Zoetic International Plc

Zoetic International Plc (LON: ZOE) is a natural resource and vertically integrated cannabidiol (CBD) Company based out of the UK. The Company sell produces in the UK under the Zoetic brand and in the US under the Chill brand.

Investment Highlights - Zoetic International Plc – Expensive at GBX 42.88

• The Company witnessed an increase in orders under Chill brand, while the legacy natural resources business is facing delay, which is impacted operational performance.
• The Company has been reporting losses for the past five years, whereas the industry has been delivering positive fundamentals.
• As per valuation metrics, EV/Sales and Price/Book Value multiples of the Zoetic International Plc is currently higher as compared to the corresponding multiples of the Oil & Gas industry, reflecting overstretched valuations.
• From the technical standpoint, 14-day RSI is currently supporting downward movement (around 60 level), which means the stock price could decline in the short term.

Key Risks

• The Company’s cash flows, and supply chain is directly impacted by the covid-19 pandemic.
• The CBD industry is quite competitive and evolving, and it can face pressure over margins.

Recent News

On 5 November 2020, Zoetic International announced that it had reached a revised agreement with Path Investments plc to sell its 75% interest in DTU (DT Ultravert). As per the agreement, Path will issue 30,000,000 new shares of 0.1 pence to Zoetic in Path Investments. Path will no longer issue 15,000,000 warrants, pay a royalty, but will pay £42,000+VAT to Zoetic on completion towards professional and technical costs in cash. Zoetic will no longer enter into a market agreement for its Path Shares and will not be selling Kansas Nitrogen Assets.

Financial Highlights – FY2020 (31 March 2020) (released on 30 September 2020)

(Source: Annual Report, Company Website) 

• For the financial year 2020, Despite the economic challenges, the Company laid the framework as a CBD pioneer in FY20 and focusing on bringing products to new markets across the globe.
• The Company is generating revenue from CBD business for the period and is no longer generating revenue from legacy natural resources assets.
• The CBD market continues to grow, and the Company is in a prime position to establish itself as an industry leader.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Conclusion

The Company has shown a decline in financial performance in the financial year 2020. Despite the higher revenue, the bottom-line performance declined, while profitability remained in the negative zone. The CBD business is expected to be cash positive in the near-term as its brands gain market share. The Company is operating in the fast-growing industry with numerous opportunities. However, ZOE is in a transition phase and reporting losses, while it has already touched 52-week high. Stock 52 week Low and High were GBX 2.56 and GBX 47.80, respectively.

Therefore, based on the overstrained prices, and overvalued trading multiples, we have given an “Expensive” stance on Zoetic International Plc at the current price of GBX 42.88 (as on 18 November 2020, before the market close at 10:35 AM GMT), while we will watch how strategic initiatives will gain traction in the near term.

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