Description

New Nordic Healthbrands is active in food supplements, and beauty products. They base their products on herbs to give the vitamins and nutrients for beauty effects and health benefits. Products ranges from blueberry pills for better vision, to volume shampoo and collagen pills for more beautiful skin. 


Supplements
New Nordic focuses on herb-based supplements and beauty products. 
It is clear that New Nordic focuses strongly on certain issues or desires of the customers and packages their product perfectly and specifically for that issue or desire and sells it at a premium. For example, B-vitamins are not marketed as B-vitamin supplements, it’s marketed as “B-Energy”, C-vitamins are marketed as different things, for example “C-Immune”, or “Active Legs”.
They do offer more traditional products as well as, multivitamin packs for him and her etcetera, but this is not where they are successful. 

The products are questionable, however. They are very far from the horrible area of fraudulent semi-medical products who do claim to work in certain ways with usually somewhat manufactured medical studies etcetera, those companies are usually bad for the customer and usually go bankrupt when the medical studies fail, or the real medical sector calls them out and investors stop investing.

New Nordic products are an expensive way for the customer to get nutrients you can get from a fruit or meal - however, I do think this is quite clear in the customers mind and I believe this is more of an a “self-pampering” product. A reassurance your body get what it needs for specific areas to work normally. 
Perhaps your vision has declined as you age, and you find the “blueberry eyes”, with zink, vitamin A and luteni from blueberrys. I do not think anyone buys this product is expecting cataracts to dissappear. I think you buy them to feel good and do some self pampering, knowing you are providing your body with at least specific nutrients we know are good for vision. It seems proven the customer enjoy paying a hefty amount and parting from their money to get this nice package of nutrients pills specific for your needs and desire.  
If you are tired, you can buy B-Energy, to give you some extra boost in your body that at least makes you know you are not lacking in B-vitamin. For sure, you could buy B-vitamins from the regular supermarket cheaper, but this purchase feels more specific for you and apperantly many customers feel better to buy “B-Energy” and are happy to pay for it rather than an cheaper B-vitamin can. Or for example hair balm with apple, millet and amino acids for beautiful hair or face cream with herbal extracts for your skin.

The brand
The brand is 30 years old, with a well known logo and lable in Scandinavia (I can’t speak about other countries). They are active in 40 countries and are priced sligthly higher than competitors in Sweden (probably the same in other countries too), however many customers prefer the New Nordic brand despite this. 
This produces high effiecienty and profitability in the company with high return on equity and working capital.
They have been succesfull focusing sales to “smaller” stores with better customer focus and personal experience, such as health stores, pharmacies, retail-travel than mass-market stores/ grocery stores. Altough currently active in all these places

Products can be found in almost every pharmacy in Sweden.
Pharmacies are relatively rigid in what they offer, as supplements, they have offered New Nordic products for a very long time. Up until shortly pharmacies were government owned and not just profit-driven in their product selection (in Sweden).

There is a stability in the brand, a recognition and a concept that works.


Growth
Products are selling in 50thousand stores over 40 countries. They have proven that their product works in different countries and markets. Both stores and online. Right now during covid, 1/3 of sales are online in some countries. With a large base of their customers being 60+, stores will likely be important going forward for some time. 
With an annual turnover of 50musd, they are no giants, this leaves room for growth in already existing markets from both bestsellers products (continuing to increase their annual sales after 10-20 years in the market) as well as from new products. As well as expanding to more countries and markets. New markets where they are spending money to establish the brand right now are Switzerland, Spain, Portugal, China, Hong Kong, Australia, Slovakia, Romania and Kazakhstan. 

Currently New Nordic sales are divided by
Nordic: 34% | Other Europe: 39% | North America: 24% | Other World: 3%

Perhaps growth will come mostly from alredy existing succesful markets with room to grow, rather from new countries, but offcourse all works together. 
Current growth areas the company refers to are US, UK, Germany and launch of a new beauty concept for hair and skincare. The company believes the market is growing faster in beauty than food supplements and seems to be focusing their work in the beauty direction with hair and skincare products. The entire market for herbal supplements are estimated to grow Cagr 9-10% worldwide, 11-12% in Asia, 7-8% in Europe. Asia Pacific represents about 50% of the entire market. 

Owners:

Founded by the 2 main holders, Karl Christian Bergman Jensen (CEO) and Marinus Blåbjerg Sørensen (Chair)
Marinus was CFO until recently, stepping down when turning 70, but staying as chairmen.
Karl Christian (CEO) Is 60 years old.
They own approx 80% of the company with roughly 40% each. Karl Christian has recently sold shares very close to Q4. This warrants extra caution. See end of this report. On the big picture the shares they hold are laying pretty still in their hands.

 Quick points:

·      Unlikely to do any acquisitions, focused on the business at hand

·      Likely to present a prospect after the annual report, to move stock listing from growth market to main market. I do not think it is to attract capital for expansion, rather capital for stock appreisal. 

·      50% of profits in dividend.

Valuation:
Market cap: 52musd
No. of shares: 6,19m

Based on the brand, their sales history and perhaps the expected overall market growth, it seems possible to estimate with some certainty an interval of turnover growth rate at 8-15%. 
New Nordic have shown a tremendous EPS growht the last years, a lot is coming from improved profit margins paralell with a good revenue increase. I believe we should not expect margins to continue to increase, but rather to decline in the short term. This is due to  increased online sales, where e-commerce is competing with the price as a factor more than the stores are, and because of a new pill – “gummies”, growing in popularity (especially in US) and costing more to produce than the normal pill.

Therefore it is unreasonable to estimate EPS to grow as it has the last years, however, if we expect a decline in margin, but a descent tunover growth, a more likely EPS CAGR could be 9%. That is if we just take the longer turnover growth and use it to estimate EPS growth, removing the improved margin from the equation.
That would give about 7musd profit year 2030. If you can sell you shares in 2030 at 15 times earnings, the sale would generate 100musd. Discounted at 8% that gives a present value of 57musd. But then we also have the profits and dividens from 2022-2030 at, in present value, 30musd. In this scenario the present value of the company would be 87musd. 

Let’s assume instead a higher turnover growth, more in line with the last years growth in revenue, 5 years of 14% turnover growth, followed by 5 years of 12% turnover growth, but with decline in the profit margin from 2019’s 6% to 4%. That gives roughly the same valuation, with 6.5musd profit year 2030. 
Average profit margin from 2013-2019 is 5%. 


If the company grows at about 9% annualy with a decline in profit margin that stays under their historic margin long term. The valuation is in line with the current price, not offering a “cheap buy”. 

If they continue to keep their margin on the other hand whilst maintaining a good turnover growth, that would imply a higher valuation which still is not a too improbable scenario. With my estimates, the company should be valued between 70-100musd, meaning at least at 100sek/ share at todays value. If the market does not "appreciate" an 8% annual return, with inflation being higher and interest rates moving up. At least for just holding the stock if sellable at a PE 15 in 2030 implies 12% CAGR on your investment until then. Not the greatest CAGR possible, but it can be seem reasonable to claim that the value today is, at a 8% discount rate, substantially higher than it’s current price. 

in 8-10 years it is probably not unreasonable to say the company has a fairly decent chance to continue to grow also thereafter, whereas my PE ratio of 15 at an end value.

There are decent amount of interesting valuation aspects pointing toward a value higher than the price with, in my view, somewhat reasonable probability in earning outcomes. 

History:

(Annually, cagr)

A word of caution.
The CEO has sold shares right before Q4 report coming on 28^th of february. Most recently at prices almost down to 70sek/ share. Perhaps Q4 will not be their best quarter and even better price can be offered. He sold about 0,65% of his total stake in the company between september 21 to end of january 22. Up just until the last legal date to sell before Q4 report. Q4 margins will also be under more negative pressure from a strong SEK. During the first covid shock we were offered a fantastic price of almost 50sek/share. I still believe todays price is interesting in respect to value. But warrant a caution for the coming Q4 due to Omikron, profit margin pressure and CEO share sales.

Disclaimer
I do own stock and will have to sell a portion of my holding shortly, merely because of repayment of company debt expiring

Catalyst

Earnings

Stock listing change