AGH | Latest Investment Research | PAC Partners

COMPANY Althea Group | ASX: AGH | $0.50/share | Market Cap $131m Date: 16 April 2021
RECOMMENDATION Speculative Buy | Very High Risk | $1.48/share target
EVENT Peer Results in Canada – Valens Company showing Althea’s Canadian Value

KEY POINTS

• One of the leading recreational cannabis extraction & manufacturing companies, Valens (TSX: VLNS MCap ~A$460m) has reported their results for the March quarter, post the acquisition of recreational CPG company LYF Food Technologies.
• Valens is an independent extraction, manufacturing, and white label partners to several of the largest recreational cannabis companies in Canada, producing capsules, tinctures, vapes, beverages, concentrates, edibles and topicals. Althea’s Peak Processing Solutions has comparable capabilities with Valens.
• In March, Valens acquired LYF Food Technologies, a manufacturer of edible products for an upfront consideration of A~$25m, with an additional A~$18m available in performance milestones.
• Peak compares favourably with LYF Food Technologies, with similar manufacturing capabilities and a larger capacity. LYF was founded in 2018, applied for their licence in 2019 and now operates a 10,000 square foot facility focussed on edible products. Peak was founded in 2019, applied for their licence in 2020 and now operates a 40,000 square foot facility focussed on edible products, beverages, vapes, tinctures and topicals.
• We see Valens’ acquisition of LYF Food Technologies highlighting the value Althea has developed in Canada, given the comparable manufacturing capabilities, but larger capacity. We see Althea generating $3.0m in revenue in Canada in FY’21F with total revenue ~$20m and $10m in FY’22F with total revenue ~$45m. We maintain our Speculative Buy PT $1.48 / share.

Click here to read PAC Partners' research note

LEADING CANADIAN MANUFACTURING CAPABILITIES:

AGH & MAJOR CANADIAN MANUFACUTRING OPERATORS:

• Valens is one of the largest extraction, manufacturing, and white label partners in Canada and its LYF Food Technologies operations compares favourably with Althea’s Peak Processing solutions in terms of scale, licences and manufacturing capabilities.
• The average Canadian cannabis company trades on 5.2x forward revenue compared with AGH 2.7x

Althea Group
Josh Fegan
CEO & Managing Director
1300 702 020
[email protected]

Media Enquiries
Dan Francome
Media Relations
+61 3 9650 5096
[email protected]