More US Sales Expected. BDA Fully Funded for Manufacturing Requirements
BOD Australia Limited (ASX: BDA) has announced its first purchase order for CBD products for the US market.
This is an enormous milestone, with BDA now breaking into the world’s largest market for cannabis products.
Notably, this purchase order is the first of multiple binding POs expected in the coming months.
BDA is a medicinal cannabis, CBD (cannabidiol) and hemp healthcare products company.
We invested because we liked:
- Modest valuation compared to other medical cannabis peers
- Large distribution partner
- BDA’s already established revenue base
- Its solid revenue growth and ...
- Its relatively trim operational costs
Today’s order is the first of several binding orders expected in the next few months which will improve BDA’s revenue growth further, as it begins to increase its US footprint and become cash flow positive in the year ahead.
BDA’s CBD and hemp oil preparation last year received a self-affirmed Generally Recognised as Safe (GRAS) status in accordance with the stringent US Food and Drug Administration (FDA) safety guidelines. This means BDA’s products are safe for use in a wide range of food supplement and beverage applications.
We think BDA remains a relatively overlooked stock compared to other ASX medical cannabis stocks, but with its entry into the US that could be about to change.
The US market for CBD consumer products is the largest in the world, reaching ~US$1.8 billion in 2020, and expected to grow to US$6.9 billion by 2025.
Growth could be further fuelled by the anticipated regulatory changes in the US stemming from Joe Biden’s election and Democratic Senate control, which paves the way for the Safe Banking Act and MORE Act to progress - this could be huge for the industry.
As such, establishing and growing its footprint in the US, could give BDA a considerable slice of this market.
Out of all of the medicinal cannabis stocks trading on the ASX, we were drawn to BDA for the following reasons:
- Modest market cap: BDA has a current market cap of $52M, which is a fraction of other ASX medicinal cannabis stocks, including the $150.2M Cann Group, the $128.5M capped Althea Group Holdings and the $400.4M capped Ecofibre Ltd.
- Attractive entry price: BDA recently raised $8M at 55 cents. The stock is currently trading at 50c, providing an opportunity to take a position less than the 55c price sophisticated investors recently paid.
- Relatively Cheap Enterprise Value: The company held $10.6M in cash at Dec 31st 2020, giving an Enterprise Value of circa $40M.
- Founder and CEO Jo Patterson has a high % ownership: We met with Ms Patterson a number of times and were impressed by her skills and experience. She is the company founder and is the third largest shareholder of BDA - we like it when management has significant ‘skin in the game’, as there is additional motivation to succeed.
- Aiming to be cash flow positive by end of 2021: BDA has solid revenues, costs are being managed well, and is on track to deliver on this target.
- Global product distribution in place: Exclusive global distribution partnership with Swisse brand owner Health & Happiness Group Limited (H&H Group) gives BDA significant muscle, and can help accelerate BDA’s growth. This week's news is clear evidence of that.
Today’s announcement means its US roll-out is now well and truly underway, with its CB2 brand (which H&H launched in the UK in January 2020) now available for purchase.
BDA has sufficient capital to meet manufacturing demands for additional orders anticipated in the coming months from the US, Europe and US markets.
We think its entry into the US market could mark the start of a significant share price rerating given the size of the market.
BDA will manufacture three full-spectrum CBD oil products for the $1.8BN US market, which is expected to be four times bigger than the UK market.
These products will be the first of a large range, to be launched during the June half under premium CBD brand CBII.
Growth in the US is being assisted by a positive regulatory environment and a better understanding by medical professionals of the benefits of medicinal cannabis.
We invested in BDA with a multi-year time horizon.
Our 2020 track record of initiations are as follows at 7 April 2021:
- Vulcan Energy Resources at 36c now up 1,539%
- Elixir Energy at 3.6c now up 872%
- WhiteHawk at 5.8c now up 348%
- Euro Manganese at 20.5c now up 239%
In 2021, so far we have initiated coverage on the following companies:
- Province Resources at $0.026 now up 419%
- European Metals Holdings at $1.40 now up 12%
- Food Revolution Group at $0.029 now up 21%
- Auroch Minerals at $0.215 now up 12%
We think BDA is going to build from a stable base, and continue to deliver on its financial performance, noting that BDA has already achieved record medicinal cannabis sales growth during the March quarter, filling 3789 MediCabilisTM prescriptions – a 61% increase on the previous quarter.
General Information Only
S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.
Conflicts of Interest Notice
S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.
Publication Notice and Disclaimer
The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.
Any forward-looking statements contained in this article are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results or performance of companies featured to differ materially from those expressed in the statements contained in this article. S3 cannot and does not give any assurance that the results or performance expressed or implied by any forward-looking statements contained in this article will actually occur and readers are cautioned not to put undue reliance on forward-looking statements.
This article may include references to our past investing performance. Past performance is not a reliable indicator of our future investing performance.