Mama creations, a small cap with a new trajectory.

Company information

Market cap: $149 million

TTM Income: $6 million

Share price: $4

Shares outstanding: 37.4 million

Ticker: MAMA 0.00%↑

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Key points

• Mama creations is a company going through an evolution from a pre-packaged food company to a one stop shop solution for the deli isle nationwide.

• They recently brought in a new CEO that spent 9 years at Mondelez North America.

• The new model should afford them better margins and a long growth runway in a fragmented market with no current industry leader.

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Overview

Mama creations is a small cap company that started out as a pre-packaged authentic Italian food company named MamaMancini’s. They have roots going back to 1921 when Anna Manchini emigrated to the US from Italy and brought her authentic Italian recipes with her. Her recipes were handed down to Dan Dougherty and Dan Manchini who founded Mama Manchini’s in 2009. The food is authentic, all natural with no artificial preservative or flavors. They sell various products and many of them have very good reviews. I’ve read some reviews online where some Costco shoppers said the meatballs were the “best store meatballs they’ve ever had” and they tasted like “authentic home made meatballs.”

One of stores that sells their meatballs in the deli isle did their own internal research and found that they sell more of them when they are labeled “Mama Manchini’s” rather than a just meatballs.

Transition

Meatballs are good and all but It’s not necessarily something I would get excited to invest in. What’s exciting is the transition the company is currently going through and the new management.

The company aims to be the one stop shop solution for the deli isle nationwide, while also continuing to sell pre-packaged retail items. To launch this transition they’ve made a few acquisitions and now plan to focus on expanding their deli offerings and selling their existing products to the deli department, salad bars and hot bars at different retailers. Their aim is to become the leader in this fragmented $45 billion dollar market, of which $25 billion is their addressable opportunity that currently has no publicly traded leader. The companies new name is Mama’s creations.

New management

The new CEO Adam L. Michaels was hired in 2022 and previously spent 9 years in various roles at Modelez, including M&A insight and analytics at for their North American division. If you aren’t familiar, thats the North American division for Mondelez International, the $97 billion dollar company that owns Nabisco, Cadbury and The Clif Bar Company.

Since Adam joined the company they’ve outlined a transformative plan and hired new leaders including an interesting CFO who previously worked at Richemont North America and De’Longhi America, Inc.

Daniel Manchini, one of the founders, is still involved on the management team but mostly representing the voice and face of the company though radio, television and QVC sales and advertising.

Compensation inside ownership

Adam Michaels has a very minimal base salary ($325,000) and is eligible for a bonus ($650,000) along with stock based compensation. Although Michael’s doesn’t own a very large position the company yet, there are various managers and directors holding a total of 24% collectively.

Product offerings

They have a few main brands so far.

Mama Manchini’s

They offer meatballs, meatloafs, stuffed peppers and marinated sausages. These products have very good reviews and are sold through both their deli and retail channels. This is easily their most popular brand. One of the more notable places they sell Mama Manchini’s products is at Costco which speaks volumes about the quality of their products. Costco only has about 4,400 sku’s in each store and they’ve truly mastered the art of choosing only the best products to place on their limited shelf space.

The olive branch

This company offers 53 different olive products including seasoned, stuffed, brined and marinated olives. These are sold both to through retail and to deli departments.

Creative salads

They offer various salads, grilled chickens, paninis, wraps, burgers, grilled vegetables and hot food entree’s. These are sold primarily through the deli counter and also have many very good reviews.

Value proposition, Trends and growth

Value proposition

Their value proposition is fairly simple, they want to become the healthy, authentic and convenient one stop solution for the deli isle and they believe they can capitalize on some changing consumer trends.

Trends

Customer behavior is changing for multiple reasons. First, people are time constrained and looking for healthier, quicker alternatives to McDonalds and cheaper alternatives to big restaurants. The Deli isle has seen an increase in sales over the last few years and is primed to continue serving this niche if they can offer good tasting, healthy alternatives that are fairly priced. Eating out has become way too expensive for most families and making food at home is not an option due to time constraints.

Another interesting trend is that people are shopping less in the isles and more around the edges of the store, spending more time at the bakery, deli, butcher, fruits and vegetables. This is obviously part of the health trend away from processed foods and towards freshly prepared foods.

Growth strategy

1. Further penetration: Although they already have items carried with in about 8,400 locations nationwide, they still have room for penetration in both their retail and deli channels in many markets. They also don’t partner with some of the largest retailers yet, such as Kroger, Wal-Mart and Target.

2. Increase Average items carried: Once they have an item placed and a relationship with a grocer, they leverage that relationship to continue expanding their offering by cross selling existing products, creating new products or acquiring other companies and extending those offerings. This is sort of a land and expand strategy for specialty prepared foods. Below is a case study for Publix. They began with one product and now carry 8 sku’s at every Publix.

   

3. Acquisition: This is another area that will prove to be important because there are something like 22,400 food manufacturing facilities in the US, which provides a good opportunity for acquisition. They‘re constantly searching for premium food companies that could improve their selection and distribution footprint.

They believe they have the ability to reach $1 billion in sales through acquisition and organic growth, although they don’t mention when they believe they can reach that milestone.

Fundamentals

Since this transitioned to this new model they’ve expanded profit margins from a low of -9% in 2022 to now regularly above 6%. Gross margins hit a low in 2022 at 11% and are now above 30%. Adam seems to be very serious about expanding margins and using excess cash flow on re-investment opportunities.

They earned $2 million in FY 23’ and about $6 million in trailing earnings which mean their trailing P/E is about 24-25x. Earnings grew about 15% in 2022 and 97% in 2023.

Their reporting calendar begins and ends in June so they’re actually half way through their FY 2024 reporting already. I expect them to earn somewhere between $6-$7 million in FY 2024.

Their total debt is $9.7 million and is easily covered by their cash and receivables of $14.4 million. The CEO mentioned in an interview that he doesn’t like using a lot of debt and prefers to pay cash wherever possible.

Theres also a few things I found interesting about this company, first as they move away from pre-packaged foods and into serving the deli industry they should be able to do away with the more expensive packaging and fancy labels that would be required for pre-packaged food. This should afford them higher gross margins going forward.

Second, Adam mentioned in an interview that they have a negative cash conversion cycle and so I had to check for myself. He’s right, and for those who aren’t familiar with the CCC, it’s an estimation of the number of days that it takes a company to convert its inventory into cash. Since Mama’s is negative (-0.39) this essentially means that they’re selling inventories and collecting cash before they pay suppliers for them, in other words, their suppliers are financing their business. This is a desirable position to be in to say the least but whether they can remain in this position remains to be seen.

Competition

Regardless of the fact that they have a strong brand, they have many competitors in the retail prepackaged category. On the other hand, the deli industry is a very fragmented and doesn’t really have a large publicly listed leader. Now, it’s important to note that the deli category potentially competes with the non deli items in the store so just because there isn’t a large competitor in the deli space it doesn’t mean they aren’t facing competition there.

Valuation

They believe they can expand margins from here, but I’m assuming their margins remain around the same, somewhere between 8-9% and I’m assuming they grow at a modest pace between 10-15%. In this case they could potentially be a $430 million dollar company in 5 years if the valuation expands slightly. But if margins shrink and the company doesn’t don’t grow as fast, it may not be the home run I’m looking for.

The CEO claims this could easily be a $1 billion dollar company and I’m not sure if he’s just being overly optimistic, which would fit his bubbly, salesman type personality, or if this is really feasible. I would normally take these kinds of predictions with a grain of salt, but they seem to have produced some results that warrant some credit.

Final thoughts

I’m going to take a small position in this company just to track it and keep it on my radar. It’s such a simple business that appears to have good management and a long term plan for growth. I wish I would have stumbled across this company a few years ago when the valuation was much lower and the stock was at 1$ but thats ok, I still think theres potentially a good run ahead of it.

Thats it for this week thank you for reading.

Disclaimer: Nothing I say should be taken as financial advice. None of my financial models should be taken as buy or sell signals. Consult your financial advisor before buying or selling any securities.

Full disclosure: I am not a MAMA 0.00%↑ shareholder at the time this was written.