Hygrovest Ltd (ASX:HGV) says it ended 2022 in a strong position to pursue its portfolio strategy in 2023.
The company’s investment portfolio report, covering the last six months of the calendar year, reveals “significant progress” across both the legacy and new investments, positioning the portfolio for strong performance in 2023.
Financials
The company’s net asset value before provision for deferred tax increased by 6%, from A$24.3 million to A$25 million, over the last six months of the year.
Net asset value per share grew 3% from A10.6 cents to 10.9 cents and the share price grew 9% from A6.4 to 7 cents while the cash balance was A$4.7 million.
HGV’s profit after tax was A$700,000, compared with the same period in 2021, which saw a loss of A$5.3 million.
The main drivers of the financial performance in the period were a A$4.5 million unrealised gain on HGV’s two main investments, Weed Me Inc and Southern Cannabis Holdings (SCH) from the recovery in listed Australian and Canadian cannabis investment markets and the continued growth in the revenues of Weed Me and SCH.
These gains were partially offset by the A$1.5 million unrealised loss on the investment in the listed Vintage Wine Estates.
Weed Me
Weed Me Inc has positioned itself as one of the largest private LPs in Canada and continues to deliver strong revenue growth.
The addition of the Quebec and Ontario markets together saw an ever-increasing product offering that generated “record results” for the year.
Weed Me’s ability to integrate small tuck-in acquisitions, such as TREC brands, broadened its product offering more in line with leaders, such as Canopy Growth.
Significant investor and investment bank interest have positioned it for a liquidity event sometime in 2023 if the market for cannabis listings rebounds.
HGV is valuing its investment in Weed Me at an enterprise value to net revenue multiple of 2.1 times historical net revenue at December 31, 2022.
The company says Weed Me’s operating financial performance continues to show strong growth in revenue and earnings.
Southern Cannabis Holdings
The company continues to improve SCH’s financial results through continued organic growth of core business with expansion into non-cannabis medicines.
During the period there was strong quarter-on-quarter revenue growth, exceeding 10%.
EBITA margins are improving with scale to a target 20 to 25% EBITA, and the company is in a position to pay dividends in 2023 if it chooses to do so.
M&A interest
HGV says there is significant M&A interest from existing industry players and new entrants, providing working capital to further develop its leading brands.
The report anticipates the company will now be able to increase sales in North America and internationally during 2023.
Sequoya Cannabis Ltd
With an enhanced sales strategy targeting large CPG brands in Europe, primarily with new Hemp Terpenes Product, combined with its THC Permit for Medical Cannabis FLOWER Extraction, Sequoya:
- has engaged large consumer brand manufacturers seeking legal ingredients to launch hemp-marketed FMCG products;
- has reduced reliance on smaller bottled CBD tincture brands; and
- is looking to take advantage of Australia’s increased activity in importing CBD products.
Sales have continually trended upwards with this new strategy and positions it for an external fundraising.
New investments
Vintage Wine Estates – as investors recognised the significant discount to its peers and strong financial performance, the company says it has seen a sharp rebound in share price that it expects to continue in 2023.
Medio Labs – this arm has made remarkable progress through 2023, beginning large-scale commercial COVID testing across the US. It has “generated significant revenue” for a start-up company reflecting its revolutionary technology. The company is well-positioned for a 2023 public market listing and “should be well received by new investors in both the healthcare and growth sectors”.
Valo Therapeutics – HGV made an investment in Valo based on its technology using immunogenic viruses as active carriers of tumour-specific peptides to direct the immune system to specifically target and kill cancer cells in three distinct ways. Valo faced multiple regulatory hurdles in 2022 related to health authorities’ questions related to its peptide production which delayed the scheduled clinical trial initiation.