Happy Belly Food Group ($HBFG.C) FINS Review
Q3 2024 (3 / 5)
Eight consecutive three star reviews. With the stock price touching 80 cents this morning, that is a TEN bagger from the first three star upgrade back in November of 2022 and an EIGHT bagger since announced as a 2023 Wolf Pick.
The HBFG channel within the TSA discord is easily the busiest and has been for sometime. This is due to the continuous news flow and senior management participation, not only within the chat itself but the open market through regular insider buying. Personally I’m not one of the channels most active participants. It’s probably the pick that occupies the least amount of my thoughts or stress and I mean that in the most complimentary way possible. It just continues to execute brick by brick, in what us longs describe as “boring growth”. It also continues to be my largest microcap holding. Coming into these financials I have had some concern that the share price may be getting ahead of it’s ski’s. But I didn’t buy and have continued to buy for the year 2024, or for that matter, 2025’s price. To be honest for my own purposes I don’t really need to do a deep dive into these financials. But what fun would that be?
Balance Sheet:
We begin with a current ratio that I’m pretty sure is the best I have seen at HBFG, an excellent 3.7. As of quarter end Happy Belly had $3.6M in cash, $663k in receivables and about $700k in other short term assets against only $1.34M in liability commitments (deferred revenue removed) due over the course of the next twelve months.
HBFG has $225k in long term government debt and $3.67M in convertible debentures remaining.
An excellent start to the financials and most importantly liquidity is strong.
Cash Flow:
With some stocks you may more attention that others to the cash flow statement and this would be one as they progress.
Happy Belly burned $205k during the quarter bringing their YTD total through nine months to $1.37M. Prior to working capital changes however the company generated $65k of positive OCF and on a YTD basis the working capital adjustments account for over 80% of the burn. While these adjustments are an accurate depiction of total operational cash flow, we’re pretty much at the stage where we can declare them operationally cash flow neutral and on the way to becoming a cash flow generator. With store growth at this rate, things like accounts and HST receivables which make up the majority of their Q3 burn will likely remain in a debit balance for the foreseeable future.
During their first three quarters, they have spent $265k in asset expenditures. disposed of equity investments for proceeds of $426k, received $3.15M through above market convertible debentures and $490k from warrants and options. Overall the company has improved their cash position by 186% from where they began their year.
Good progress here.
Share Capital:
126.7M shares, just under 15% dilution from where they began the year coming through a combination of shares for acquisitions, warrants and option exercises with the majority coming from convertible debentures
27M warrants outstanding at 20 cents. I’ve talked a lot about these in past reviews and they trigger at different stock prices from 75 cents to $2
4.4M options outstanding, as of today are all ITM, but the performance options awarded to insiders have share price vesting triggers as well which is beyond rare and in line with retail shareholders interests. We need more of this in microcaps and I applaud them
Dilutionary measures to come for the outstanding convertible debentures
Insider ownership listed at 12% per YF, but tightly held shares make this figure much higher
Regular insider buying on the open market including five different insiders buying this month alone
Income Statement:
Product sales for the quarter were $1.87M, 26% up from last year, Other income which I affectionately call the gravy franchise fees and royalties) grew by over 25x to $677k. The combination of these two lines which I like to report on came in at $2.54M vs $1.5M or growth of 69%. On a YTD basis, product sales growth of 37% to $5.3M and other income of $1.45M, a combined growth of 73%. Gross profit came in at a rate of 50.6% in the quarter and 51.6% YTD with slight erosion in both instances.
Cash burning expenses grew by 35.9% converting nicely on the combined growth of product and other income. All of this translates to a near break even EBITDA and a net loss of $160k in the quarter, a 67% improvement.
Overall:
As it stated in the financials accompanying news release, a tenth consecutive record month, and we are most likely looking at several more in the future with their store count growth rate.
They had 35 locations in these results including the four newly acquired IQ food locations which closed less than two weeks prior to the quarter ending. Those locations produced QSR system sales of $8.5M which was up 13% QoQ and 488% over last year when they had 10 open store fronts.
Post closing, Happy Belly signed on Salus Fresh Food adding yet another brand to their growing portfolio adding 9 new Ontario immediately accretive locations. In addition to this, a plethora of locations under multiple banners have been awarded to franchisees, and literally hundreds of other potential locations under regional development agreements. Eventually Wolf is going to get his Rosie’s burger location close by so I can finally get my order right and double up on the cheese. I hope the Yolks location comes quickly as I love going out for breakfast/brunch too.
So Happy Belly closed up 2.6% on these financials to 78 cents, two cents shy of an official 8 and 10 bagger as mentioned off the top. It’s right around that $100M market cap which begs the question of how to properly value this. There will be varying opinions on this and strong points can be made for either side of the currently undervalued/overvalued debate. What I see is insiders with incentives to grow shareholder value whom are joined at the hip with retail. So sit back, enjoy the boring growth, and we’ll see you in 18 months at a deuce.
Nine consecutive three star financials. Bring on Q4 and 2025. Most importantly, that Rosie’s Burlington CHEESEBURGER!
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Disclaimer:
My intent is for my reviews to be a bolt on to due diligence that you have already completed. I receive dozens of review requests a week, therefore my own DD may be great or none whatsoever. Unless otherwise stated or implied, my opinions are on the financial performance of the company based on their most recent filings. I conduct these reviews to assist other retail investors whose research skills are limited when it comes to reviewing financial statements. I do not accept compensation of any kind from companies I review.
Wolf FINS Reviews are intended to be informational and are based on personal opinion. They are not intended to be financial advice, and all readers are encouraged to perform their own due diligence prior to their investment decisions, including discussions with their investment advisor.
I had them and cashed out. I fear any stock on the CSE. Very little accountability and its like investing in the wild, wild West. Move up the TSX.V and it makes them a bit more credible. Is Sean Black, the CEO of HBFG, still doing his pod cast pushing "can"t miss" penny stocks? Yet another reason to steer clear.