Elixinol Global Limited

EXL Details

Decision by the United Nations Commission on Narcotic Drugs: Elixinol Global Limited (ASX: EXL) is engaged in the manufacturing and distribution of industrial hemp products. The market capitalisation of the company stood at ~$44.59 Mn as on 3^rd December 2020. Recently, the company stated that the United Nations Commission on Narcotic Drugs (CND) has accepted a recommendation given by the World Health Organization (WHO) to remove cannabis and cannabis resin from Schedule IV of the 1961 Single Convention on Narcotic Drugs. This is likely to leave a positive impact on the company’s ability to drive product sales in Europe and other countries influenced by UN decision-making.

Capital Raising for Business Growth: Recently, the company has opened its share purchase plan, wherein the company has provided an opportunity to the shareholder to apply for up to $30,000 of new fully paid ordinary shares without spending brokerage or other transaction costs. The SPP follows the successful completion of $8.2 million placement to certain sophisticated and institutional shareholders. The company would use the proceeds raised for working capital purposes and to support its growth strategy.

Decent Growth in Top-line: During Q3 FY20, the company recorded revenue amounting to $4.0 million, reflecting a rise of 18% on QoQ basis. Net cash used in the operating activities stood at $3.5 million as compared to $6.2m in Q2 FY20 This has been supported by cost reduction measures implemented in 1H FY20. The company’s business has been aggressively repositioned to a more focused business supported by major cost reductions and improved cashflows.

Revenue Growth (Source: Company Reports)

Outlook: The company is looking forward to improve its European operations, which are contributing to an improved 2H outlook on the back of a completely new brand, new leadership, a reduced cost base as well as a stabilised US business.

Stock Recommendation: As on 30^th September 2020, the cash and cash equivalents of the company stood at $12.78 million. Debt to equity multiple of the company stood at 0.11x in 1H FY20 as compared to 0.03x in 1H FY19. The stock of EXL gained 44.82% and 35.48% in the last one and three months, respectively. In addition, EXL has an EV/Sales multiple of 2.1x as compared to the industry median of 1.4x on TTM basis. On a technical analysis front, the stock of EXL has a support level of $0.149 and a resistance level of $1.242. Thus, we are of the view that most of the positive factors have been discounted at current trading levels and give an “ Expensive” rating on the stock at the current market price of $0.265 per share, up by 43.243% on 3^rd December 2020, owing to the changes in Schedule IV of the 1961 Single Convention on Narcotic Drugs by United Nations’ Commission on Narcotic Drugs.

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

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