What: Yowie Group Ltd (ASX: YOW) shares have rocketed 40% higher over the last month following a successful rollout of Yowie chocolates in the US. The real question now is what is the potential for this $96 million company that produced a net loss of just under $1 million in the last half?
What Happened? For the uninitiated, Yowie Group owns the rights to make and sell the Yowie brand of educational chocolate products worldwide. Yowie outsources the manufacturing and distribution of the Yowie chocolates in the US, with plans to reintroduce the brand into Australia, New Zealand and Asia over the medium term.
The most interesting point about the Yowie story is that the company has exclusive rights to US Patents #5,925,321 and #6,099,872 valid until 2019. This allows: "FDA-approved production of non-embedded chocolate inclusion products". This means that major competitors Kinder Surprise and the Italian-based Ferrero Group International cannot sell their wildly popular products in the country.
As a result, Yowie's focus has been entirely based on the US market. The group's Yowie chocolates are now stocked in Walmart nationally, Safeway nationally, AWG Branded stores, 7/11 stores in Hawaii, CVS Pharmacies in Hawaii, and a range of smaller grocers and toy stores. All up, Yowie products are now stocked in 5,089 US stores with potential to rollout to 31,419 stores.
What Now? Yowie's Florida-based manufacturing facility is currently producing at a rate of 7 million (out of a possible rate of 20 million) Yowie's per year, with the potential to upgrade to 100 million per year if required. At the current rate, Yowie is selling an average of nearly four Yowies per store, per day.
The full year result, due in August, will provide investors with a better idea of how profitable the business will be in the future. Yowie has to sacrifice short-term profitability to expand the business rapidly before the group's patent runs out.
Long-term projections have seen analysts reach valuations of over $1.50 for Yowie, however investors should be aware that rather aggressive growth assumptions have been made to reach those numbers. I'd be a very willing buyer if the share price fell back towards 40 cents!
