Indiva Limited 

Indiva Limited (TSXV: NDVA) is a Canada-based company engaged in the production of medical marijuana and operates in the production, processing, and sale of cannabis and cannabis-related products. The products are premium pre-rolls, capsules, and edible products. Within Canada, the company produces and distributes Bhang Chocolate, Ruby Cannabis Sugar, Sapphire Cannabis Salt, and Gems etc.

Key Highlights:

• The group has announced the availability of Wana^TMSour Gummies across the Ontario region. The available flavours are Mango Sativa, Watermelon Hybrid, and Strawberry Lemonade.
• The company has confirmed the launch of its new premium brand, Artisan Batch. Artisan Batch will bring strains previously popular in the legacy market to the legal market via craft and microgrowers. 

Q2FY20 Financial Highlights: NDVA announced its quarterly results, wherein the company posted gross revenue of CAD 2.826 million, significantly higher from CAD 0.205 million in the previous corresponding period (pcp). The company’s net revenue stood at CAD 2.559 million, as compared to CAD 0.173 million in pcp. The increase was driven by sales of Cannabis 2.0 products, wherein the company launched several products like Bhang^® Chocolate, INDIVA™ CBD Softgels etc. in the recent past. The company’s Bhang^® Chocolate remained the top-selling chocolate across several markets. The quarter was marked by a lower general & administrative expense, a shrink in marketing and sales costs and a considerable decline in research & development expenses. Furthermore, share-based compensation and depreciation were lower during the quarter which has resulted in a lower total operating expense. Adjusted EBITDA loss stood at CAD 1.247 million, against a loss of CAD 1.804 million in the previous corresponding quarter. Net loss widened to CAD 2.528 million, from CAD 2.302 million in Q2FY19.

Q2FY20 Income Statement Highlights (Source: Company Reports)

Key Risks:  The products are relatively new to the consumers, and due to change in consumer preference, there might be shrinkage in product demand which might hinder the company’s top-line. 

Valuation Methodology (Illustrative): EV/Sales Based Valuation

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

Stock Recommendation: The stock of NDVA appreciated ~6% so far this year. The company has launched new products in the recent past and witnessed strong traction from the consumers, which is encouraging. The company has collaborated with CannMart Inc, wherein the company’s products like BD Softgels and Indica Capsules available on CannMart’s B2C distribution channel primarily for the medical customers, while other products like Bhang® Chocolate and Wana™ Sour Gummies would follow later in the year. Furthermore, the company is focusing on CAD 1 million of annual cost savings and efficiencies, which is likely to be reflected in Q3FY20. However, the products are relatively new to the consumers, and may not get the desired response from the consumers. Moreover, despite a significant increase in the revenue along with a decline in operating expenses, the company has reported a higher net loss, which is a key concern for the business. On the technical front, NDVA shares are hovering in a steep bearish territory, with prices have nosedived from the peak of CAD 0.48 to CAD 0.26 since May 07. Also, NDVA shares have breached each and every support levels such as near-term, short-term and crucial long-term support levels of 10-day, 20-day, 30-day, 50-day, 100-day and 200-day SMAs.  The leading momentum indicator, 14-day and 9-day RSI hovering in a neutral zone but more tilted towards the oversold zone. The stock also has quite a bearish trend on the weekly and the monthly price chart, which makes the prevailing trend stronger. We have valued the stock using EV to Sales multiple and arrived at a target price offering potential downside in low double digit (in percentage terms). For the same, we have considered the industry (pharmaceuticals) multiple on NTM basis. Hence, considering the aforementioned facts, we recommend investors to ‘Avoid’ the stock at the closing price of CAD 0.26 on September 15, 2020.

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

Disclaimer

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