AI And Health-Focused Offerings Will Support Long-Term At-Home Eating Demand

Catalysts

About My Food Bag Group

My Food Bag Group provides curated meal kits, ready-made meals and online food solutions to households across New Zealand.

What are the underlying business or industry changes driving this perspective?

• Ongoing consumer shift toward convenient, healthy, at-home eating supports growth in health-focused offerings such as diabetes and GLP 1 support plans. These offerings can sustain higher average order values and lift revenue and earnings quality.
• Expanding delivery coverage through New Zealand Post and adding thousands of new addresses increases the addressable customer base. This can support active customer growth, higher delivery volumes and ultimately revenue expansion.
• Scaling of the My Food Bag shop with care packages, gifting and ready-made meals builds a second growth engine in the broader online food market. This can diversify revenue streams and improve margin mix as the platform matures.
• Investment in AI-enabled customer service and pick technology is already reducing errors and compensation costs. Further efficiency gains can support higher net margins and stronger EBITDA despite wage and distribution pressures.
• Disciplined capital expenditure and consistent debt reduction create balance sheet flexibility to fund targeted growth initiatives or shareholder returns. This can enhance earnings per share and support a potential re-rating of the equity over time.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming My Food Bag Group's revenue will grow by 2.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.8% today to 4.6% in 3 years time.
• Analysts expect earnings to reach NZ$8.1 million (and earnings per share of NZ$0.03) by about December 2028, up from NZ$6.3 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 11.8x on those 2028 earnings, up from 9.4x today. This future PE is greater than the current PE for the NZ Consumer Retailing industry at 9.1x.
• Analysts expect the number of shares outstanding to grow by 1.63% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.29%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Food price inflation for core inputs like produce and meat has already compressed gross margin from 49.8% to 48.5% and could remain structurally higher than anticipated, limiting the ability of My Food Bag Group to expand revenue without further eroding gross margin and earnings.
• Distribution and labor cost pressures that have already reduced contribution margin by 1.4 percentage points may persist as a long-term trend in logistics and wages, offsetting operating efficiencies and constraining future improvements in net margins and EBITDA.
• Growth in active customers and deliveries remains modest at around low single digit rates. If this continues over the long term in a competitive online food market, it could cap revenue growth and reduce the operating leverage needed to meaningfully lift earnings.
• The broader shift toward flexible, low commitment food solutions may favor supermarket and on demand competitors. If the My Food Bag shop continues to contribute only a small share of sales at neutral contribution, it may not scale fast enough to materially support revenue diversification and margin expansion.
• Maintaining dividends and a low CapEx profile while relying on incremental improvements in order value and pricing to drive performance may signal limited reinvestment in transformational growth initiatives, which could constrain long term revenue acceleration and earnings growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of NZ$0.3 for My Food Bag Group based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be NZ$178.6 million, earnings will come to NZ$8.1 million, and it would be trading on a PE ratio of 11.8x, assuming you use a discount rate of 7.3%.
  
• Given the current share price of NZ$0.23, the analyst price target of NZ$0.3 is 21.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.