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Tattooed Chef Shows Massive Upside in Plant-Based Foods for the Masses

IPO Edge
·6-min read
  • Tattooed Chef, Inc. is a plant-based food company that grows and sells organic, non-GMO products

  • Trades at a steep discount to comparable companies Beyond Meat, Inc. and Vital Farms, Inc.

  • 67% annualized sales growth forecast from 2018 to 2021 with expanding Ebitda margins

  • Potential for pricing power, expanded retail push with branded products

  • Possible M&A or sale of the company itself in the near term

  • Board members include Forum Merger II’s David Boris, Google’s Ryan Olohan, food-industry veteran Bryan Rosenberg

  • Shareholders include Founder and CEO Sam Galletti, UMB Capital Corp., Forum Capital Management

  • Advised by Harrison Co., a boutique investment bank known for selling family-owned businesses

By Jarrett Banks and John Jannarone of IPO Edge

Tailwinds are firmly behind the plant-based food industry and investors are gobbling up shares of the leading players fast. One company they should be sure to meet is Tattooed Chef, Inc. (Nasdaq: TTCF), which can already be found on the shelves of club stores like Walmart Inc.’s Sam’s Club and is poised for big gains by ushering in the trend of farm-to-table for the masses.

The company sells organic, non-GMO, plant-based foods while it also it plants, manufactures and produces all of its products. Tattooed Chef is planning a big marketing push in 2021 into more retailers like Walmart and Target as eat-at-home trends look set to continue for the foreseeable future. It is also highly innovative: The Cauliflower Mac and Cheese at Sam’s Club (where it won an award for best new product) is something that retailers are screaming for.

The company went public earlier this year through a SPAC called Forum Merger II Corp., and was previously called Ittella. Tattooed Chef was founded by CEO Sam Galletti, who has 35 years of experience in the food industry. Mr. Galletti hired his daughter Sarah as the company’s Creative Officer. Ms. Galletti – the “Tattooed Chef” herself – is a foodie and a chef who honed her skills in Italy.

The company’s financial performance is strong with a 71% increase in revenue in the third quarter, helping it achieve an expected $148 million in sales and adjusted Ebitda of $17 million for the full year. That growth is expected to continue, reflecting 67% annualized revenue growth from 2018 to 2021. It also has $82 million in net cash following the SPAC merger.

How will the company take advantage of its healthy balance sheet? In addition to marketing spend, Tattooed Chef could purchase manufacturing facilities and indeed, Mr. Galletti’s background would suggest he knows exactly how: He has prior operational and investor roles at Ittella, Sonora Mills, and Good Karma Foods.

The company currently sources all of its products from plants in Italy and California. It has increased capacity at both of its facilities by more than 50% in 2020 and will continue to do so into 2021 to handle new growth from conventional retail and direct-to-consumer channels. To take advantage of growing brand recognition, the company also is stepping up its effort in e-commerce by offering products on its website that aren’t in retail.

Of course, a top performer like Tattooed Chef is bound to be subject to scurrilous – and baseless – attacks. For instance, Sahm Adrangi’s Kerrisdale Capital recently alleged that going public through a SPAC allowed it to sidestep scrutiny. Such a claim is demonstrably false as the SEC requires essentially the same disclosure as would be found in an S-1 filing for a traditional IPO.

Oddly, Kerrisdale suggests Walmart won’t be willing to stock Tattooed Chef products in a meaningful way for fear of stealing sales from Sam’s Club. But a visit to either Walmart.com or a physical store proves this claim wrong with little effort. In fact, being vetted in Sam’s Club, which is a challenging place to land shelf space, should be seen as an affirmation of strength. Savvy investors might consider using any confusion Kerrisdale caused as a buying opportunity.

Beyond Walmart, the company is moving fast into branded retail and private label across other channels such as military, food service and convenience stores. Core competitors in the retail frozen food section include Amy’s, Sambazon, Birdseye and Caulipower. Beyond Meat, Inc. is at the vanguard but there is certainly room at the top for a challenger.

Tattooed Chef should also be able to charge a premium as its brand recognition grows. The product presentation has a look and feel rarely seen in supermarkets. And as retailers clamor for more plant-based food products, the most innovative companies will win.

Investors should also take comfort in that fact that Tattooed Chef is profitable – with margins that continue to expand. The company expects Ebitda margins of 13.9% in 2021, up from 11.6% in 2020. Over the long term, Tattooed Chef expects margins in the high teens.

Turning to valuation, Tattooed Chef looks inexpensive at the current share price of $15, which is well off its recent peak. That puts the company on an enterprise value, adjusted for cash, of 3.5 times 2021 forecast sales. Beyond Meat, which has a growth rate similar to Tattooed Chef, trades at 13.6 times 2021 consensus sales, according to Sentieo, an AI-enabled research platform. Vital Farms, Inc., which is growing at a much slower pace, trades at a multiple of 4.4 times sales through August 2021.

It is notable that the Tattooed Chef deal was completed amid the pandemic, when many other transactions were called off as uncertainty plagued the market. Tattooed Chef was advised by investment banking boutique Harrison Co., which specializes in advice to family-owned businesses and has extensive experience in the food sector. For instance, Harrison sold Wawona Packing, the largest organic stone fruit company in North America along with Strauss Brands, the largest grass-fed grass-finished beef company in the U.S.

Another source of upside to consider: M&A. In coming months and years, deal activity may accelerate among North American packaged-food companies, which have used an influx of cash from pandemic-related spending spikes to cut leverage. Additionally, many packaged-food companies, including Tyson, Kellogg and General Mills, have established wholly owned venture funds to invest in emerging companies that are focused on innovation.

But whether Tattooed Chef ends up going it alone, snapping up a target, or being sold to a major food company, smart investors should smell an opportunity like this a mile away.

Jarrett Banks

Editor-at-Large

IPO Edge

www.IPO-Edge.com

jb@capmarketsmedia.com

Twitter: @IPOEdge

Instagram: @IPOEdge