in FY16.Earnings estimates downgraded slightlyWe have adjusted our FY17 estimates marginally, with revenue down -1.7% to US$39.5m but with a +13% uplift in forecast EBITDA to US$5.2m as a result of slightly better than expected margins and lower marketing costs.BUY rating unchanged – price target A$1.61/shareWe maintain our BUY rating. We lower our price target 4% to A$1.61/share, which is derived using an average FY17E and FY18E EV/EBITDA valuation.[/table]