SynBiotic — Further acquisitions

SynBiotic (SCALE: SBX)

Last close As at 27/03/2024

EUR12.45

0.20 (1.63%)

Market capitalisation

EUR58m

More on this equity

Research: Consumer

SynBiotic — Further acquisitions

SynBiotic has announced it is acquiring 50.1% of the shares of several market-leading hemp companies, which are part of hemp industry pioneer Daniel Kruse’s group of companies. There will be a capital increase in kind to fund these acquisitions and €2m in cash will be contributed to the capital reserves of the companies being acquired. This marks another step in SynBiotic’s buy-and-build strategy, whereby management is using its experience in scaling profitable companies to accelerate SynBiotic’s strategy to be a leading platform company in the cannabinoid industry.

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Consumer

SynBiotic

Further acquisitions

Consumer

Spotlight – Update

6 December 2021

Price

€34

Market cap

€125m

Share price graph

Share details

Code

SBX

Listing

Xetra

Shares in issue

3.674m

Net cash at 31 December 2020

€5.9m

Business description

SynBiotic is an investment vehicle that pursues an EU-focused buy-and-build approach. The core business of the platform company is the R&D of new cannabinoid and terpene-based solutions for the health issues of pain, sleep and anxiety.

Bull

Huge worldwide market for cannabinoid products in multiple applications.

Planned investment to cover entire value chain and legal de-risking by diversifying from hemp in terms of cannabinoids and plants.

Experienced leadership team and portfolio managers.

Bear

Strict and constantly changing regulatory requirements for CBDs internationally.

Execution risk in terms of planned expansion.

Potential competition from larger players.

Analysts

Sara Welford

+44 (0)20 3077 500

Russell Pointon

+44 (0)20 3077 500

SynBiotic is a research client of Edison Investment Research Limited.

SynBiotic has announced it is acquiring 50.1% of the shares of several market-leading hemp companies, which are part of hemp industry pioneer Daniel Kruse’s group of companies. There will be a capital increase in kind to fund these acquisitions and €2m in cash will be contributed to the capital reserves of the companies being acquired. This marks another step in SynBiotic’s buy-and-build strategy, whereby management is using its experience in scaling profitable companies to accelerate SynBiotic’s strategy to be a leading platform company in the cannabinoid industry.

Historical financials

Year
end

Revenue
(€m)

PBT
(€m)

EPS
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/19

0

(0.013)

(5.4)

0.0

N/A

N/A

12/20

5.446

(0.859)

(56.4)

0.0

N/A

N/A

Source: Company accounts

Building the platform

The companies being bought are Hanf Farm, Hemp Factory, Hempro International and MH medical hemp. Hanf Farm is the largest organic hemp cultivation firm in Europe, so will contribute to SynBiotic’s vertical integration. Hemp Factory is the largest hemp food distributor in Central Europe and owns some brands that are profitable. Hempro International is the largest hemp food producer in Central Europe and MH medical hemp is a company with deep expertise in cannabinoid extraction, production and marketing. It also acts as a wholesaler and has tetrahydrocannabidiol (THC) BtM approval (ie a licence to handle narcotics in Germany).

Capital increase to fund the acquisitions

SynBiotic is again using an in-kind capital increase to fund these acquisitions, a method it has used in the past when it bought out the remainder of SolidMind. SynBiotic will issue 450,900 new shares (vs the current share capital of 3.674m shares), valuing its contribution of shares at €11.27m.

Valuation: Trading at a discount to CBD peers

Due to the scale and nature of SynBiotic’s continuing evolution with reliance on early-stage unlisted investments, financial forecasts cannot be made with any certainty. This is compounded by strict and volatile regulatory risk (substantial ‘grey areas’). However, the market opportunity for SynBiotic appears clear. The shares are trading on c 10x management’s estimated FY21 sales of €15m, which gives the company little benefit of doubt, even ignoring more established cannabidiol (CBD) peers rated at over 20x revenue. We note SynBiotic recently announced plans to list on the Canadian NEO exchange, which could potentially improve its visibility to cannabis-oriented investors.

Buy-and-build strategy

SynBiotic is still in its infancy but is slowly building its platform by acquiring new businesses. It successfully integrated its financial driver, SolidMind Group, a leading brand builder in the wellbeing sector. This was complemented by subsequent smaller deals and product launches, demonstrating SynBiotic’s strategy to acquire companies in the cannabinoid space and build an EU platform to research, develop and distribute pharmaceutical and dietary supplements and cosmetic products. The latest acquisitions build SynBiotic’s competence as a hemp grower and distributor and widen its geographic reach.

Valuation

In the absence of a trading record for SynBiotic, as now constituted, we look at competitor valuations in terms of market capitalisation to consensus forecast 2021 revenue. We look at other cannabis companies, although we recognise SynBiotic is significantly smaller than its competitors and there is a lack of visibility regarding how the forecast revenues will be achieved, although at this late stage in the year we do not foresee material downside risk to guidance. We use management’s guidance of €15m of revenues for FY21, which has been reiterated. On this measure SynBiotic appears cautiously valued, notwithstanding in particular the execution risk, as discussed. We note that SynBiotic’s share price has increased substantially over the last few months, while its competitors have in some cases experienced a significant reduction in share price.

Exhibit 1: Peer comparison of market cap/CY21e revenue

Share price

Market cap

(m)

2021 revenue

(m)

Market cap/revenue

(x)

SynBiotic

€39.40

€148

€15.0

9.9

Cronos Group

C$5.79

C$2,153

C$67.8

31.8

Canopy Growth

C$13.72

C$5,401

C$556.8

9.7

Tilray

$10.12

$4,689

$559.3

8.4

Sundial Growers

$0.62

$1,278

$61.3

20.8

Peer group average

17.7

Source: Refinitiv. Note: Prices at 30 November 2021.


General disclaimer and copyright

This report has been commissioned by SynBiotic and prepared and issued by Edison, in consideration of a fee payable by SynBiotic. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by SynBiotic and prepared and issued by Edison, in consideration of a fee payable by SynBiotic. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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