Zelira Therapeutics Limited

ZLD Details

Signing of Agreement with Alternative Solutions LLC: Zelira Therapeutics Limited (ASX: ZLD), formerly Zelda Therapeutics Limited, is one of the leading global therapeutic medical cannabis company with access to the world’s largest and fastest-growing cannabis markets. The market capitalisation of the company stood at ~$117.34 million as on 14^th December 2020. Recently, the company announced that it has signed a binding licensing agreement with Alternative Solutions LLC for manufacturing and distributing its HOPE™ products. Alternative Solutions LLC is a well-known licensed grower, manufacturer and distributor of medical cannabis products in the District of Columbia (Washington DC). As per the terms of the agreement, ZLD would be receiving an upfront fee and ongoing royalties from the sale of HOPE™ product in Washington DC. The agreement comes under the strategic move of the company, which is in line with its mission of working with market leaders for improving access to HOPE™ in the USA. Previously, the company has also launched CBD toothpaste in the United States of America in partnership with SprinJene®.

During the quarter ended 30^th September 2020, the company reported net cash outflow of $2.3 million. In the month of August 2020, the company raised $8.75 million through placement and issued around 175,000,000 fully paid ordinary shares at an issue price of A$0.05 a share to Australian and USA-based sophisticated and institutional investor. Subsequent to this, the company also wrapped up an additional placement of A$2 million to the Thorney Investment Group in September 2020. As a result, Thorney Investment Group became a substantial investor with a 5.2% stake in the company. For the year ended 30^th June 2020, the company reported a loss after tax of $7,015,045 as compared to $3,567,802 in FY20.

Cash Flows from Operating Activities (Source: Company Reports)

Outlook: Looking forward, the company plans to focus on the launch of multiple products into global markets. In addition, the company is also planning to roll out a new OTC product line in the US during the upcoming quarter.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As on 30^th September 2020, the cash and cash equivalents of the company stood at ~$9.6 million. In the last three and six months, the stock has surged 88.52% and 105.35%, respectively. Considering this, we have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price with the correction of low double-digit (in percentage terms). In addition, we have considered Relative Strength Index (RSI-14) on daily chart wherein the stock was hovering at around 76 levels, indicating stock price is trading in an overbought region and may witness some correction in the near future. On a technical analysis front, the stock has a support level of ~$0.066 and a resistance level of ~$0.12. Considering the decent returns in the past few months, RSI levels, valuation, key investment risks, and current trading levels, we suggest investors to book profit and give a “Sell” rating on the stock at the current market price of $0.105 per share, up by 6.06% on 14^th December 2020, owing to the signing of an agreement with Alternative Solutions LLC. 

ZLD Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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