3 May 2021 Marley Spoon AG (MMM) – Q1 Report Wayne Sanderson – Head of Research Revenue growth 81%; Subscriber growth 85%; Guidance upgraded [email protected] +61 400 434 548 Recommendation Buy PT $3.86 Summary Marley Spoon AG (MMM) is a subscription-based weekly meal Risk Rating High kit provider founded in Germany in 2014. A meal kit is a box 12-mth Target Price (AUD) $3.86 (was $3.96) delivered directly to the customers’ home which includes the Share Price (AUD) $2.65 required ingredients to cook typically two or more meals along 12-mth Price Range $0.21 - $3.80 with step-by-step recipe instructions. Menus change weekly Forecast 12-mth Capital Growth 45.7% with 20-30 different choices per week. Forecast 12-mth Dividend Yield 0.0% MMM currently services customers in 8 countries across 3 12-mth Total Shareholder Return 45.7% three continents: Australia, USA and Europe (Austria, Belgium, Denmark, Germany, the Netherlands and Sweden). MMM has also launched a second brand – Dinnerly which targets more Market cap ($m) 678.5 (EUR 441.0m) cost-conscious consumers. Net debt (net cash) ($m)(Dec 20) (2.7) (EUR 1.8m) MMM launched in Germany in August 2014, the USA in April Enterprise Value ($m) 681.2 (EUR 442.8m) 2015 and Australia in June 2015. It listed on the ASX in 2018. Gearing (Net Debt/ Equity) 17% Record Q1 Revenue – Guidance raised Shares on Issue (m) 256.0 MMM delivered impressive growth in a record quarter: Options / est. Convertible bonds (m) 15.1 Sector Consumer Discretionary ● Revenue of EUR 77.4m up 81% on pcp with strong growth Average Daily Value Traded ($) $980,000 in all regions: Europe +108%, USA +82% (+98% constant ASX 300 Weight 0.2% currency), Australia +65% (+50% cc). ● 412,000 Active customers in Q1, up 85,000 (26%) on Q4, and up 171,000 (+71%) yoy. MMM clearly benefitting from increased customer adoption and awareness post Covid. ● FY21 Revenue guidance raised to 30-35% (from 25-30%). ● Record EUR 15.5m (v 11.6m pcp) marketing spend, up 34% yoy as MMM took advantage of favourable new customer acquisition metrics (~5 months payback on ~40 EUR customer acquisition costs, 45% IRR) and a consumer receptive to change to online grocery / meal kit shopping. ● No pull back in Australia, the first region out of Covid: Active customers up 24,000 (+24%) on Q4 including WA launch (Dinnerly only). Minor dip in orders per customer. ● Operating Ebitda loss -5.7m v (-$6.4m). ● Operating cash flow EUR 5.0m (v -0.5m) as customers pay in advance. Closing cash EUR 38.5m (v 34.4m Dec 2020). Our Forecasts We upgrade our revenue forecasts by 5% & 6% for CY21e & CY22e. However we also factor in higher costs as MMM looks to maximise its customer growth opportunity. We expect ~14% revenue growth in Q2 as MMM cycles MMM SHARE PRICE PERFORMANCE stronger comparables from Q2 (peak Covid) onwards. Recommendation & Opinion We believe that Covid has caused a permanent step change in consumer adoption and brand awareness of the meal kit model. Further, we believe that MMM and its main competitor Hello Fresh have developed a powerful customer friendly business model that ticks a lot of our boxes. Potential user numbers and TAMs (total addressable markets) are huge at ~ 190m households for MMM’s existing countries. We reiterate our Buy (High Risk) recommendation. Our 12-mth price target is $3.86 (based on our DCF and EV/ Sales comparables) which implies +46% potential upside. Sequoia Financial Group | Equity Research Marley Spoon AG (MMM) Q1 Cash Flow Report (Appendix 4C) MMM: Analysis of Quarterly Cash Flows CY20 CY20 Q1 Year ended Dec (EUR m) 1QFY20 2QFY20 3QFY20 4QFY20 Adjs Year Change 1Q21e Change % YoY 1. Receipts from customers 43.0 73.8 70.3 67.4 0.0 254.6 96% 78.7 83% 1a. Other Revenue 0.0 1b. Revenue per P&L released subsequently 254.0 1c. Cash receipts as a % of revenue 100% 2. Cash Payments Product manufacturing & operating costs (26.0) (47.0) (47.8) (51.2) 0.0 (172.0) 87% (47.4) 83% Advertising & marketing (7.6) (10.8) (12.9) (7.8) (0.0) (39.0) 5% (12.8) 69% Administration and corporate (8.7) (8.1) (10.4) (11.5) (0.1) (38.8) 30% (13.0) 49% Interest received 0.0 0.0 0.0 0.0 0.0 0.0 -34% 0.0 300% Interest paid (0.3) (0.3) (0.4) (0.6) 0.0 (1.5) 85% -100% Tax & Other (0.0) (0.0) (0.1) (0.0) 0.0 (0.1) 5% (0.3) 3471% Cash expenses (42.5) (66.2) (71.6) (71.0) 0.0 (251.4) 57% (73.4) 73% 3. Operating Cash flow 0.5 7.6 (1.3) (3.6) 0.0 3.1 -110% 5.3 986% 4. Investing Cash Flow Property Plant & Equipment (0.5) (1.7) (1.3) (1.8) 0.0 (5.2) 19% (2.3) 399% Acquisition of Businesses 0.0 0.0 0.0 0.0 0.0 Intellectual Property (capitalised R&D) (0.8) (1.0) (0.9) (0.7) 0.1 (3.3) 80% (0.8) -1% Other 0.0 0.0 0.0 0.0 Total Investing Cash Flow (1.3) (2.7) (2.2) (2.5) 0.1 (8.6) 37% (3.1) 141% 5. Financing Cash Flow Equity issues (incl options exercise) 10.0 2.0 34.0 0.0 46.0 1030% 0.001 nm Convertible debt issues 2.3 0.0 0.0 2.3 -92% Transaction costs on equity & convertible issues (0.0) (0.7) 0.0 (1.5) 0.0 (2.3) 586% (0.039) nm Debt issued (repaid) 0.3 (0.3) 0.6 (6.9) (0.0) (6.4) -219% 2.8 1032% Other financing changes (1.1) (1.2) (1.2) (1.2) 0.0 (4.7) 27% (1.3) 19% Cash from Financing 1.4 7.7 1.5 24.3 (0.0) 35.0 5% 1.5 8% 6. Opening Cash 5.4 5.9 18.4 16.5 5.4 nm 34.4 7. Net increase (decrease) in cash 0.6 12.7 (2.0) 18.2 0.0 29.5 nm 3.6 8. FX movements (0.2) (0.2) 0.2 (0.3) (0.0) (0.5) nm 0.4 9. Cash at end of period 5.9 18.4 16.5 34.4 0.0 34.4 534% 38.5 555% ANALYSIS Cash Receipts - Trailing 4 qtrs 142.0 184.1 221.9 254.6 254.6 290.2 104% Other Revenue - Trailing 4 qtrs 0.0 0.0 0.0 0.0 0.0 0.0 Cash Payments - Trailing 4 qtrs (165.3) (188.9) (222.4) (251.4) (251.4) (282.3) 71% 10. Operating Cash Flow - Trailing 4 qtrs (23.3) (4.9) (0.6) 3.2 3.1 8.0 -134% 11. Capitalised R&D - Trailing 4 qtrs (2.2) (2.8) (3.5) (3.4) (3.3) (3.4) 57% Source: Company quarterly reports; Annual Reports; Sequoia annualisation calculations Key points from MMM’s Q1 cash flow report: Cash receipts EUR 78.7m (v 43.0m pcp) +83% YOY. This was a record quarter in the company’s history, surpassing the previous Covid enhanced peak of EUR 73.8m in 2Q20 by 34%. Cash payments EUR 73.4m (v 42.5m pcp) up 73% YOY. Positive operating cash flow of EUR 5.3m (v 0.5m pcp) up 10-fold. MMM has an excellent business model whereby customers pay for their meal kit boxes in advance, with MMM paying its trade suppliers after 25 days (CY20 average creditor days). So MMM has an on-going positive working capital benefit every week it operates. Closing cash was EUR 38.5m (v 34.4m at December 2020). Trailing 4 quarter cash receipts were EUR 290m (v 142m pcp) up 104%. Trailing 4 quarter cash expenses were EUR 282m (v 165m) up 71%. Trailing 4 quarter operating cash-flow EUR 8.0m (v -23.3m). Page 2 Sequoia Financial Group | Equity Research Marley Spoon AG (MMM) P&L Summary – Q1 Marley Spoon (MMM) - 1Q21 Review Change Change Sequoia Diff Our Comments Year ended Dec (EUR m) 1Q20 2Q20 3Q20 4Q20 1Q21 QoQ YoY Est. % Revenue USA 20.4 38.3 34.2 34.3 37.1 8% 82% 36.9 1% Impressive 82% growth (+98% at constant currency). Australia 14.8 24.0 25.3 21.8 24.4 12% 65% 21.5 13% No pull back; +50% constant currency. New WA helped. Europe 7.6 11.0 9.8 12.5 15.8 26% 108% 13.7 16% Impressive 108% growth. 16% better than we expected. Difference to reconcile 0.0 0.0 0.0 0.0 0.0 0.0 Group Total 42.8 73.3 69.3 68.6 77.4 13% 81% 72.2 7% Impressive 81% growth; All regions contrubuting to this Contribution Margin (Gross Profit less Fulfilment costs) USA 5.3 10.7 7.9 8.9 10.4 17% 96% 10.0 4% Impressive growth. Australia 5.6 8.9 9.1 7.8 8.1 3% 43% 8.0 1% Europe 1.6 2.8 2.5 3.1 3.2 1% 98% 3.6 -11% Impressive growth. Difference to reconcile 0.0 0.0 -0.1 0.0 0.1 0.0 Group Total 12.5 22.4 19.4 19.9 21.7 9% 73% 21.5 1% Impressive growth.