NEW YORK, NY / ACCESSWIRE / May 17, 2016 / SeeThruEquity, a leading New York City based independent equity research and corporate access firm focused on smallcap and microcap public companies, today announced that it has issued a company note on DTS8 Coffee Company, Ltd. (OTCQB: BKCT).
The note is available here: BKCT May 2016 Update Note. SeeThruEquity is an approved equity research contributor on Thomson First Call, Capital IQ, FactSet, and Zack's. The report will be available on these platforms. The firm also contributes its estimates to Thomson Estimates, the leading estimates platform on Wall Street.
DTS8 Coffee Company, Ltd (OTCQB: BKCT), ("DTS8") is engaged in the roasting, marketing and sale of artisan roasted, gourmet coffee. It sells its artisan roasted, gourmet coffee under the "DTS8 Coffee" and 'Don Manuel' brands through distribution channels that reach consumers at restaurants, multi-location coffee shops and offices in Shanghai and other parts of China. DTS8's sales office and distribution center are located in Shanghai while its roastery is located in Huzhou, Zhejiang Province, China, a suburb two hours' south-west of Shanghai. DTS8 holds an exclusive license from Coffee Holdings Company, Inc. (NASDAQ: JVA) to roast, market and sell its iconic "Don Manuel" brand of 100% Colombian coffee in China, as well as Taiwan, Thailand, Vietnam, Cambodia, Laos, Philippines, Myanmar, Indonesia, East Timor, Hong Kong, Macau, Malaysia, Singapore and Brunei. The company has recently made several major announcements, including a potentially transformative acquisition of a private, yet to be named, roaster in the US, which could have a major impact on future results, if the deal is consummated and meets the expectations described by management.
Highlights of note are as follows:
Potential acquisition of US roaster could be transformative
On March 1, 2016, DTS8 announced that it that entered into an agreement to acquire a private coffee roasting and wholesale company located in the Northeastern US. Management has indicated that the move should enable the company to reach revenue levels of $10mn-$12mn in the first year of combined operations, which would be a transformative development for a company whose growth has taken longer than we originally expected to come to fruition. Indeed, the move would add scale in revenues and operations, adding gourmet roasting facilities in the developed US market as well as a stable revenue base. Importantly, the move would better position DTS8 to capitalize on the higher margin specialty coffee market, given that it would include high quality roasting facilities.
DTS8 management has indicated that the deal will be funded with cash and/or debt, and it is expected to carry a price tag of $4.5mn - $4.7mn, depending on he mix of cash / debt. Management expects the deal to close during August 2016, pending audited financial statements by the target company and the securing of financing by DTS8. The deal is expected to be accretive within the first year, according to CEO Douglas Thomas, who assumed the role of Chief Executive last August following the departure of Sean Tan. We are looking forward to gaining more specifics about the transaction.
Expanding online presence in China may provide a boost
In April DTS8 also announced an online sales initiative in which the company will market its brands and products on leading online Chinese e-commerce websites Tmall and Taobao (both owned by Alibaba, NYSE: BABA). As part of the announcement DTS8 CEO Douglas stated that he expects the initiative to "positively impact overall revenue in the near term." Clearly there is significant growth in online commerce in China - e-commerce sales in China grew by over 40% in 2015 according to eMarketer. It is prudent for DTS8 to seek to participate in this channel given the strategic importance of China to its company. We also see the company as positioned to benefit from a longer-term shift in consumer behavior, China consumes more coffee per capita as a result of urbanization and changing consumer preferences. The country consumers less than ten cups per year versus 300+ cups per year per capita in the US and Europe.
Price target moves to $0.43
We continue to see BKCT as targeting a large market with immense potential. Our price target moves to $0.43 reflecting a higher share count than when we initiated coverage on the company. Given the transformational nature of the company's planned acquisition - which would add $10-12mn in annual revenues - we expect to conduct a detailed valuation analysis when there is more data available about the target company and how the transaction / related financing will affect the share count and balance sheet at BKCT. We do note that, assuming debt financing of $4.7mn, the target implies an Enterprise Value of $26.3mn, or 2.4x the midpoint of guidance for the combined company, assuming the acquisition is consummated as planned.
Please review important disclosures at www.seethruequity.com.
About DTS8 Coffee Company, Ltd.
DTS8 Coffee Company, Ltd., is a Canadian based, purveyor of artisan roasted gourmet coffee with operations in Shanghai and Huzhou, China. The company roasts, markets and wholesales its "DTS8 Premium," "Single Origin Premium," "Don Manuel," and "Private Label" brands in Shanghai and other areas of China. DTS8 coffees are well regarded by consumers for their uniqueness, consistency and special flavor characteristics, and are sold through distribution channels reaching consumers at restaurants, multi-location coffee shops and offices. www.dts8coffee.com.
About SeeThruEquity
SeeThruEquity is an equity research and corporate access firm focused on companies with less than $1 billion in market capitalization. The research is not paid for and is unbiased. The company does not conduct any investment banking or commission based business. SeeThruEquity is approved to contribute its research to Thomson One Analytics (First Call), Capital IQ, FactSet, Zacks, and distribute its research to its database of opt-in investors. The company also contributes its estimates to Thomson Estimates, the leading estimates platform on Wall Street.
For more information visit www.seethruequity.com.
Contact:
Ajay Tandon
SeeThruEquity
info@seethruequity.com
SOURCE: SeeThruEquity
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