Here is a copy and paste of the write up. Good to see its under 'stock highlights'
STOCK HIGHLIGHTS
Yowie Group
Yowie Group is an Australian confectionary company, selling chocolate encapsulated animal based toys. The company launched the original Yowie chocolates in 1997, enjoying significant success in Australia, New Zealand and Japan before the brands owner, Cadbury, discontinued the brand due to legal battles with the creators. The rights to the brand were acquired in 2012 and Yowie was rejuvenated in 2013 with a focus on the US market where it has received the sole patent to sell chocolate encapsulated toys.
After first being trialled in October 2014, Yowie Group achieved a national rollout with Wal-Mart in June this year. With less than 20% of confectionary items going from trial to full rollout, it’s an enormous achievement to have the world’s largest retailer endorsing your product as your first major customer. While Wal- Mart are moving to a full 4300 store rollout this month, Safeway is rolling out the product to its 1300 stores and trials with additional major US retailers are ongoing (CVS, 7/11, Walgreens, Krogers, Valero). The product is also being trialled by European supermarket chain Carrefour in the UAE.
The reaction by my own children to some samples of the Yowie toys demonstrated first-hand the products potential. Kids love chocolate. Kids love toys. If parents are going to treat their kids, it makes the purchase decision easier if it is even mildly educational. The information on each animal provided in the Yowie and their stated mission to help ‘Save the Natural World’ makes this product a unique proposition for customers and retailers alike. The company’s recent partnership with the American Association of Zoos and Aquariums (AZA) is a significant step in building brand awareness. Over 183 million people visited the 228 AZA locations across the USA in 2014, including 50 million children.
Yowie’s biggest competitor, Kinder Surprise, sells close to 1.2bn units p.a. in Europe where the population is almost 500m (~2.5:1 per head of population). When Yowie was first released in Australia it sold over 60m units (~3:1 per head of population) and achieved ongoing sales of 17m p.a. (~1:1 per head of population). Importantly, Kinder Surprise is banned from selling their product in the USA as it is deemed a choking hazard (they have twice unsuccessfully applied to the FDA to sell the Kinder Surprise in the USA). Yowie’s exclusive patent runs until 2019, and while the risk is that Kinder Surprise try again to gain FDA approval, it would require a decision to potentially re-design their 40 year old product (20g with small pieces inside vs. Yowie 28g and a single piece toy) for this specific market.
Successful rollout to all stores currently being trialled in the US represents ~20% of the country’s total convenience stores. This could equate to 45m units p.a. and ascribing a commensurate multiple for a high growth confectionery business would place a value on the stock of $1.50/sh. Given this would represent sales per head of population of 0.14:1, there is significant upside should sales in the US approach those of its historical sell rate in Australia or of Kinder Surprise in Europe. In this scenario the stock could be well north of $5/sh and excludes assumptions for sales outside of the USA and any licensing agreements. We began buying shares in Yowie in May 2014 at $0.57/sh and we remain long the stock.
What I take from it is that they can see the share-price being around the $5 mark if all things go to plan and this is JUST BASED ON THE U.S.A. Now I'm sure I'm not the only one who can connect the dots in that if its a success in America then chances are it will be a hit WORLDWIDE including Australia where I think it could sell 80-100 million units alone. Long term bull case for me is $10-$15, we have a superior product compared to kinder surprise eggs and take a look at their annual sales.
I also like their take on the AZA strategy in that it will greatly increase brand increase across the country.
YOW Price at posting:
$1.32 Sentiment: Buy Disclosure: Held
