Description

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Executive Summary

HUMBLE SS owns and manages a portfolio of consumer-packaged goods (CPG) brands focused on healthier options, with a strong presence in Sweden and the initial stages of global expansion. Due to its obscure listing on the First North exchange (similar to the pink sheets in the U.S.), the company trades at an attractive valuation, with a low-double-digit free cash flow to equity (FCFE) yield and an EV/EBITDA multiple of less than 8x for FY25. We anticipate HUMBLE’s valuation discount relative to global CPG peers with comparable growth profiles to narrow significantly over the next 12 months, particularly as the company plans to uplist to the Nasdaq Stockholm exchange next month and hosts its first Capital Markets Day since 2021 on September 19th. Notably, insiders own approximately 32% of the stock and have consistently been buyers in the open market since the IPO.

Recently, the company released new medium-term minimum targets, highlighting a reacceleration in revenue growth from Q2’s 9% organic growth rate and signaling substantial operating leverage as the business scales its fixed costs. We expect management to provide further details on these targets during the upcoming Capital Markets Day. We believe the market is still in the early stages of understanding these targets' implications. As the short-term catalysts unfold—including a potential acceleration in Q3 revenue growth—we foresee HUMBLE's valuation moving towards a 12x EBITDA multiple, equivalent to a share price of 20 SEK (representing a 90% upside).

Even without a valuation re-rating, with the company growing FCFE by over 20% annually and shares currently trading at a 10%+ FCFE yield, we expect intrinsic value to compound by more than 30% per year.

Thesis Points

1. HUMBLE offers the best risk/reward exposure to the healthy alternatives trend in public markets.

Consumer preferences are increasingly shifting towards healthier snacking options. HUMBLE Group is at the forefront of this market in Europe, with products available in over 200,000 retail locations and substantial insider ownership (over 30% by management and the Board). The product range includes healthy candies, gums, protein bars, powders, snacks, and fitness drinks. Through a series of strategic acquisitions, HUMBLE has established itself as the market leader in Europe within its specific "better-for-you" staples categories. We believe HUMBLE is well-positioned for long-term success for the following reasons:

• • A strong portfolio of owned brands.
  • Diverse capabilities, including full-service offerings (own brands, white-label products, distribution) for key retail relationships.
  • Vertical integration from product R&D to manufacturing and distribution.
  • A highly motivated management team with significant equity stakes.

Given HUMBLE’s attractive valuation relative to its high-growth profile compared to peers, the shares offer a compelling risk-reward opportunity in an otherwise expensive market. We expect HUMBLE’s strong positioning in a high-growth sector to drive around 10% organic growth moving forward. Additionally, downside risk appears limited: private equity previously attempted to acquire the business at a ~100% premium to current prices in Q4 2022 (estimated at around 16 SEK), but insiders rejected the offer as they considered it opportunistic and below their expectations. If the market continues to undervalue the company, we anticipate that HUMBLE may initiate a sale process at a significant premium to current prices.

2. HUMBLE is in the early stages of margin expansion, setting the stage for outsized earnings growth.

The company has made significant investments in operating expenses to increase capacity over recent quarters, with higher volumes yet to be reflected in the P&L. As revenue growth continues, we expect HUMBLE to capitalize on its fixed costs, resulting in EBITDA growth nearly double the pace of revenue growth over the medium term.

3. Several near-term catalysts could unlock significant value in the shares:

Catalyst 1: Capital Markets Day on September 19th. This event will be HUMBLE’s first major engagement with the capital markets since 2021, when the company last hosted a Capital Markets Day and raised capital for acquisitions. Now a scaled business with fully organic double-digit growth and pending integration synergies, HUMBLE is positioned to finance bolt-on acquisitions through cash flow moving forward.

Catalyst 2: Uplisting to Nasdaq Stockholm by the end of September. Historical data on uplistings from the First North to Nasdaq Stockholm over the past decade shows an average outperformance of ~19% against the OMX Index from two months before uplisting through 12 months post-uplisting. Companies with a market cap above $300 million USD, such as HUMBLE, have shown even stronger performance, outperforming the OMX by over 24% in the same period. With the improved listing status, we expect increased interest from Nordic institutions over the next year.

Catalyst 3: Expected acceleration in organic revenue growth from 9% in Q2 back to double digits in Q3. An earlier Easter resulted in a shorter candy sales period in the first half of 2024 compared to 2023. Additionally, HUMBLE's capacity expansion investments have not yet been fully realized. July demonstrated high-teens organic growth for HUMBLE, and we expect similarly strong results for August and September. Management's recent disclosure of a minimum 10% organic growth rate further supports our confidence.

Catalyst 4: Potential entry into the US market with tier 1 brands (Pandy and True Gum) in early Q4. We believe HUMBLE’s entry into the U.S. market will be a long-term success due to the lack of compelling healthy candy alternatives (e.g., Smart Sweets does not compare to Pandy). This market entry is expected to increase investor interest. Long-term, we estimate that success in the U.S. with just Pandy and True Gum could boost sales by approximately 50% (~$200 million USD per brand) with high incremental margins. We expect discussions around the U.S. opportunity during the Capital Markets Day to further excite investors, given Sweden's reputation as a global trendsetter in innovative healthy CPG brands.

Conclusion

Given HUMBLE’s diversified positioning across rapidly growing consumer staples categories, strong margin tailwinds, a low starting valuation, and several upcoming catalysts, we view the risk/reward profile as highly favorable. If HUMBLE continues to trade at a significant discount to its intrinsic value, we anticipate that the company could pursue a formal sales process, with prospective bids likely exceeding current prices.

Catalyst

See above