The Calmer Co International Limited [ASX:CCO]
Household & Personal Products
Calmer Co. reports a solid surge in e-commerce sales
We rerate the Calmer Co. International Limited (ASX: CCO) to a fair value of $0.017- representing a 112% upside from the current stock price of $0.008 and up from our earlier initiating coverage midpoint of $0.015, based on impressive recent monthly sales growth results, across several months. CCO’s sales for the month of May 2024 were greater than $610k, with e-commerce sales rising to $16,000 per day, which is effectively a growth rate of 500% from May 2023. These increases in sales have been sequential over the last 12 months; hence, they are not isolated and are made sustainable because of CCO’s clever integrated strategies across sales and marketing, distribution, partnerships, and product development.
E-commerce sales are the main pillar of growth followed by Retail sales
CCO’s e-commerce sales rose to higher than $16,000 per day in May 2024, representing a 45% increase from April 2024. As per CCO, June 2024 will represent 10 months of consecutive online sales growth in which the growth rate itself is accelerating. Currently, over 60% of e-commerce sales are made via CCO’s Australian Shopify platform. However, given CCO’s social media-based marketing campaigns, tie-up with Walmart, and growing interest in kava, going forward, it’s expected that US Shopify sales will be the main source of sales growth. The sources for growth extend to other areas, such as retail, and arise also due to product development innovations. For example, CCO’s strategy of attracting new customers via its Taki Mai 50ml kava shot offered only at Coles outlets is a strategically astute move.
Kava market continues to grow and CCO continues to invest in growth
The market size for kava continues to grow as more data emerges supporting its growing use as a healthy alternative to alcohol. Hence, CCO’s addressable market is significant and growing. To take advantage of this opportunity, CCO is showcasing the right moves. CCO is tapping into the right channels and making the right R&D, capex, and working capital investments to ensure that its growth momentum continues. For example, CCO is planning to close a capital raise of approx. ~$2m with a rights issue later this month. $0.625m from this capital raise will be invested into increasing the capacity of its Fiji-based kava processing facility to approximately 3x its current size. This will lead to fixed cost-related benefits for CCO’s profitability over the short and medium terms.
Valuation range of A$0.015-$0.019 per share
In our initiation report from 19 February 2024, we outlined a valuation of $0.013 per share base case and $0.017 per share in a bull case. Based on CCO’s recent strong growth in revenues, we have revised our valuation upwards from between $0.015 and $0.019. To add to the reasonableness of our new forecasts, which allow for higher revenues throughout the forecast period, we have also assumed that CCO will need to make higher working capital and capex investments to support this faster growth.