Bull & Bear

Bull and Bear

Verdict: Watchlist — the decisive variable is dated, observable, and only ten months away. Bull and Bear converge on the same trigger from opposite directions: the H1 FY27 vape gross margin print in November 2026, the first disclosure after the £2.20/10ml duty takes effect on 1 October 2026. Bull says a 5.0x EV/EBITDA, 30% ROIC, founder-controlled platform with five disciplined sub-1.5x-revenue bolt-ons is mispriced versus a 7.6x UK FMCG peer median; Bear says the platform is a leveraged FCF mirage where 56% of revenue is regulated, ~30% is brand-rented from Heaven Gifts, and pod gross margin already compressed 200bps pre-duty. The single tension that resolves it is whether the H1 FY26 pod-margin compression was a one-time pod-transition reset or the leading edge of a structural slide. Sizing before that print captures any rerating tail; waiting trades that optionality for resolution of a knowable binary in the highest-margin segment. We lean Bull on quality and ownership signals, but the patient call is to size after November 2026.

Bull Case

Bull target: 240p (12-18 months). Method: 7.0x EV/EBITDA on FY27e Adjusted EBITDA of £42m (FY26 guide £40.6m plus Drinks and Wellness gross-margin convergence on the annualised SlimFast/Carabao base) → £294m EV less £12m net debt = £282m equity ÷ 117.3m shares ≈ 240p. The 7.0x multiple is a 60bps discount to UK FMCG peers, leaving the vape regulatory premium intact. Primary catalyst: H1 FY27 disclosure in November 2026 — first vape gross margin print after the 1 October 2026 duty. Pod GM at or above 30% removes the central reason the multiple is compressed. Disconfirming signal: vape gross margin printing under 28% in H1 FY27 (compression is structural, not transitional), or any equity placing to fund the next acquisition.

Bear Case

Bear downside: 110p (12-15 months, −32%). Method: vape GM compresses 5pp post-duty (31% H1 FY26 → 26%, retailer refuses full pass-through), wiping ~£6m of EBITDA. Strip the £4.1m Typhoo bargain gain from the £40.5m FY25 base. Run-rate Adj EBITDA settles at £30-32m. Apply 4.5x EV/EBITDA — the multiple a working-capital-stretched, ABL-funded, customer-concentrated FMCG distributor deserves — less £12m net debt ÷ 117.6m shares ≈ 109p, round to 110p. Primary trigger: H1 FY27 vape gross margin printing under 28%, or an equity raise to fund the next acquisition. Cover signal: H1 FY27 vape pod GM holds above 30% AND H1 FY27 OCF exceeds £15m — both prints together (showing the working-capital absorption was a one-off freight-shift, not structural).

The Real Debate

Verdict

Watchlist. The bull case carries slightly more weight on the structural inputs — 30% ROIC, 5.0x EV/EBITDA versus a 7.6x peer median, founder skin of 54.27% with £103m at risk, and a forensic-leaning long fund (Bronte Capital) adding 12.66% to its position — but the bear has identified the one piece of new information the bull cannot dismiss: pod gross margin compressed 200bps in H1 FY26 before the £2.20/10ml duty. That single fact is the tension that resolves the rest of the debate, because it determines whether the highest-margin slice of a 56%-regulated revenue base is structurally pressured or just transitioning between formats. The bear could still be right if H1 FY27 vape GM prints under 28% or an equity placing arrives to fund the next deal; the cash-conversion ledger is genuinely stretched, with FCF after acquisitions of −£3.7m in FY25 and 3-year true conversion of just 34%. The verdict changes to Lean Long if H1 FY27 vape pod GM prints at or above 30% AND H1 FY27 OCF exceeds £15m on the same release; it changes to Avoid if pod GM prints under 28%, or if Supreme issues equity to fund a deal before that print arrives. Sizing before November 2026 forfeits a knowable binary disclosure for a multiple-expansion call available after the print at modest cost in upside.