Current Bull Run, page-26

Elixinol Global (EXL)
Re-Think Required
Recommendation
Hold (unchanged)
Price
$0.63
Valuation (12 months)
$0.61 (previously $1.11)
Risk
Speculative
Analyst
John Hester 612 8224 2871
Tanushree Jain 612 8224 2849
Authorisation
TS Lim 612 8224 2810
GICS Sector
Healthcare Equipment and Services
Expected Return
Capital growth -3.1%
Dividend yield 0.0%
Total expected return -3.1%
Company Data & Ratios
Enterprise value $66.9m
Market cap $86.9m
Issued capital 137.9m
Free float 60%
Avg. daily val. (52wk) $1.6m
12 month price range $0.51 - $5.93
Price Performance
BELL POTTER SECURITIES LIMITED


2019 CAPITAL RAISE FOR $50M
Page 1
(1m) (3m) (12m)
Price (A$) 0.57 1.59 3.45
Absolute (%) 8.0 -61.6 -82.3
Rel market (%) 4.5 -64.3 -100.5
Speculative
See key risks on Page 5 and
Biotechnology Risk Warning
on Page 8. Speculative
securities may not be suitable
for Retail Clients.
December was another poor result
Elixinol Global announced 4Q19 revenues of $4.4m relative to our forecast of $10.6m.
This represents the weakest revenue quarter since the company’s listing and forces a
significant re-think of our forecast for FY20 and beyond. FY19 revenues declined by
15% relative to pcp. Net cash burn for the quarter was $10.8m with cash reserves of
$20.4m at year end. This final quarter result capped off a difficult year for the
company in which most of the expected catalysts for the sector failed to materialise.
The over-riding cause of this weaker than expected revenue is probably the FDA’s
recent statement that CBD cannot be generally recognised as safe. While efforts from
the industry are ongoing to change this view, it is apparent that this may take some
time (i.e. years). The company has now announced significant changes to its business,
primarily to preserve capital. EXL will sell the loss making Health Foods Australia and
its medicinal cannabis business - Nunyara. Both items will be reported as
discontinued operations at year end and will result in large impairment charges.
Several staff redundancies have also been announced in the US. The focus is now
solely on the US and Europe and forging EXL into a trusted consumer brands
company.
The US remains the largest opportunity for growth notwithstanding the distribution
restrictions. The 2019 distribution agreement with the Albertsons Group has been a
massive disappointment in that significant revenues have not materialised. In addition
we are yet to see any significant revenue growth from other channels or partners.
Management face a difficult task to make the business sustainable or otherwise
potentially face the prospect of highly dilutive capital raise.
Retain Hold, Valuation Reduced to $0.61
The December quarter was another poor result for the company, however, with EV at
just 2x FY20 revenues, the valuation is cheap and this is the only reason we have
retained our Hold rather downgrade to Sell. Former CEO and Founder Paul Benhaim
is yet to sell his stock (as communicated to the market in December).
Absolute Price Earnings Forecast
December Year End FY18 FY19e FY20e FY21e
Revenues 37.1 31.4 32.8 34.2
EBITDA $m 0.4 -26.0 -13.0 -17.3
NPAT (underlying) $m 0.4 -28.8 -15.8 -20.1
NPAT (reported) $m -0.8 -48.3 -15.8 -20.1
EPS underlying (cps) 0.3 -20.9 -11.5 -12.7
EPS growth % large large 45% -11%
PER (x) na na na na
FCF yield (%) -23% -91% -5% -18%
EV/EBITDA (x) 211 na na na
Dividend (cps) - - - -
Franking 0% 0% 0% 0%
Yield % 0.0% 0.0% 0.0% 0.0%
ROE % -0.6% -33.3% -12.2% -16.8%