Stock watch: As Nestlé USA snaps up Essentia, Alkaline Water's position strengthens

By Kirsteen Mackay


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Nestle sold one water division only to snap up another. A rising trend in functional water boosts the potential value of this rapidly growing water company.

Nestlé USA (SWX: NESN) is acquiring premium alkaline water brand Essentia. Steve Presley, Company CEO, says that high-end water is “a far more structurally attractive space”.

And Nestlé USA is not a company to take lightly. Just last month it sold its water company division for billions of dollars. Clearly it sees there’s much more money to be made in this space.

Water already displaced fizzy drinks as a consumer drink of choice. And now certain categories of bottled water are leading the trend to a new level. For these so-called functional waters, business is booming.

This move takes Essentia out of the independent water company category as it’s swallowed up by the Swiss conglomerate. And in doing so it leaves The Alkaline Water Company (NASDAQ:WTER | CSE:WTER) as the only independent premium water brand left in the US financial markets. This is good news for Alkaline Water as it rapidly strengthens its presence throughout the United States.

Plenty room for growth

Essentia sold $192 million worth of ionized water in 2020. In comparison, The Alkaline Water Company reported record revenue of $41.1 million. Up 28% year-on-year. But Alkaline Water is a micro-cap growth stock in comparison with Essentia, which sold for an undisclosed sum. And Nestlé USA is a major large cap with a whopping $286 billion market value.

Could Alkaline Water be next in line as an M&A target? Who knows? But the signs show premium water is a growing trend, and luxury consumer goods are in high demand.

Potential $200+ million valuation

In 2018, Essentia achieved sales of $100 million and a valuation around $500 million. With Essentia’s 2020 full-year sales approaching $200 million, its benchmark value could be closing in on $1 billion.

In comparison, during fiscal 2020, Alkaline Water achieved full year revenue of approximately $41.1 million. While, in the first nine months of 2021, it’s achieved revenue of $35.2 million. So if Q4 goes as well as expected, it looks set to beat its 2020 revenue results.

Did Nestlé USA pay $1 billion for Essentia?

It’s unknown. But if so, using these revenue figures as a benchmark, Alkaline Water on a par could have a potential market value of well over $200 million. That’s more than doubling, possibly even tripling, where it stands today.

Money-spinning deal maker

Why did Nestlé USA sell its premium American bottled water business, only to purchase another one?

Just last month Nestlé sold part of its water business to private equity firm One Rock Capital Partners for a breath-taking $4.3 billion. The sale comprised of its regional spring water brands, purified water business and beverage delivery service in the US and Canada. For it to snap up another water company so soon afterwards seems an unexpected move. But the company clearly knows what it’s doing.

Could it be that the company plans a similar deal for high-end alkaline-water brand Essentia? It’s not that farfetched. Springing on the thriving health trend, bottled water presents a unique way to broker money-spinning deal, after money-spinning deal.

“Essentia gives us an immediate strong presence in the high-growth, functional water segment and supports our efforts to capture opportunities with emerging consumer trends such as healthy hydration,” – Nestlé USA CEO, Steve Presley.

Making excellent progress

Alkaline water recently reported outstanding Q3 results and is snowballing its presence throughout the United States. The niche brand is excelling at capturing market share. And its soaring popularity has it perfectly primed to capture a selection of exploding health and wellness trends.

Alkaline Water’s management team are delighted with company progress so far. Not even a global pandemic could hold it back. Sales are rising and growth is rapid.

The company is investing extensively in strengthening its position and expanding through product positioning, ecommerce and production.

Via its existing direct store delivery network it already reaches over 10,000 customers. And this is set to break out exponentially. Through convenience stores and other stockists it expects an additional reach of 40,000 to 80,000 customers, in the coming months.

A growing trend for premium water products

The Covid-19 pandemic has brought health and wellness to the forefront of our minds. Bottled water with promising health benefits is in high demand and this Nestlé USA acquisition further proves this growing trend.

Steve Presley, Chairman and CEO of Nestlé USA said:

“We are excited to welcome the Essentia team to the Nestlé family as we expand our premium water portfolio. Essentia gives us an immediate strong presence in the high-growth, functional water segment and supports our efforts to capture opportunities with emerging consumer trends such as healthy hydration.”

The rising wealth of the growing global population is intensifying demand for luxury food and drink. This demand includes pure, clean water brands that provide a wealth of health benefits to consumers.Sustainability rules

As Essentia joins the ranks of Nestle’s water brands, it will sidle up next to Perrier®, S.Pellegrino®, San Pellegrino® and Acqua Panna®. Nestlé USA states this transaction fits with its sustainability drive to transform its global water offering.

The Alkaline Water Company too, is doing its bit to reduce its carbon footprint. It was the first national water company to offer an aluminum bottle. And it’s started including 25% recycled PET in its bulk offerings.

Leading independent water brand

In recent years The Alkaline Water Company has shot to prominence as a leading producer of premium bottled alkaline water, flavor-infused waters, and CBD-infused products. Its recognisable brands include Alkaline88®, A88™, and A88CBD™.

These beverages are loved by health nuts of all ages. But The Alkaline Water Company is just getting started. The company has massive plans to expand its widely loved series of CBD-infused products this year.

And its timing couldn’t be better. In recent years cannabis use and CBD consumption is gradually being permitted in certain states. But under the Biden administration full decriminalisation at the federal level is expected to take shape. This means Alkaline Water is positioned ahead of the trend. It’s ready to swoop in and embrace it, profiting all the way to the bank.

As the world opens up again and consumers get back to socialising, working out and meeting up, sales of these premium products are predicted to soar.

Cashing in on the CBD trend

Part of Alkaline Water’s phenomenal success comes down to its premium product range infused with CBD. There’s no doubt this popular range of CBD focused products, provides ever more scope for profitability. CBD’s popularity is erupting because of the health benefits it’s believed to sport. These range from arthritis, to sleep deprivation, fibromyalgia, muscle pain, and anxiety.

Everyone knows someone suffering from one or more of these ailments and anyone who exercises understands muscle pain. So, it’s easy to see how CBD infused water could become a regular part of a healthy regime.

Bottled water consumption is on the rise

Gary Hemphill, managing director of research for New York-based Beverage Marketing Corporation said:

“Bottled water is continuing on a solid growth trajectory, and actually experienced accelerated growth in the first half of 2020,”

In Chicago-based SPINS “Functional and Enhanced Beverages” report, it showed alkaline-enhanced water, enjoyed dollar volume growth of 36.4% to year ending April 2019.

Then, just last month, a newly published Statista report shows global bottled water consumption saw significant growth over the last decade and is still on the rise. In 2019, US bottled water sales volume reached around 14.4 billion gallons.

The tip of the iceberg

Demand for this vital life source is ever rising and this makes it a viable investment.

We all need to quench our thirst and protect our health. That’s what Alkaline Water is specialising in as it rolls out more of its premium flavours and infusions across the United States.

Consumers voted for taste and quality as the driving force behind their consumption. And it explains Alkaline Water’s exploding popularity because taste and quality are at its heart.

Much of the US is stuck with relatively hard water, which means its mineral content is high. This can affect flavor and leads consumers to opt for bottled brands.

But that’s not all, Alkaline Water is also expanding its reach throughout Mexico. And Mexicans are even bigger fans of bottle water than those north of the border. A recent Beverage Marketing Corp report, states Mexico had a per capita consumption of 73.7 gallons in 2019. This amounts to eight out of every 10 Mexican citizens regularly consuming bottled water.

Why invest in The Alkaline Water Company?

In fiscal 2020 Alkaline Water achieved full-year gross profit of approximately $16.8 million.

During the first nine months of fiscal 2021, Alkaline Water achieved Gross profit of around $14.4 million. So, to hazard a conservative guess, full-year fiscal 2021 gross profit could be in the region of $18.8m.

Perfect timing! There’s no doubt this company is operating in a lucrative and exciting space ready to pounce on the pandemic-enhanced health craze. Going by the Essentia acquisition and various industry statistical reports, The Alkaline Water Company share price appears to be significantly undervalued.

It’s expanding its Direct Store Delivery network and its flagship brand Alkaline88® is now available in over 75,000 stores throughout the US.



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Author: Kirsteen Mackay

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

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