First off, I would like to congratulate those who got into Jack Nathan Medical (TSXV:JNH) based on my initial recommendation last week. It has only been a week but we have already seen a near-double and the share price looks to be going much higher as the company gains further exposure across domestic markets. Remember, JNH has only been public for a week and does not even have a U.S. ticker yet.... This still has plenty of room to run.
The forecast in my original article on Jack Nathan did not include some important factors such as growth opportunities in China (which are in the listing statement).
Another factor to consider moving forward is the possibility of Walmart taking an equity stake in the company, which is not unlikely considering the company operates within its own stores. Right now JNH is likely too small to be in Walmarts crosshairs, but if JNH can meet the targets outlined in my model then it will be definitely be a factor moving forward.
In any case, I have created a sensitivity analysis table in tandem with my forecast to show the price of JNH at different exit multiples, store locations, and revenue per location to add some colour to my previous post. The table is shown below.
You can see that in this version of the model, I have tried to make a snapshot projection of where JNH will be in 5 years, which is why i have inputted shares outstanding as 150 million assuming some further dilution to expand into Chinese markets. as well as an increase in per location revenue from $93k to $120k. The last column shows the per share values for 5000 store locations at different multiples of P/EBITDA and that is where things get aggressive. Another thing to note about this table is that JNH has little downside at current prices ($1.00).
So now that you have the sensitivity analysis figures, you can make your own version of the model... Just estimate how many store locations you think JNH will have at the end of the 5-year period as well as what you believe a reasonable P/EBITDA exit multiple would be. For me, I am going with a wide range of 750-2000 store locations and a 7.5-12.5x exit multiple... which leads to a wide range of values ($4.50-$20.00) which are outlined by a bold box in this image... it really is subjective to the analyst. If you want to be more conservative, you can apply a smaller P/EBITDA multiple or go with smaller amount of in-store locations. If you want to be more aggressive, use a higher multiple and more locations.
There is a lot of moving parts to this model which is why it will be very important for JNH investors to pay close attention to the quarterly financial statements and MD&A moving forward, to get a good idea of how quickly the company is growing, especially in terms of number of in-store locations. Another one to pay attention to is profitability (specifically EBITDA as a % of revenue and revenue per location). If they can keep this around 25% while scaling up revenues, which they are proving that they can, then my model is not aggressive at all and this company will do VERY well in the future.
I am LONG shares in JNH.
DISCLOSURE & DISCLAIMER
DISCLOSURE: Author owns shares of Jack Nathan Medical and may choose to buy or sell at any time without notice. Author did not receive any compensation for publishing this article.
DISCLAIMER: The work included in this article is based on current events, technical charts, company news releases, and the author’s opinions. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. This publication contains forward-looking statements, including but not limited to comments regarding predictions and projections. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements. This publication is provided for informational and entertainment purposes only and is not a recommendation to buy or sell any security. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions. Junior resource companies can easily lose 100% of their value so read company profiles on www.SEDAR.com for important risk disclosures. It’s your money and your responsibility.