Roots Sustainable Agricultural Technologies Ltd

 

ROO Details
 
ROO Issues a Decent Sales Outlook:An Israel-based company, Roots Sustainable Agricultural Technologies Ltd (ASX: ROO) helps in addressing crucial challenges being witnessed by agriculture and develops proprietary know-how and patents to bring maximum value to farmers.  On 21^st January 2020, ROO announced that it had issued 2,400,000 Chess Depository Interests (CDIs), which are subject to a subsequent offer for sale.
 
Design PatentRegistration of Heat Exchange Stub: On 21^st January 2020, ROO stated that it haseffectively registered a design patent for the company’s innovative heat exchange stub in Australia. The stub is tested and verified on cannabis grow operations and other crops. It helps to simplify greenhouse work & lowers overall costs pertaining to Root Zone Temperature Optimization technology.
 
Managerial Changes:  In order to increase growth in the Cannabis Sector, ROO recently announced the following changes in its top management.  The company stated that it has appointed Boaz Wachtel as the CEO and Executive Chairman of the company. Further, the company appointed Sharon Devir as the executive director and business developer of the company.
 
Key Highlights for September’19 Quarter: The company’s two main offerings based on in-house proprietary technology, with patents in place, incorporates Root Zone Temperature Optimization (RZTO) and Irrigation by Condensation (IBC). During the quarter ended 30^th September 2019, the company continued to offer significant technical results, indicating the substantial benefits of its root zone heating along with cooling technology in easing external weather conditions on several crops.
 
During the period, the company secured A$87,000 RZTO system and heat exchange stub sale to UNIVO, an Israeli medicinal cannabis producer. In the September quarter, RZTO heating technology increased the harvest yield of cannabis flowers by 40%. In addition to boosted yield, RZTO pilot on basil crop effectively rises total plant yield by 30%
 
Cash flow Details: Cash balance of the company as at 30 September 2019 stood at ~US$298,000. Net cash used in operating activities during the quarter came in at US$425,000.  In the coming quarter, the company is expecting net cash outflow amounting to be US$485,000, after making major payments for staff costs and administration and corporate costs of US$175,000 and US$99,000, respectively. Advertising and marketing expenses for the quarter are expected to be US$124,000.
 

Estimated Cash Flow (Source: Company Reports)
 
What to Expect: The company continues to invest in commercialising installations in several territories and sectors, and scale-up sales and marketing activity within the North American cannabis market. Further, ROO remains positive of converting successful RZTO pilots into sales, particularly within the North American cannabis sector. The launch of a US-based team will additionally aid in boosting sales activity in this key market. The worldwide demand for plant-based meat replacements is projected to reach US$27.9 Bn by 2025. The company’s entry into the space offers significant growth opportunities.
 
Stock Recommendation: As per ASX, the stock of ROO gave a return of 37.70% on YTD basis and a return of 40% in the past one month. As on 28^th January 2020, the market capitalisation of the company stood at ~$5.17 million. The stock is trading below the average of its 52-week high-low $0.120 and of $0.026, respectively. On TTM basis, the stock is trading at an EV/Sales multiple of 19x, higher than the industry average (Industrial) of 16.8x. Considering the above factors, we have a watch stance on the stock at the current market price of $0.042 as on January 28, 2020.
 
 
ROO Daily Technical Chart (Source: Thomson Reuters)

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