RETAIL & E-COMMERCE | Meal Kit: Dinner is Served! - HELLOFRESH BUY | TP EUR69 | The Recipe for Success - Initiation of coverage

RETAIL & E-COMMERCE | Meal Kit: Dinner is Served!
In this report, we analyze the development potential of the meal kit marketas well as the different business models adopted by the companies in thesector that we believe are sustainable.
• In a food industry shaken by the ever increasing search for practicality andnaturalness, the meal kit segment seems to us very attractive. All the more soin a post-Covid environment where the development of food e-commercegained 2 to 3 years.
• The idea of gathering fresh ingredients pre-packaged according to a recipethat accompanies them in the box appeals to urban and wealthy consumersin search of quality, naturalness and convenience.
• After 10 years of existence, the meal kit market is still fragmented withvery few profitable players. Only two business models have proveneffective so far: 1/ the global and mainstream data-based approach (i.e.HelloFresh); 2/ the operational excellence of regional specialists (i.e.Gousto, Linas matkasse, GoodFood).
• HelloFresh is clearly one of the winners in the sector and will emergestronger from Covid. We were initiating the coverage with a Buyrecommendation and a Target Price of EUR69.

HELLOFRESH BUY | TP EUR69 | The Recipe for Success - Initiation of coverage
In a food industry shaken by the ever-increasing search for practicality andnaturalness, the meal kit segment seems very attractive to us. We initiate thecoverage of the global sector leader HelloFresh with a Buy recommendationand a Target Price of EUR69.
• Being one of the only two meal kit players to be profitable on EBITDA in2019, HelloFresh embodies one of the two sustainable and winning modelsthat we see in the meal kit industry. HelloFresh benefits from a mainstreamand global data-driven approach that allows it to internationalize muchmore easily than its peers, and thus reach a critical size and break even ona sustainable basis.
• The next Capital Markets Day, in December 2020, is of particularimportance in a post-Covid environment where it is clear that marketestimates for food e-commerce are now obsolete while the group's mediumtermguidelines appear too conservative. Reassuring announcements shouldbe made regarding the group's ability to continue to grow at double-digitrates. In spite of higher profit reinvestments into growth, we still expectthe group's EBITDA margin to continue to improve over the next few years.
• HelloFresh's recent stock market performance (i.e. +205% in 2019 and+197% YTD) as well as its rerating (i.e. 2.0x EV/Sales vs. 1.0 to 1.5xhistorically) should not be a hindrance when comparing HelloFresh to otherestablished e-commerce companies rather than to direct peers of meal kitsthat are still facing internal issues.