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YERB.U: A Few Solid Updates; Increasing Target Price

What you need to know:
• Yerbaé announced a strategic partnership with Farrell Distribution, a renowned distributor of premium beverages in Vermont.
• YERB.U extended its partnership with CrossFit champion Annie Thorisdottir and launched new flavours in Sprouts Farmers Markets.
• We are increasing our target price on YERB.U to $2.50/share based on 5.5x 2024E sales due to multiple expansion in the peer group.

Yerbaé Brands Corp. (YERB.U:TSXV) has reported various updates over the last few weeks that reaffirmed our overarching investment thesis in YERB.U becoming a leading brand in its category. The announcements included broadening its distribution network, growing its brand equity, and launching new flavours. We are maintaining our BUY rating and increasing our target price to $2.50/share (previously $2.25/share) based on 5.5x 2024E sales (previously 4.5x).

Farrell Distributing Partnership
On June 13th, YERB.U announced a strategic partnership with Farrell Distributing, which is a renowned distributor of premium beverages in Vermont. The collaboration aims to broaden Yerbaé’s distribution network and create key relationships with regional retailers such as Price Chopper and Champlain Farms. Farrell will also support an expansion of services into existing customer accounts including Shaws, StarMarket, Hannaford, and more. We view this expansion as another solid advancement in building Yerbaé’s distribution and brand equity, which has grown significantly faster than major players (such as Celsius); highlighting management’s key experience and know-how in the beverage space.

OTC Trading
On June 21st, Yerbaé reported that it has qualified to trade on the OTCQX Best Market. This announcement marked a step towards generating increased visibility and liquidity for U.S. investors (that can actually purchase Yerbaé beverages).

CrossFit Partnership
The following week, Yerbaé announced that it plans to continue its partnership with world-renowned athlete and CrossFit champion, Annie Thorisdottir. Ms. Thorisdottir will be joining Yerbaé’s board of directors. We reiterate the importance of YERB.U’s relationship with the CrossFit community for developing brand recognition amongst those interested in health and fitness.

New Flavours at Sprouts Farmers Market
Yesterday, YERB.U announced that its two new flavours, Lemonade and Yuzu Lime will be launched in 348 Sprouts Farmers Market locations across the U.S. The new flavours will be available at all Sprouts locations later this month.

Our Take
YERB.U has significantly progressed with growing its distribution and brand power over the last few months and the stock has responded well (+27% since our initiation report). However, Yerbaé (3.7x 2024E sales) continues to trade at a sizeable discount to Celsius at 7.7x 2024E sales and Monster Beverage at 7.0x 2024E sales. We note that these multiples have expanded over the last few months from 5.2x and 6.7x respectively on the date of our initiation and that Celsius is up 53% since May. As such, we are increasing our target multiple to 5.5x 2024E sales (previously 4.5x) and increasing our target price to $2.50/share (previously $2.25/share). We expect the valuation gap to narrow as YERB.U grows its topline and maintains its superior gross margins, leading to increased attention amongst institutional investors. Our estimates remain unchanged.