High ROIC, FCF generative, under-the-radar nutraceutical company selling for 2.8x EV/EBITDA
Unique distribution through social media able to target sales to millennial women which may drive 60% EBITDA growth over the next 12 months
Management and well-respected Knight (GUD CN) own 80% of shares and are well-aligned with shareholders
Synergy CHC Corp (OTCQB:SNYR) is a consumer brands company with two main products: Focus Factor, a brain supplement and Flat Tummy Tea, a weight loss tea. The company was founded by Jack Ross who had a background in retail and consumer products when he acquired Focus Factor from a lawyer in New York in January 2015 for $6 million. The brand was popular in the 1980s, but had been neglected for the last couple decades. Jack improved distribution including getting Focus Factor on the shelves of Costco, Walmart, and Amazon, more than doubling Focus Factor’s sales from less than $10 million in 2014 to over $20 million today. Focus Factor sells for $20/bottle on Amazon for 150 tables and is effectively a multi-vitamin supplement that helps people improve their memory.
Parlaying his success with Focus Factor, Jack acquired Nomad’s Choice in November 2015 for $10 million which owned Flat Tummy Tea. The weight loss tea had grown from $1 million in sales in 2014 to $7 million in 2015 and since being acquired by Synergy has grown to over $20 million in sales organically. Flat Tummy tea is sold through social media and direct email advertising campaigns. The company has figured out the formula for successfully marketing the product to millennial women through the brand’s over 1.3 million Instagram followers and paid promoters.
Synergy is now beginning to leverage its successful social media marketing engine to launch new products organically to grow sales. The most recent product is Sneaky Vaunt which is a backless, strapless push-up bra marketed to a similar consumer base as Flat Tummy Tea. The product was developed internally at Synergy and sold over $700,000 in its first month (March 2017) at a healthy 90% gross margin. Maintaining its sales pace for the year, I would expect Sneaky Vaunt to generate nearly $10 million over the next 12 months.
Next up for Synergy is launching a diet shake drink marketed through its Synergy Effect social media marketing engine to the same customer base as Flat Tummy Tea and Sneaky Vaunt. In addition, Synergy will continue to evaluate tuck-in acquisitions for products targeted at millennial women that can be better advertised through the Synergy Effect social media marketing platform. In June 2017, Synergy closed the acquisition of Per-fekt Beauty, maker of skin gels, which sells through Sephora, Ulta, and Amazon, for $0.7 million in stock (SNYR shares valued at $1.50/share in the acquisition) plus a 5% royalty on sales.
Jack Ross owns over 50% of the outstanding shares of Synergy so he is well aligned with shareholders. In addition, Knight Therapeutics (GUD CN) owns 20% of outstanding shares which it gained through warrants which were attached to loans made to Synergy to help the company acquire Focus Factor and Flat Tummy Tea. Knight Therapeutics is a well-regarded pharmaceutical and nutraceutical company run by Jonathan Goodman who was the founder of Paladin Labs which generated a 25% CAGR for shareholders over the 25 years he ran it, culminating in a well-timed sale to Endo Pharmaceuticals (ENDP) in 2014. Paladin Labs success was based on licensing drugs from US companies for distribution in Canada and then paying a royalty to the owner which was a zero-risk proposition for fledging pharmaceutical companies in the US who did not have access to distribution in Canada. After his success with Paladin Labs, Goodman started Knight Therapeutics to continue his previous strategy. Part of Knight’s mandate is to make loans to companies in the pharmaceutical or nutraceutical industries at less than 3x debt/EBITDA, typically charging low-teens interest rates and getting warrants in the business. Synergy was founded with loans from Knight which are nearly all paid off now from FCF generated by Focus Factor and Flat Tummy Tea. Having an investor with the background and reputation as good as Jonathan Goodman lends significant credibility to Jack Ross and Synergy and will ensure shareholder capital is deployed effectively.
Given the rapid organic growth in Synergy’s products and the unique way in which the business was founded, the company is still below the radar. Only about 20% of the shares are publicly traded because insiders and Knight own the majority. While the nutraceutical industry can have mixed reviews because some view the products as “alternative medicine”, the financial characteristics of the business are wonderful including 75% gross margins, high returns on tangible capital, low capex needs which result in strong conversion of EBITDA to FCF.
Synergy has 88 million shares outstanding which sell for $0.45 on OTCQB exchange under ticker SNYR, giving the business a $40 million market cap. In addition, Synergy has $5 million of debt and $2 million of cash, giving an enterprise value of $43 million. In 1Q17, the business generated $3.9 million of EBITDA, putting the run-rate EBITDA at $15.6 million and EV/EBITDA at 2.8x for a capital light business that has a strong track record of organic growth. Comparable nutraceutical companies will sell for 6-10x EV/EBITDA and many consumer branded companies will sell for over 12x EV/EBITDA. I estimate at 8x EV/EBITDA on run-rate EBITDA, SYNR’s fair value is $1.38/share, giving over 200% upside potential. Alternatively, SNYR reported 1Q17 EPS of $0.03, putting run-rate EPS at $0.12 and at 12x P/E, fair value at $1.44/share.
Beyond the current undervaluation, Synergy has a runway to continue to organically grow EBITDA which could drive fair value higher in the future. Sneaky Vaunt was only launched in March 2017, so 1Q17 results only had one month of sales. I expect Sneaky Vaunt to drive an incremental $4 million of EBITDA in the next twelve months. Given success so far with Focus Factor, Walmart is expanding from one skew (Focus Factor) to three (adding Focus Factor Kids and Focus Factor Extra Strength) and increasing from 1,200 to 4,500 stores which could add $6 million incrementally to EBITDA. Synergy acquired Per-fekt Beauty in June 2017 so will start marketing the beauty gel products through its Synergy Effect social media marketing platform which could drive $3 million of incremental EBITDA. Finally, Synergy is likely only a few weeks from launching its diet shake drink, which, if as successful as Sneaky Vaunt could drive an incremental $6 million of EBITDA. All in, Synergy has $19 million of EBITDA growth initiatives including $4 million Sneaky Vaunt, plus $6 million incremental Focus Factor sales to Walmart, plus $3 million from Per-fekt Beauty, plus $6 million from the diet shake. Against the run-rate base of $15.6 million, this could drive EBITDA as high as $34.6 million over the next 12 months. If we assume only 50% of the $19 million in growth initiatives are successful, Synergy’s EBITDA may be $25 million over the next 12 months, 60% growth y/y. Valuing Synergy shares at 8x EV/EBITDA on $25 million in next twelve months EBITDA results in $2.25 fair value, 400% upside potential. At $25 million of EBITDA, I estimate Synergy would generate $18 million of FCF vs the current market cap of $40 million and current enterprise value of $43 million.
Hey thanks for the message. I couldn't agree with you more! This Company is doing all the correct things to become a major player. Love the fact that they are investing in themselves especially with LA. I am sure they will need to raise cash once all is said and done in LA think Aug 1st is on schedule for open. I too hope this stays under the radar for awhile but with the opening in LA could spread the word very quickly and with a limited public float this could explode at any given time. I think your gonna make tons of $$$$$ here in the long term!!!!!
Did some buying over the last week. Great company. I expect the next 10q to show another big increase in sales. Sneaky Vaunt bra has been taking off on Instagram. Seems like a lot of women ordering. Social media influencers are spreading it very quickly. They'll be doing the same with Perfekt Beauty. I'm hoping this stock stays under the radar for a little while longer. Want to add more at these prices.
$SNYR Synergy CHC Corp Announces Fiscal 2016 Year End Results
Source: Marketwired WESTBROOK, ME-(Marketwired - Mar 27, 2017) - Synergy CHC Corp (OTCQB: SNYR) today reported results for the year ended December 31, 2016.
Net sales for the fiscal year ended December 31, 2016 were $34.8 million, compared to $13.5 million for fiscal year 2015, a 158% increase. For fiscal year 2016, net loss was $0.8 million or $0.01 (basic and diluted) earnings per share, compared to net loss of $7.5 million or $0.11 (basic and diluted) loss per share for 2015.
Cash flow provided by operations for the year ended December 31, 2016 was $6 million, compared to cash flow used in operations of $0.6 million for the same period in 2015.
We currently focus on Adjusted EBITDA to evaluate our business relationships and our resulting operating performance and financial position. Adjusted EBITDA for 2016 was $10.3 million and for 2015, adjusted EBITDA was $1.9 million, a 442% increase. EBITDA and Adjusted EBITDA are considered non-GAAP financial measures. The Company's definitions of EBITDA and adjusted EBITDA might not be comparable to similarly titled measures reported by other companies.
During 2016, Synergy reduced its debt to $7.6 million from $15 million, which is a 49% decrease.
Jack Ross, chairman and chief executive officer, commented, "Our fiscal 2016 net sales grew by $21.3 million, or 158%, primarily related to organic growth from our brands. During 2017, management will continue to focus on developing new products and explore options for future acquisitions."
"Synergy will continue to grow organically while refining execution across all brands. We will also focus on our Synergy Effect social media marketing platform to exponentially grow all of our brands online. We will continue to evaluate further acquisitions to generate shareholder value through the addition of products that can help improve the lives of customers while leveraging our existing distribution relationships. We expect 2017 to be a very active year on the acquisition trail," said Jack Ross, CEO of Synergy.
About Synergy CHC Corp. Synergy CHC Corp. is a consumer health care company that is in the process of building a portfolio of best-in-class consumer product brands. Synergy's strategy is to grow its portfolio both organically and by further acquisition. Synergy's diversified portfolio now includes FOCUSFactor™, Flat Tummy Tea™, Sneaky Vaunt™, Neuragen™, and Hand MD™. For more information, please visit www.synergychc.com.
Synergy's brands: Flat Tummy Tea® Flat Tummy Tea's uniquely formulated two-step herbal detox tea works to naturally help speed metabolism, boost energy and reduce bloating to flatten your tummy. It's currently sold exclusively online to a global, 20-30 year old female, predominantly American market. Since being founded in 2013, Flat Tummy Tea has grown rapidly, largely attributed to the strength of their branding and their innovative and effective use of social media. Their secret is a very specific process and ROI based algorithm used on various online platforms. To date, Flat Tummy Tea has built a targeted social media following of over 1,270,000, many of whom are now customers. Flat Tummy Tea now has over 13,500 positive written reviews on their website, flattummytea.com or visit their Instagram page.
Sneaky Vaunt® Sneaky Vaunt is Synergy's newest brand that just launched in March, 2017. Sneaky Vaunt markets and sells a backless, strapless, stick on, push up bra exclusively online through social media channels. Sneaky Vaunt is being marketed on the same ROI based algorithm that Flat Tummy Tea uses and is currently being used by The Synergy Effect on various online marketing platforms. In one month, Sneaky Vaunt has built a targeted social media following of over 108,000 on Instagram.
Sneaky Vaunt can be found at sneakyvaunt.com or visit their Instagram page. FOCUSfactor® FOCUSfactor is sold at America's leading retailers such as Costco, Sam's Club, Wal-Mart, BJ's Walgreens, CVS and The Vitamin Shoppe. FOCUSfactor, America's leading brain health supplement, is a nutritional supplement that includes a proprietary blend of brain supporting vitamins, minerals, antioxidants and other nutrients. In December 2012, the United States Patent and Trademark Office issued US Patent 8,329,227 covering FOCUSfactor's proprietary formulation "for enhanced mental function." The issuance of the patent marked one of the few times a patent has been issued for a nationally branded nutritional supplement. FOCUSfactor is clinically tested with results demonstrating improvements in focus, concentration and memory in healthy adults. www.focusfactor.com
Neuragen® Neuragen® is a topical product that works directly at the site of the pain as opposed to oral products. Neuragen® reduces the spontaneous firing of damaged peripheral nerves. By calming these firings at the source, Neuragen® is clinically shown to reduce shooting and burning pains quickly and without the side effects of orally taken medications. This is in part due to the small lipophilic molecules found in Neuragen® which rapidly carry the active ingredients through the rough outer layer of the skin to the site of the pain. Neuragen® is available over the counter in most local pharmacies either in the diabetic section or the analgesic (pain) section. For more information, please visit www.neuragen.com.
Hand MD® Hand MD is the world's first anti-aging skincare line formulated specifically for the hands. Hands reveal a woman's true age and the rejuvenation of the hand has become women's #1 aging concern. Developed by Kara Harshbarger and renowned celebrity dermatologist Dr. Alex Khadavi, Hand MD's extensive clinical trials show significant improvement in the appearance of fine lines and wrinkles, skin hydration, hyper-pigmentation and radiance. HAND MD launched on QVC and sold out in an astonishing 5 minutes. www.hand-md.com
Forward-Looking Statements This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. All statements, other than statements of historical facts, regarding management's expectations, beliefs, goals, plans or Synergy's prospects should be considered forward-looking. Readers are cautioned that actual results may differ materially from projections or estimates due to a variety of important factors, including: Synergy's ability to integrate any new products into its current operations; the risks and uncertainties associated with Synergy's ability to manage its cash resources; obtaining additional financing to support Synergy's operations; Synergy's dependence on third parties for its research and development, manufacturing and distribution functions; Synergy's dependence on its license relationships; protecting the intellectual property developed by or licensed to Synergy; and Synergy's ability to build its operations to support its business strategy and promote its products. These and other risks are described in greater detail in Synergy's filings with the SEC, copies of which are available free of charge at the SEC's website (www.sec.gov) or upon request from Synergy. Synergy may not actually achieve the goals or plans described in its forward-looking statements, and investors should not place undue reliance on these statements. Synergy assumes no obligation and does not intend to update these forward-looking statements, except as required by law.