NEW YORK — Amplify Snack Brands, Inc., a high growth snack food company focused on developing and marketing products that appeal to consumers’ growing preference for better-for-you snacks, has been given a “neutral” rating and a $13 target price as part of the initial coverage put forth by Credit Suisse.
Amplify, whose anchor brand is SkinnyPop, launched an initial public offering for 15 million shares of its common stock in late July.
|Robert Moskow, analyst with Credit Suisse|
“We think Amplify is a good company with strong fundamentals that would fit well in the portfolio of a strategic acquirer, but with valuation already baking in full saturation of SkinnyPop by 2018, we recommend staying on the sidelines,” Robert Moskow, an analyst with Credit Suisse, wrote in an Aug. 31 research note. “We hold back on awarding Amplify a valuation premium for its roll-up strategy until we see evidence of success in the acquired Paqui brand.”
Paqui is a tortilla chip brand that Amplify acquired earlier this year that the company said has many of the same key taste and better-for-you attributes as SkinnyPop.
Mr. Moskow said Credit Suisse believes the SkinnyPop brand may sustain a 20% growth rate through 2018, driven by double-digit category growth, incremental distribution, and share gains. But he said the channel shift to more competitive channels of distribution likely will cause the company’s strong EBITDA margins to compress.
SkinnyPop is the No. 2 brand in the ready-to-eat popcorn category with nearly a 16% share, up from a 12% share a year ago, according to Nielsen data. But the percentage of buyers making repeat purchases and the average trips per buyer per year have it as the No. 1 company in terms of customer loyalty and frequency of purchases.
“(SkinnyPop) sells at a premium price point relative to its competition, so it’s a very profitable business for retailers,” Mr. Moskow wrote. “Management expects to continue to grow both distribution points and shelf space as more consumers adopt the brand. We think this speaks to the power of the SkinnyPop brand as it moves toward becoming a market leader.”
As for Paqui, Mr. Moskow said it’s still the early innings.
“We expect Paqui to generate $40 million of sales by 2018, but we hesitate to give it more credit than that because it’s not an established brand yet and it’s competing in a very crowded space,” he wrote. “Paqui also will dilute SkinnyPop’s top-tier 55% gross margin as it expands.”
Mr. Moskow identified Amplify as an attractive acquisition candidate, saying the company “ticks many of the boxes that large food companies are looking for in acquisition targets.”
“We think Campbell would be a logical buyer as it seeks to diversify further away from soup with a focus on B.F.Y. brands such as Bolthouse Farms and Plum Organics,” he said. “Campbell already has a snacking business, so there would be significant synergies (we assume 8% of Amplify sales) if the company leverages the existing salesforce, customer base, and distribution network.”Another potential buyer mentioned by Mr. Moskow was Kellogg, which has a snacking business in Pringles.