Mama Mancini (MMMB) – Uplisting – Upside 50%

Current Price: $2.07

Offer Price: TBD

Upside: TBD

Expiration date: TBD

 

This idea was shared by one of our members. Although there are certain positive aspects to this situation, we think it is highly speculative with little possibility to handicap the potential risks (see the comment section below).

Mama Mancini is a fast-growing higher-quality packaged foods producer with a lot of room for potential expansion in the future. The company is ongoing a strategic review and has recently made an application to uplist to the NASDAQ. Management owns 48% of MMMB shares and sees multiple benefits from the uplisting:

If accepted, we believe that the uplisting would further expand the credibility of our brand in the industry, while concurrently increasing liquidity and opening up our stock to a far wider array of potential investors who cannot invest in OTC companies.

Generally, it is difficult to predict how a stock price would react to the uplisting, however, I do not expect a sell-off here due to 50%+ shares owned by the management and major shareholders. On the contrary, it's quite likely that the market upgrade will boost the share price of MMMB. A similar effect was seen in COMS (uplisted on 22nd Jan), CUEN (uplisted on 1st of Feb), CRMD (uplisted on the 2nd of Feb). An uplisting procedure usually takes 5-6 weeks from the submission of the application.

Moreover, at current prices, the downside seems to be somewhat protected, while the upcoming annual results are expected to be record-breaking and should act as another catalyst here. MMMB business was positively affected by the COVID outbreak and grew revenues during the first pandemic wave as consumers shifted from restaurants to ready-made meals in supermarkets.

MMMB has solid fundamentals, a strong balance sheet (almost no debt), and during the last 4 years (since 2016) grew its topline 30% CAGR (9m 2020 growth was +27%) while more than doubling its EBITDA margins from 4.3% in 2016 to 9.8% (9m 2020). Despite that, MMMB is being valued significantly lower than its closest and similarly sized peer AMNF (also produces Italian-style packed foods, like stuffed pasta, sauces, cooked meat, etc.):

Some part of the discount is definitely warranted due to AMNF's higher EBITDA margins (used to be around 20%). However, other than that, AMNF is growing significantly slower - less than 5% CAGR from 2016 to 2019. Also, in contrast to MMMB, AMNF was strongly hit by the pandemic due to the exposure to the foodservice sector (revenues fell 23% and EBITDA 80% during 2020). Eventually, further growth, expansion into other sectors (food service, Canada, vegan/Beyond Meat) should allow MMMB to better leverage its operating base and reach margins closer to AMNF levels.

 

MMMB

A detailed bullish case can be found in the Alta Fox Capital's write-up here - the thesis was posted during the peak of the COVID sell-off when the company traded at $1/share.

  • Mama Mancini offers natural and healthy sources and frozen/refrigerated ready-made foods (Italian specialty) with a minimum number of ingredients. At the moment the company offers 26 products, which include beef and turkey meatballs, meatloaf, chicken, sausages, pasta entrees, all slow-cooked with Italian Sauce according to co-founders (Dan Mancini) grandmother's recipes. The products are sold primarily in supermarkets and mass-market retailers.
  • MMMB products are often marketed in QVC shows during live on-air offerings. It seems that they have a certain appeal to consumers -  the products are constantly rated as the top 1-3 selling items on QVC shows (among 20-25 items).
  • The company growth used to be quite impressive and further accelerated during the pandemic (Q1 +51% YoY, Q2 +28%, and Q3 +7%), although the last pre-COVID quarter also showed substantial growth (+48% YoY) due to expansion into new locations and segments.
  • MMMB produces a few dozen of different products, which are supposedly more healthy/natural than competing products (has a niche). The company is better rated on Facebook than its competitors and has a loyal/almost "cult-like" customer base.
  • The company was co-founded by the current chair/CEO and Dan Mancini (chief product officer). Management owns 48% of the stock, takes limited salaries ($180k/year), and is highly incentivized to increase the share price of the company. Their track record clearly shows that they know how to grow this business.
  • MMMB has already started expansion into food services, which according to the CEO should add $25m of TAM. Aside from that, the company also expects to expand to Canada and vegan segments. It has also signed a partnership with Beyond Meat.
  • The company still has plenty of expansion possibilities with existing and new customers as the available supermarket/grocery store locations are still significantly underpenetrated (both location and product-wise). Overall, the fresh food section perimeter of the stores also seems to be expanding.

3 COMMENTS

  1. Ilja

    Some counter arguments:
    – It is important to note that the strategic review was mostly aimed at selling the company, however, it seems that this is no longer in the cards. The review was supposed to take place until mid/end January, while in Feb they’ve announced the uplisting (strong indication that the sale was unsuccessful), while just a few days ago, MMMB announced a press release stating that they will now be looking for acquisitions. The fact that they did not manage to find a buyer at these price levels is quite alarming.
    – In order to satisfy the multiples stated above in the write-up the company has to show considerable growth going forwards, however, the future growth looks questionable to me. At this point, it is difficult to say whether the company can really continue expanding at the levels showed during Q4’19-Q2’20 or it was just a one-off effect from the pandemic. On one hand, it seems that there is a decent chance that Q4 might turn out to be pretty good due to the second wave of the pandemic. On the other hand, I am really puzzled by the Q3 results showing only +6% growth, which is a big fall-off from the previous quarters (and even the pre-COVID Q4’19). Management explained it as COVID-19 impact, which slowed the new placement of products/locations and temporary halt in food service, direct-to-consumer markets segments, and exportation account. However, similar excuses are ongoing for almost a year and should also be present in Q4, when the 2nd wave hit hard. So if the fall-off in growth marked by Q3 is going to stick and Q4 follows a similar trend, the whole growth story might just crumble taking the share price with it. That is not really a major risk for the thesis as the annual report will most likely be announced in late April (after the uplisting), however, after lackluster Q3, the market might be more skeptical about the future growth, which can negatively impact the effect of the uplisting.
    – Investing in an uplisting is a very risky bet – just in the last few months, I’ve found several cases where the upgrade to NASDAQ had an opposite effect on the share prices, so it is really a case by case situation. Although, free floats of those companies also were much higher, so maybe the high amount of management’s ownership does provide some safety here.

  2. Platitudes

    It should also noted that Alta Fox recently sold shares to fall under form 13 reporting threshold.

  3. Ilja

    Mama Mancini’s uplisting to Nasdaq should be carried out shortly. However, the stock has already appreciated 47% in a bit less than a month and currently trades at 2.6x revenues vs 2.5x for its peer AMNF. Given the remaining uncertainties regarding further growth in Q1 and the impact of the uplisting, it might be a good time to take the money off the table here. The idea is closed with 47% return in one month.

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