Original-Research

Agrios Global Holdings Ltd. (von GBC AG): BUY

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Original-Research: Agrios Global Holdings Ltd. - von GBC AG

Einstufung von GBC AG zu Agrios Global Holdings Ltd.

Unternehmen: Agrios Global Holdings Ltd.
ISIN: CA00856K1003

Anlass der Studie: Research Note
Empfehlung: BUY
Kursziel: 1.64 CAD
Kursziel auf Sicht von: 31.03.2021
Letzte Ratingänderung: -
Analyst: Matthias Greiffenberger, Julien Desrosiers

'Still on track' Target price raised to 1.64 CAD (previously: 1.38 CAD) Buy Rating confirmed. Agrios' financial results are improving while the company continues to invest in its Shelton facility. By year's end, the facility should be completed, paving the way for a new growth phase. The company's expenses have significantly decreased and all metrics have improved.
Agrios Global Holdings is a company in the take-off stage, with a strong growth potential. It currently owns one state-of-the-art cultivation growing facility in Washington State that is leased to a licensed Tier 3 cannabis producer and processor. The company provides data-driven aeroponic cultivation equipment rental and growing services to cannabis producers. The company's technology can also be used for any type of indoor cultivation. The indoor aeroponic market in the USA could reach USD 40 billion annually by 2022. Moreover, the American cannabis market could reach USD 75 billion annually by 2030. Specifically, the Washington State market represented approximately USD 1.371 billion in 2017 and is expected to grow to USD $2.28 billion by 2020.

The cannabis landscape in Washington State continues to show signs of recovery and we believe that the company can profit from this positive trend. However, legislation continues to be an important unknown as the state has just banned flavored cannabis vaping products. We expect such regulations to come and go given that the industry is still at a very early stage and since cannabis is still illegal on the federal level.
An interesting case occurred in Washington State where a man sued producers over an illness due to the poor quality of a cannabis product. This increases our confidence in Agrios' approach of quality over quantity and ensuring perfect reproducibility of their products. We continue to believe that their digitalized and automated growing facilities represent the inevitable solution to many of the current and future issues for cannabis producers.

Q2 2020 Results
Agrios Holdings has seen an increase in their products and service revenues and a small increase in their rental and IP revenues, aggregating to a total increase of 11.53% compared to the previous quarter, up to USD 1.093M from USD 1.007M. The revenues will have to grow significantly in Q3 and Q4 2020 in order to reach our year-end projection.

We had, however, accounted that most of the sales would be registered in Q4. With amounts receivable reaching a high of USD 5.72M this quarter compared to USD 4.25M in the last one, it is clear that the company posted strong sales growth numbers. As discussed in our initial coverage, it is important for Agrios Holdings to focus on reducing the amount receivables given that the company currently has only one large client. If they can achieve this objective, we consider it reasonable to project that Agrios Holdings will reach our projected year end sales numbers.
The company's overall financial position has greatly improved year on year. As seen in the chart, amounts receivable have grown, while cash position has increased and financing activities have been greatly reduced. As we expected, with the Shelton facility being near completion, investment in new equipment and development will now be replaced by free cash flow.
We estimated the 2020 accounting year to generate a small deficit of USD 1.5m. We predicted that the company would post negative cash flow in Q1 and Q2 and turn cash flow positive in Q3 2020. The company seems well on track to achieve this result.

As can be seen, the current EBITDA is USD -0.524m, greatly improved from USD -1.789m in September 2019. EBIT has also improved, from USD -1.843. to USD -0.615m. Additionally, both EBIT and EBITDA margins have consequently risen, and the net profit resulted in a loss reduction of 68% compared to last year.

The next big step for the company is the refinancing of their USD 4.27m loan, which is coming due. The company has already disclosed that they are in negotiations to convert their loan from short-term to long-term debt.
In the next few quarters, we expect the company to develop new income verticals, continue to improve their financials and post their first cash flow positive quarter.

As the cannabis industry matures in the USA, moving from quantity to quality, Agrios will be positioned in a niche market where their production costs will rival the lowest in the sector while their quality will be the best amongst their peers. Agrios' focus on the duplication of the unique cannabinoids mix generated in each strain could be the key to unlocking pharmaceutical partnerships. This evolution of the cannabis market into a more educated and mature sector will most definitely provide Agrios with growth opportunities.

Die vollständige Analyse können Sie hier downloaden:
http://www.more-ir.de/d/19715.pdf

Kontakt für Rückfragen
Jörg Grunwald
Vorstand
GBC AG
Halderstraße 27
86150 Augsburg
0821 / 241133 0
[e-mail]
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Offenlegung möglicher Interessenskonflikte nach § 85 WpHG und Art. 20 MAR. Beim oben analysierten Unternehmen ist folgender möglicher Interessenkonflikt gegeben: (5a,5b,11); Einen Katalog möglicher Interessenkonflikte finden Sie unter: http://www.gbc-ag.de/de/Offenlegung
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Date and time of completion of this research: 09/12/2019 (11:00) Date and time of first distribution: 09/12/2019 (12:00) Target price valid until: max. 31/03/2021

übermittelt durch die EQS Group AG.

Für den Inhalt der Mitteilung bzw. Research ist alleine der Herausgeber bzw. Ersteller der Studie verantwortlich. Diese Meldung ist keine Anlageberatung oder Aufforderung zum Abschluss bestimmter Börsengeschäfte.

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Rating: BUY
Analyst: GBC