Level Brands (NYSE AMERICAN: LEVB) up 14% since our call Friday at $4.30/share. We think this may be headed back over the IPO price of $6/share. Stay tuned for updated coverage, full update report below…
Profit Taking Creates Buying Opportunity
In early April we published our reasons for liking Level Brands (NYSE American: LEVB).
The stock was around $4 when we first brought you this story. Just a few weeks later, it closed as high as $5.40 per share.
After surging nearly 40% in just a few weeks, shares of the innovative marketing and licensing company have since pulled back, likely on profit taking, providing investors a second chance to get onboard at lower prices.
Attractive Price Relative to IPO
LEVB raised $12 million at $6 per share in its Reg A+ initial public offering last November. At its recent price of around $4.50 per share, investors can in effect buy shares 25% cheaper than the IPO participants. The “smart money.”
Proven Leadership in Kathy Ireland, Chairman Emeritus and Chief Brand Strategist
Famed supermodel turned entrepreneur Kathy Ireland serves as Level Brands’ Chairman Emeritus and Chief Brand Strategist.
Her wealth of experience, which has built the 26th-largest licensing brand in the world, kathy ireland® Worldwide (kiWW®), generating a staggering $2.6 billion in sales annually, gives Level Brands a strong competitive advantage and the potential for rapid growth.
Hear directly from Kathy Ireland herself as she discusses the Level Brands opportunity: https://levelbrands.com/kathyirelandlevelbrands/
Licensing Drove $272 Billion in Retail Sales Globally in 2016
Licensing is big business. The world’s largest licencors generated $272 billion in retail sales in 2016.
Brands like Disney, Warner Bros., Universal, and Hasbro are the industry heavyweights, commanding a large share of the market.
Level Brands needs just a fraction of the market, and growth could be explosive.
Impressive Start to Fiscal Year
Since going public, the company reported triple-digit growth for the first quarter of fiscal 2018 (ended Dec. 31, 2017), with net sales up an impressive 244% year-over-year. Gross profit on net sales surged 1,138%.
With more deals like its $32 million, 10-year deal with CBD-manufacturer Isodiol on the near-term horizon, growth could accelerate into year-end, giving a further boost to the stock.
Advantageous Value Proposition for Licensing Partners
The consumer retail market is fiercely competitive. It takes either a lot of money or a lot of clout to get shelf space at the world’s largest retailers.
Level Brands has the necessary clout thanks to its exclusive 10-year deal with (kiWW®). And that’s why manufacturers like Isodiol are partnering up.
The company’s latest licensing deal, a 5-year agreement with Dynasty Group, provides a great example of the lucrative potential of its business model.
The deal provides for licensing under three brands either owned or managed by Level Brands:
- Ireland Men One (I’M1), Level Brands’ men’s-lifestyle brand, established to capitalize on potentially lucrative licensing and co-branding opportunities with brands focused on millennials
- Beauty & Pin-Ups (BPU), Level Brands’ hair-care and disruptive women’s-products brand
- David Tutera, a brand managed by Level Brands’ Encore Endeavor One (EE1), a provider of corporate brand-management services and producer of experiential entertainment events and products across multiple platforms
As part of the agreement, Level Brands receives an annual marketing fee for each of the three entities, plus royalty payments of 25% of gross sales until a threshold is met, and then 16% of gross sales from that point on.
And thanks to Level Brands, Dynasty Group gets on shelves easier and faster and benefits from the established recognition of brands like Ireland Men One and Beauty & Pin-Ups.
A win-win for all
Strong Fundamentals
A recent start and an influx of cash from its IPO positions Level Brands with a strong balance sheet, with zero long-term debt and about $9 million in cash.
With its low-overhead, high-margin (gross margins expected in the 70%-80% range) business model, combined with an impressive and growing list of licensing deals and distribution channels, Level Brands is well-positioned for solid growth in the quarters ahead.
With a combination of upfront fees, in the form of cash or equity, as well as ongoing royalties on sales for each of its licensing deals, over time, there is potential for significant, even exponential growth, which would command a much higher valuation.
Big Upside Potential
Mispriced opportunities like this can create big wins for investors.
With triple-digit growth, a growing roster of licensing deals, and the support and experience of Kathy Ireland, it’s only a matter of time before more investors catch wind of the Level Brands opportunity.
Those that get shares early could see a big reward in the months ahead. And with the recent pullback, the timing couldn’t be better.
We are extremely bullish these shares from the current level $4.40 – $6/share.
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