Zenabis Global Inc (TSX: ZENA), formerly Bevo Agro Inc, is a Canada-based company engaged in the alternative medicine sector.

Key Positives

• Two Sequential Quarters of Positive Adjusted EBITDA.
• Low Cash Costs of Cultivation Given Scale ($0.70/g).
• Highly Recognizable Brands; Namaste Funders and Re-Up.
• Cannabis Shipments of >4,700 kg Through First Two Months of Q3 2020, up 20% Over Q2 2020.

Key Negatives

• Bearish price trend, with the shares trading well below the crucial short-term as well as long-term support levels of 30-day, 50-day and 200-day SMAs.
• The Moving Average Convergence Divergence (MACD) is falling and hovering below its 9-day SMA. And the difference between 12-day and 26-day EMAs is also negative, which is another bearish indicator.
• 14-day RSI is oscillating near to the oversold territory, implies a further potential reduction in the stock price.
• Strong Relative Weakness in the stock, as stocks plummeted approximately 92% over the past year, 70% in YTD, 27% in 3-Months, and 45% in the last 1-Month, and underperformed the index and the sector peers at the same time.
• Further, the company is exposed to the balance sheet risk, as Debt contribution in the balance sheet is ~ 117% higher than the equity capital, with interest coverage ratio well below 1x, raising doubts over the group’s ability to meet its debt obligations.

Technical Price Chart (as on October 15, 2020, after the market close). Source: Refinitiv (Thomson Reuters)

Q2FY20 Highlights

• Net Revenue after excise taxes improved 9% on a YoY basis to CAD 27.35 Million.
• Gross margin surged by 25% on a YoY basis to CAD 13.73 million.
• Reported operating income of CAD 4.54 million against loss of CAD 7.9 million in the same period of Q2FY19.
• Net loss also narrowed to CAD 15.8 million against a net loss of CAD 18.49 million reported a year-ago period.
• Loss per share for the June quarter of 2020 stood at CAD 0.04 vs CAD 0.09 reported in the corresponding period of the previous financial year.

Risk Associated to Investment: The company is exposed to a variety of risks including credit risk, interest risk and foreign exchange risk. Also, given the small market-capitalization of the company, investors would be significantly exposed to the liquidity risks.

Stock Recommendation: Given the poor financial health of the company and strong bearish technical indicators in the ZENA shares, we have given an “Avoid’ recommendation at the closing price of CAD 0.055 on October 15, 2020.

1-Year Price Chart (as on October 15, 2020, after the market close). Source: Refinitiv (Thomson Reuters)

Disclaimer

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