Research update DanCann Pharma Q4 2021: The start of a new era?
24 Mar 2022
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Analaysis Dancann Pharma
DanCann continues to deliver on schedule. The acquisition of CannGros generated the Company’s first reported net sales, an essential step in the ongoing commercialisation phase. Furthermore, the Company reports a steady cost base despite investments to meet expected growth. We continue to expect 2022 to be the most exciting year in the Company’s history. Against the backdrop of the weak performance of the stock market as well as DanCann’s peer group, the fair value per share is adjusted downwards to DKK 7.6 (9.5) while our bull case decreases to DKK 12.0 and DKK 4.0 in the bear case.
A Nordic player in medical cannabis
DanCann was founded in 2018 by the current CEO, Jeppe Krog Rasmussen. The Company’s strategy is to provide medical cannabis to the European market. It intends to do this by (i) importing and distributing medical cannabis products, (ii) cultivating and exporting cannabis raw material, and (iii) identifying and developing cannabis products as part of combination medicines.
Reported sales for first time
DanCann reported sales of goods for the first time in the history of the Company, which is explained by the completed acquisition of CannGros. Net sales landed at DKK 0.9m in Q4 2021, which was in line with our forecast. This is a significant milestone for DanCann, which is facing accelerating commercialisation. The acquisition of CannGros adds significant value beyond approximately DKK 5 million in annual sales. (I) DanCann obtains the necessary expertise and approval for critical regulatory processes, such as the license (DMA) to import and distribute medical cannabis. (II) Significant synergies exist in future product development and distribution of already contracted products from DanCann’s established partnerships.
The EBITDA result for the full year landed at DKK -13.6 million, slightly higher than our projections of DKK -12.8 million. Marginally higher other external costs explain this.
The pieces of the puzzle fall into place
The intense period of the last quarters, combined with the expected news flow of necessary approvals and product launches, has created good conditions for DanCann to achieve its ambitious targets. The regulatory tailwinds in Europe strengthen the long-term growth prospects. At the same time, the Company still has much to prove as it enters a new era – commercialisation activities. However, we believe that piece by piece the puzzle is falling into place and that much is in the Company’s hands.
We are marginally lowering our forecast for the Company’s turnover for the current year. We have made minor adjustments to the completed and expected investments related to CannGros – which marginally affect the justified value of the Company’s share. However, what has affected our fair value is the tough start to the year for the stock market in general and growth-oriented stocks in particular. As a result, Dan-Cann’s peer group companies have fallen by more than 25% from our last analysis. We calculate a justified value of DKK 7.6 (9.5) per share in a relatively conservative assumption. Our assumptions, forecasts and valuation will be adjusted as the Company reaches future milestones.
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