Coverage initiation: HelloFresh

We initiate coverage of Hellofresh, the global leader in the growing meal-kit market, with a Buy recommendation and 24% upside.

Not everyone was negatively affected by the pandemic. With millions of households forced to stay at home, the meal-kit market has seen a surge in popularity, with global leader Hellofresh the first to take advantage.

The German group’s model is simple and is in fact a copy (with more resources) of a Swedish idea. Customers simply go to the website, choose the number of meals they want for the week, choose the recipes and they will then be delivered, to be cooked with the satisfaction of “I did it myself”.

The business model is not necessarily complex and notably relies on the company’s data-driven approach and its proprietary technology. Unfortunately, this is not enough to scare off the other players which are increasingly present. The marketing is therefore a key to survival and the value creation is definitively based on customer acquisition and retention.

Its leadership status has helped. Having gained in scale over the years, the group was finally one of the first meal-kit companies to become profitable in 2019 (2.6% EBITDA margin), while it reached 13.5% in FY20 as the pandemic inflated profitability. The mid-term ambitions are high too. 

The real question now is whether the model remains sustainable post-pandemic.

Hellofresh’s share price was up by 230% in 2020, but still trades below other major online/retailer players (2.6x vs. 3.6x FY21 EV/sales). Given its faster than peers growth and margin profile, we believe the group deserves a premium to the peer average.