CCZ valuation: Zoono Group (ZNO)Doubling in forecast FY20 sales to over NZ$20m BUYTarget Price: 295cps (Unchanged)Share price: 154cps | Market Capitalization: $252m Company sales updateZoono (ZNO) has reported that since the end of 2019 (and the Half Year report) there has been an unprecedented increase in the level of interest and sales. For the first 11 weeks of 2020, the company has achieved unaudited revenues of NZ$11m. For the first 6 weeks of the year, ZNO had reported NZ$2.4m in sales. For the whole of 1HFY20 it sold NZ$1.7m of products. Furthermore, average margins have increased as it has been delivering more online (retail Consumer) sales compared to previous periods when online was an insignificant contributor to sales. Also increasing, and important for ongoing business, have been the number of large Commercial customer orders. In particular, the UK region has seen NZ$4m in orders from almost nothing in previous periods. These orders have come from ground transport, multinational cleaning and facilities management companies, airlines, and airports. ZNO reports that (due to their largely up-front payment terms) cash levels have grown from NZ$2m at 31-December to over NZ$5m. Astronomical growth, commercialisation phase realisedOn the basis of the previously announced minimum Commercial and Agricultural sales agreements, total sales for FY20 would be circa NZ$7.6m (see Fig.7 from our 2-Mar-20 report). However, sales outside of these agreements are outrunning even our most bullish expectations and we now estimate total FY20 at NZ$20.7m. Forecasting FY21 sales is difficult, however we are assuming COVID-19 linked panic and short term buying during FY20 to be around NZ$7m and we are also assuming this does not flow into FY21. On that basis, we then estimate FY21 total sales will be NZ$17m, circa 30%pcp growth above the “non-panic” sales of FY20. All of the above is also conditional on the NZD-USD stabilising around 0.70 instead of the 0.60 at which it is currently trading. Both the COVID-19 related buying and the weaker currency are upside risks to the sales total. Real bottlenecksDemand has been so strong that the company has ordered the equivalent of 6 million litres of product and 4 million bottles to service orders. Though it does not say over what period this will be fulfilled, this is roughly equivalent to NZ$100m in product sales. It has now moved to larger premises and is operating 24/7 to fulfill orders. We note that online ordering (which has been running at NZ$150k per day) has been suspended for 2-3 weeks as they catch up with existing online consumer orders. Retain BUY and 295cps Target PriceWe have used a DCF valuation approach to determine a valuation for ZNO applying different growth rates for the different major market geographies. Target price is unchanged at 295cps (AUD). Andrew Harrington | Equity Research Analyst
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