Ecofibre Limited

Footing in Australia and the US Might Act as Tailwind: Ecofibre Limited (ASX: EOF) recently got listed on Australian Securities Exchange or ASX and the company is a provider of hemp products in the US and Australia. It can be said that the company enjoys regulatory benefits as the consumption of hemp foods got legal in Australia in the month of November 2017 and, in the United States, the legality of hemp got confirmed in the month of December 2018 when 2018 Farm Bill got signed into law. The company’s sales have witnessed rapid growth which can attract the attention of the market players. In the US, EOF is developing innovative hemp-based products in textiles and composite materials (Hemp Black) with the help of a partnership with Thomas Jefferson University (or TJU). In the half-year ended December 2018, the company generated revenues of $13.3 million while, in the same period of the previous year, the revenues were $1.26 million. The Ananda Health business witnessed robust growth in sales and is profitable.


1HFY19 Income Statement (Source: Company Reports)

Deployment of Funds: With the help of IPO, the company has successfully raised the capital of around $20 Mn against the issued ordinary shares of 20 million at a price of A$ 1.0 per share. The proceeds from the IPO will be used to ramp up the establishment and commercialisation of Hemp Black including product development, sales and marketing, customer samples and other commercialisation expenses, fulfill the working capital requirement, and towards the costs of the offer.

Stock Recommendation: The company stated that, in the month of September 2018, its Ananda Food business managed to open a new production facility in Beresfield, New South Wales and also rolled out its own brand of hemp foods that same month. However, the company is exposed to certain risks as well as it is an early stage companyin the development of its business model in the industry, thus, the profitability and revenue are uncertain in the near term, and the company might face the risk created by legislative changes.

Considering the above factors, we have a wait and watch stance on the stock at the current market price of $1.62 (down 4.706% on 1 April 2019) as the investment is quite speculative considering the risks attached. 
 

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