Happy Belly Food Group ($HBFG.C) FINS Review
Q1 2025 (3 / 5 stars)
Didn’t we just do this? Well it’s that time of year in small caps where annual financials are quickly followed up just weeks later with their first quarters.
Full disclosure, just arrived in Vernon today in the beautiful Okanagan Valley, one of my favourite places in the country. I’m two Caesar’s deep and this is my view:
So however this review goes, at least it will turn out to be the review with the prettiest view, not including when Mrs. Wolf is in eyeshot of course.
Happy Belly as most of you know was a 2023 Wolf Pick and as of this writing has delivered returns of 1030% from that selection. Like one of your kids, sometimes you need to give them a little tough love, which I ended up doing in my last review at the end of April. I’m not going to rehash that now, but will include it below for anyone who hasn’t had the chance.
Even though I had some more criticisms this time around I did feel technically the chart was in an opportune place and identified a buy zone (I also discussed this in my WWW article last weekend). That so far is proving out to be accurate although I don’t discount a trip back down into it at some point.
Happy Belly is already back in my good graces with the opening of my favourite burger chain, Rosie’s set to open close by this weekend in Burlington. This is a new quarter and the company is dropping their financials a little early, typically an encouraging sign. Let’s find out.
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Balance Sheet:
Happy Belly has a strong current ratio of just over 3 that consists of $3.6M in cash, $1.2M in receivables, $500k in prepaids and $465k in other short term assets overtop of $1.9M in short term liabilities. Trade receivables have nearly doubled and prepaids have jumped by a larger rate from their year end so I would anticipate some negative impact on their Q1 cash flows. Convertible debt liabilities have now exceeded $3M with additional accretion in the quarter.
Cash Flow:
Operational cash burn of just $120k in the quarter compared to $270 a year ago. Important to note that before working capital adjustments, OCF was $135k to the positive vs $93 to the negative last year. As mentioned in the last section the growth in receivables and investments in prepaids negatively impacted the quarter to the tune of $750k, so these were the major culprits for not generating positive OCF in Q1.
HBFG also utilized nearly $150k on assets, most notably for the Smile Tiger acquisition early in January. The company also had a small $500k private placement. While it was over market at $1.50 a share with a full warrant at the same price, it does seem a little unnecessary given the strong liquidity of the balance sheet. Maybe there is more in the cards to come on the acquisition front. Overall the company improved their cash position by about $100k in the quarter.
Share Capital:
129.4M shares outstanding, 440k higher than year end due to the private placement and shares issued for Smile Tiger
27M warrants outstanding at 20 cents, expiring in June 2026 - 5.2M exercisable with the balance to trigger based on share price appreciation targets
4.2M options, all ITM, with 2026-2028 expiry dates
Approx 6.2M in future dilution from the $3M in outstanding debentures at year end
Insider ownership per YF sits at 12%
Insider buying has been a regular occurrence including six different insiders buying in the open market after their 2024 annuals dropped
Fully diluted float currently sits over 166M shares (this would also require a share price target of $2) - current implied float sits around 144M shares
Income Statement:
Total revenues of $3.6M in Q1, a 91% increase over the comparable quarter. Margins continue to move in a positive direction at 57%, a 600 basis improvement over last year. If there’s a miss, it comes within their cash burning expenses which grew at a slightly higher rate than revenues at 92%. Much of this likely came on the corporate side as they added people to support their growth, but to make the bacon on the bottom this rate has to start to trend lower than their revenue growth.
Overall this was enough to get them to just better than break even on income from operations of $7k, a $115k improvement over last year. After $225k in finance expenses and a couple of other minor items, that all equates to a net loss of $175k, which is a 43% reduction in loss from last years first quarter.
Overall:
So this was a quickie, down and dirty version and since my father in law now reads my reviews, this is where the analogies to his daughter come to an abrupt end. I digress.
Happy Belly continues to solidly move forward. Product sales are up 17% quarter over quarter. There is no better indication of progress than looking at their segments. QSR now produces 8% net income and their CPG segment (lower revenue of course) delivers 12% net income. As they continue to grow these segments, particularly the bread and butter QSR , this will continue to erode the impact of corporate expenses and if we are all playing our cards right, deliver increasing total net income to the entire corporation.
Three stars again for the eleventh straight review. Until there is EPS or FCF, those three stars will continue. You know the drill.
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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.
Thanks again wolf... proffesionelism at its best
Great review, more or less what I was expecting.
What I wasn't expecting was the line: "So this was a quickie, down and dirty version and since my father in law now reads my reviews, this is where the analogies to his daughter come to an abrupt end. I digress."
Made me laugh out loud.