This report should be read in conjunction with the risks, disclaimer and disclosures sections which form part of th is report and can be found at the end of this document. 29 January 2021 Forbidden Foods ( FFF ) 2Q21: Another solid quarter ahead of Funch launch in 3Q21 FFF released its 2Q21 quarterly update and 4C yesterday morning, being the company’s first full quarter of results following its ASX listing in late - August. Following the release , we revise our estimates very modestly and strongly re - iterate our BUY recomm endation. Quarterly highlights include: ▪ Revenues +13% QoQ 2Q21 revenues of $1.04m were up 13% QoQ, despite FFF’s Foodservice business remaining under pressure due to rolling lockdowns and border closures as a result of Covid - 19. 1H21 revenues were ~$1.96 m , marginally below BW @ $2.2m. ▪ Cash receipts = $950k Receipts were down 2% QoQ as FFF terminated its debtor factoring facilities in the quarter; resulting in slightly delayed payments (cash collections as a % of revenues fell to 91%, from 106% in Q1). ▪ OCF burn of $1.7m. O perating Cash outflows of $1.7m for the quarter were significantly higher than $210k in Q1 , although this was driven almost entirely by stock purchases ahead of anticipated sales in 2H21 ( discussed below) ▪ Inventory build. With ~$2m inventory on hand (or ~6 months’ worth of stock), we except 2Q21 to have been the heaviest spending quarter for FY21. Accordingly, we now expect FFF to deliver a cash flow positive 2H21, with a minor 3Q21 OCF burn of $26k. ▪ Cash balance = $3.1m + unused finance facilities of $735k leave the company with $3.8m in available funds ▪ Operations. Forbidden signed three major ranging deals during the quarter, being (1) FoodWorks, a cross 500 stores, (2) Baby Bunting, across 58 stores, and (3) Pharmacy Alliance, across 700 partner stores. Funch products prominently displayed at Foodworks (Fig. 1 . Pg. 3 ). Within its release yesterday, FFF provided several photographs which highlighted the prominent placement of Funch products across the Foodworks network of stores. Against th is backdrop, our 2H21 Funch estimates (which assume sales of only ~$6/store/day at Foodworks ) appear comfortably achievable. FFF remains undervalued rela tive to its peers. We see FFF as extremely undervalued relative to its peer group, with results released by WOA/PFT yesterday highlighting the extreme disconnect that continues to exist between these micro - cap FMCG food companies. ( Fig. 2, Pg. 3). Re - iter ate our BUY recommendation, PT to $0. 7 4/Sh (from $0.78/Sh) We continue to expect FFF will deliver strong results for shareholders given its rapid top - line growth (FY20 - FY24 CAGR = 67%), industry - leading margins (~35%) and highly - scalable cost base (opex C AGR = 34%), while the company remains well - priced relative to its peer group. Following yesterday’s release we make minor changes to our estimates which see our PT fall modestly to $0.74/Sh, representing a TSR of 229%. Recommendation Target Price (AUD) 0.74 Share Price (AUD) 0.23 Forecast Capital Return 229% Forecast Dividend Yield 0% Total Shareholder Return 229% Market Cap 16.9 Net Cash (Debt) 4.5 Enterprise Value 12.4 Shares on Issue (000s) 75,001 Options/PRs on Issue 5.5 Lindsay Bettiol | Head of Research Key Executives Non-Executive Chairman Mark Hardgrave CEO & MD Marcus Brown COO & ED Jarrod Milani Non-Executive Director Colleen Lockwood Catalysts 2Q21 Quarterly Update Jan-21 Commercial Progress re: Funch 1QCY21 Exports, E-Comm, Acquisitions Ongoing Major Shareholders Marcus Brown 12.5% Jarrod Milani 12.5% Regal Funds Management 3.3% Adam Soffer (CoSec) 3.3% 12-month Price Performance BW EQUITIES RESEARCH Level 30, 360 Collins Street Melbourne, Victoria, 3000 +61 (0) 3 9601 4800 Page | 2 Forbidden Foods (FFF) 29 January 2021 Summary Financials P&L (A$m) FY20 FY21E FY22E FY23E FY24E Balance sheet (A$m) FY20 FY21E FY22E FY23E FY24E Customer Revenues 4.1 5.6 13.5 22.1 32.0 Cash & equivalents 0.1 2.7 3.0 4.0 6.5 Interest 0.0 0.0 0.0 0.0 0.0 Receivables 0.7 0.9 1.3 1.8 2.6 R&D 0.1 0.1 0.1 0.1 0.1 Inventory 1.1 1.9 1.5 1.5 1.5 Total Revenues 4.2 5.7 13.6 22.2 32.1 Other 0.3 0.3 0.3 -0.3 -1.4 Direct Costs 2.7 3.7 8.9 14.5 20.7 Total current assets 2.2 5.8 6.0 7.1 9.2 Gross Profit 1.5 2.0 4.7 7.8 11.4 Net PP&E 0.0 0.2 0.2 0.1 0.1 Expenses 2.4 4.2 4.5 5.9 7.6 Intangibles 0.1 0.1 0.1 1.4 3.6 EBITDA -0.9 -2.2 0.2 1.9 3.8 Total non-current assets 0.1 0.2 0.2 1.5 3.8 Net interest 0.1 0.0 0.0 0.0 0.0 Total assets 2.3 6.0 6.3 8.6 13.0 D&A 0.1 0.0 0.1 0.1 0.1 PBT -1.2 -2.2 0.1 1.8 3.7 Payables 1.4 1.4 1.4 1.4 1.4 Tax 0.0 0.0 0.0 0.6 1.1 Provisions 0.1 0.1 0.1 0.1 0.1 NPAT (rep) -1.2 -2.2 0.1 1.3 2.6 Other 2.8 2.8 2.8 2.8 2.8 Abnormal items 0.0 0.0 0.0 0.0 0.0 Total current liabilities 4.4 4.4 4.4 4.4 4.4 NPAT (adj) -1.2 -2.2 0.1 1.3 2.6 Long term debt 0.0 0.0 0.0 0.0 0.0 Other 0.0 0.0 0.1 0.1 0.1 Ave shares (diluted) 0.0 75,001 75,677 77,926 81,000 Total long term liabilities 0.0 0.0 0.1 0.1 0.1 EPS adj (A¢) 0.0 -2.9 0.1 1.7 3.2 Total liabilities 4.4 4.3 4.5 4.5 4.5 DPS (A¢) na na na na na Total common equity -2.1 1.7 1.8 4.1 8.5 Cash Flow (A$m) FY20 FY21E FY22E FY23E FY24E Ratios & Valuations FY20 FY21E FY22E FY23E FY24E Receipts from customers 3.8 5.4 13.2 21.6 31.2 Gross margin (%) 36% 36% 35% 35% 36% R&D Grants 0.1 0.1 0.1 0.1 0.1 EBITDA margin (%) na na 1% 9% 12% Overheads -5.0 -7.7 -13.0 -20.3 -28.4 PBT margin (%) na na 1% 8% 12% Deferred taxes 0.0 0.0 0.0 0.0 0.0 NPAT margin (%) na na 1% 6% 8% Other 0.1 0.1 0.1 0.1 0.1 Cash flow from operations -1.1 -2.1 0.3 1.4 3.0 Incrementals Gross margin (%) na 36% 34% 36% 37% Capital expenditures 0.0 -0.1 -0.1 -0.1 -0.1 EBITDA margin (%) na -84% 30% 20% 19% Acquisitions 0.0 0.0 0.0 -1.3 -2.2 PBT margin (%) na na 29% 20% 19% Divestitures 0.0 0.0 0.0 0.0 0.0 NPAT margin (%) na na 29% 14% 13% Other 0.0 0.0 0.0 0.0 0.0 Cash flow from investments 0.0 -0.1 -0.1 -0.1 -0.1 P/E (x) na na 220.2 13.9 7.1 P/B (x) na 10.2 9.8 4.3 2.2 Dividends paid 0.0 0.0 0.0 0.0 0.0 EV/EBITDA (x) na na 77.5 7.3 3.2 Capital raised 1.9 5.0 0.0 1.1 1.8 Repaid debt/borrowed funds 0.0 0.0 0.0 0.0 0.0 Customer Rev growth (%) na 37% 140% 64% 45% Other -0.3 0.0 0.0 0.0 0.0 EBITDA growth (%) na na na 923% 99% Cash flow from financing 1.9 5.0 0.0 1.1 1.8 EPS growth (%) na na na 1480% 95% Total cash flow 0.8 2.8 0.2 2.4 4.8 June year end Ratios calculated using FFF share price of 0.23 $ Source: Company data, BW Equities Research estimates BW EQUITIES R ESEARCH Level 30, 360 Collins Street Melbourne, Victoria, 3000 +61 (0) 3 9601 4800 Page | 3 Forbidden Foods (FFF) 29 January 2021 2Q21 Result Highlights Funch products prominent ly displayed at Foodworks Within its release yesterday , FFF provided several photographs which highlighted the prominent placement of Funch products across the Foodworks network of stores. Against th is backdrop, our 2H21 Funch estimates (which assume sales of only ~$6/store/day) appear comfortably ac hievable. Figure 1: Funch end - of - aisle display at Foodworks FFF remains undervalued relative to its peers We see FFF as extremely undervalued relative to its peer group, with results released by WOA/PFT yesterday highlighting the extreme disconnect that continues to exist between these micro - cap FMCG food companies W hile we acknowledge FFF’s QoQ growth was u nderwhelming relative to its peers, it should not come as a surprise, given the company’s Funch rollout only begins from 3Q21 (ie. now). We provide a brief comparison of FFF/WOA/PFT below. Figure 2: Forbidden Foods relative to its FMCG micro - cap food peers FFF rel. Peers FFF WOA PFT Revenues 1,040 989 Cash Receipts 950 889 1,700 QoQ Growth -2% 23% 72% OCF Burn 1,666 1,518 204 Enterprise Value 13,775 85,075 53,303 EV/Receipts 14.5 95.7 31.4 Valuation rel. FFF 6.6x 2.2x BW EQUITIES R ESEARCH Level 30, 360 Collins Street Melbourne, Victoria, 3000 +61 (0) 3 9601 4800 Page | 4 Forbidden Foods (FFF) 29 January 2021 Disclaimer This research was prepared for wholesale investors only as defined by sections 708 and 761 of the Corporations Act. This repo rt was prepared as a private communication to clients and was not intended for public circulation or publication or for the use of any third party, without the approval of BW Equities Pty Ltd (BW Equities). While this report is based on information from sources whic h BW Equities considers reliable, its accuracy and completeness cannot be guaranteed. Any opinions expressed reflect BW Equities judgment at this date and are subject to change. BW Equities has no obligation to provide revised assessments in the event of changed circumstances. BW Equities, its directors and employees do not accept any liability for the results of any actions taken or not taken on the basis of information in this report, or for any negligent misstatements, errors or omissions. This report is made without consideratio n of any specific client’s investmen t objectives, financial situation or needs. Those acting upon such information do so entirely at their own risk. This report does not constitute an offer or invitation to purchase any securities and should not be relied upon in conn ection with any contract or commitment whatsoever. DISCLOSURE OF INTEREST BW Equities and/or its affiliated companies may make markets in the securities discussed. Further, BW Equities and/or its aff iliated companies and/or its employees, including the writer, currently own shares and from time to time may hold shares, options, rights and/or warrants on any issue included in this report and may, as principal or agent, sell such securities. BW Equities acted as Lead Manager to Forbidden’s Initial Public Offering and ASX listing in August 2020, earning customary fe es. BW Equities have an ongoing commercial arrangement with Forbidden to provide corporate advice and services. The Directors of BW Equities advise that they and persons associated with them have an interest in the above securities and t hat they may earn brokerage, commissions, fees and other benefits and advantages, whether pecuniary or not and whether direct or in direct, in connection with the making of a recommendation or a dealing by a client in these securities, and which may reasona bly be expected to be capable of having an influence in the making of any recommendation, and that some or all of our Authorised Re presentatives may be remunerated wholly or partly by way of commission. ANALYST DISCLOSURE I, Lindsay Bettiol, certify that the views expressed in this report accurately reflect my personal views about the company an d no part of my compensation was, is o r will be directly or indirectly related to the specific recommendations or views expressed in this report. The analyst has invested in the company’s shares. The analyst(s) responsible for preparing this research report received compensation based on sever al factors including BW's total revenues, a portion of which are generated by corporate advisory activities. BW Equities Pty Ltd ABN 66 146 642 462 AFS Licence No. 389353 BW Equities Contacts Rory Luff Benjamin Kay Lindsay Bettiol Brendan Jesser Executive Director, Corporate Executive Director, Equities Head of Research Equities +61 3 9601 4806 +61 3 9601 4801 +61 3 9601 4870 +61 3 9601 4805 rluff@bwequities.com.au bkay@bwequities.com.au lbettiol@bwequities.com.au bj@bwequties.com.au Paul Pekish Tom Bleakley Paul Bryan Equities Equities Equities +61 3 9601 4809 +61 3 9601 4804 +61 3 9601 4810 ppekish@bwequities.com.au tbleakley@bwequities.com.au pbryan@bwequities.com.au BW EQUITIES R ESEARCH