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Research Update DanCann Pharma Q1 2022

Analysis DanCann Pharma

During the first quarter of 2022, DanCann reported revenues and profitability slightly lower than our expectations. However, important steps were taken towards initiating production at BIOTECH PHARM 1. We have revised our estimates and calculate a fair value per share of DKK 6.7 (7.6). The value is held back by a higher risk-free rate and a lower valuation of the reference group.

CannGros deliver revenue in line with our expectations

In the fourth quarter of 2021, DanCann reported revenues for the first time following the acquisition of CannGros. The first quarter of 2022 was yet another quarter with stable revenues of DKK 1.3m CannGros, in line with our expectations. However, another important value of the acquisition is the gained access to further expertise on regulatory processes, in addition to getting access to licenses and approved products.

The EBITDA landed at minus 3.0 million (-2.5) for the quarter, which was somewhat lower than our expectations. Personnel costs rose to DKK -1.8 million (-1.2), and Other external expenses rose to DKK -2.1 million (-1.6).

Signalling on production soon

Even though a little delayed from what was initially expected, DanCann released two press releases during the quarter, signalling that DanCann is getting closer to producing and exporting API:s and raw materials at its production facility BIOTECH PHARM 1. Firstly, the company has submitted a GMP application for BIOTECH PHARM 1. Such approval is required for any drug manufacturing company intending to supply medicine to Europe, or elsewhere. Secondly, DanCann has started to build a sales pipeline for its bulk production with a distributor targeting the Swedish market. Initial sales activities under the agreement are expected to begin in 2023.

In addition to the above, DanCann has also communicated promising test results indicating that the product quality of the raw material concerning THC levels is above the general minimum requirements in the market. High quality typically implies higher pricing.

Fair value per share held back by the higher risk-free rate

Due to the previous quarter’s outcome and the company’s guidance that both the distribution of Tetra BioPharma’s products and the sale of its products will start towards the end of 2022, we are lowering our forecast for the company’s revenue for the current year. The challenging stock market environment continues to put downward pressure on growth-oriented companies. In particular, those with the need for further capital injections. Considering that, we calculate a fair value of DKK 6,7 (7.6) per share corresponding to an EV/Sales multiple 2023 of 6,1x. Our reference group is currently trading at EV/Sales 2023 of 2.1x. The premium is motivated by the expected growth even after 2023, well above the companies in the reference group that are more mature.

We see that value-changing opportunities in the near term are likely to come with confirming news regarding manufacturing capability in commercial volumes and further successful outcome for Bio Pharma’s clinical trials for the product portfolio that DanCann will distribute.

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