Yesterday, Marley Spoon Group ("MSG") released Q4 and preliminary FY'23 results that were in line with our expectations. Q4 sales came in at € 73.5m (-18% yoy; eNuW: € 73.1m), implying revenues of € 328.5m for the full year (-18% yoy; eNuW: € 328.1m), which was mainly driven by a smaller active subscriber base of c. 193k (-22% yoy; eNuW: 189k) and lower order frequency per subscriber on account of a very challenging macroeconomic environment and pronounced consumer budget concerns throughout 2023. While macroeconomic uncertainties persist, MSG has made operational and non-operational progress on several fronts and thus looks set to disproportionately benefit from an eventual return of consumer confidence and a less hawkish monetary policy:

Removing operational roadblocks. Operationally, MSG continued to expand its industry-leading contribution margins for Q4 and the full year to 32.6% and 31.7% (+290bps yoy, eNuW: 31.5%), respectively, through operational efficiencies in fulfilment (-180bps yoy fulfilment costs) and margin-based menu planning (+120bps in gross margin). Notably, MSG was able to translate a higher contribution margin into a strong operating EBITDA margin of 4% for Q4 (eNuW: 3.4%) and -0.8% for the full year (+140bps yoy, eNuW: -1%). This healthy margin development was aided by (1) rectifying a previously changed voucher strategy, allowing the company to increase marketing efficiency and early cohort retention rates in H2'23 and into Q1'24 as well as a more stabilized order frequency and enhanced subscriber quality; and (2) a more streamlined G&A setup (-11% yoy to c. € 69m, excluding one-off costs) as cost-reduction measures from automation, business service centralization, the closure of underutilized operations, and cost synergies from its Chefgood integration began to kick in.

Progress in ending dual-listed status. In Q4’23, the Group closed its tender offer to the remaining shareholders of Marley Spoon SE (listed on the ASX). The results indicated that it successfully acquired 10.4% of the total issued capital of Marley Spoon SE, increasing the stake to 95% (see illustration on page 2) and further paving the way to delist Marley Spoon SE from the ASX in H1 2024e (eNuW). In our view, this should benefit liquidity for MSG shares and help reduce investment complexity stemming from its current dual-listed status. Additionally, each share of MSG now owns 10ppts. more of Marley Spoon SE, which is reflected in our raised PT.

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Strategic transactions & equity raise. MSG signed a share-based SPA with BistroMD, a leading doctor-designed ready-to-eat (RTE) meal plan company in the US (c. € 35m revenues in 2023), for an EV of € 15-17m (eNuW). Apart from an attractive entry into the vast and growing US RTE market and capitalizing on relevant consumer trends like health, convenience, and weight-loss, this deal likely offers MSG an opportunity to use its own data and technology platform to generate significant synergies and performance improvements for both Marley Spoon and BistroMD over time. BistroMD's willingness to partly trade its double-digit growing RTE business for deeply out-of-the-money MSG warrants (€ 15-20 strike prices) not only signals strong confidence and commitment on their part, but also should prove advantageous for MSG as it integrates an adjacent food business into its already established meal-kit platform. While BistroMD likely is currently loss-making due to lack of sufficient scale (c. 30% contribution margin, eNuW), in our view, fulfilment, G&A, and marketing expenses should decrease significantly in time, making this business a valuable, growing and profit-contributing addition to MSG's brands. Assuming a share price of € 2.00, MSG acquires BistroMD at an EV/Sales FY23 multiple 0.39x, in line with MSG's own current valuation of c. 0.37x.

Furthermore, MSG entered into a 7-year strategic partnership for manufacturing and fulfilment with FreshRealm by selling its US operating assets for € 22m to FreshRealm, which will operate the fulfilment center and become MSG's exclusive operations partner in the US. This provides Marley Spoon with a scalable and capital-efficient way of operating in the US, delegating asset-heavy fulfilment and warehouse operations (back-end) to an experienced partner while continuing to focus its investments on customer-facing competencies (front-end). Net cost savings are seen to amount to c. € 1-2m in G&A and should thus favourably impact margins going forward.

Debt terms & capital raise. Both deals are supported by an c. € 8m equity raise through c. 2m treasury shares at € 4.00 per share. Moreover, Runway, the company's biggest debtholder, supports these transactions and agreed to a 12-months extension of the debt facilities' interest-only period to January 2026 and maturity date to June 2027. Upon closure of the transactions, MSG will repay Runway € 10.3m of the outstanding loan balance. Importantly, the asset sale, capital raise, and debt facility extension provide Marley Spoon with ample breathing room to reinvigorate its meal-kit and adjacent operations as well as time to successfully integrate its recent acquisitions.

Note: Since the transactions have yet to be closed, we currently do not include the financial impact of these deals in our financial model and valuation. Both the strategic and support transactions are expected to close in Q1'24 at which time we will release an update.

Growth outlook. Going into 2024 and disregarding any effects of the potential transactions, Marley Spoon is well-positioned to return to topline growth, reaching c. € 346m in revenues (+5.3% yoy, eNuW) and c. € 11.6m in operating EBITDA (+4.3ppts yoy, eNuW), mainly driven by a return in active customer growth to c. 200k (+ 3% yoy, eNuW), and leverage in its multi-region and multi-brand meal kit platform to (1) further penetrate the still vastly underpenetrated $ 7tn global food & grocery market, harnessing deep-seated consumer trends like convenience and wellness; (2) grow basket size via more differentiated service offerings (AI-driven recipe development and ranking for +100 weekly recipe options); and (3) realize revenue and cost synergies from its newly acquried BistroMD and FreshRealm partnerships.

The Group remains attractively priced trading at only 0.3x EV/Sales 2024e, leading us to reiterate our BUY rating with a changed PT of € 8.60 (old: € 8.20) based on DCF.