Hygrovest Ltd (ASX:HGV) has significantly outperformed a declining Canadian cannabis market, with the investment holding group’s net asset value (NAV) decreasing 40% for the year ended 30 June 2022, compared to an 81% decline in the benchmark over the same period.
74% of HGV’s investment portfolio was held in cannabis companies at the end of the year.
Following approval by shareholders at last year’s annual general meeting, HGV‘s investment mandate has significantly broadened, with investments in non-cannabis assets no longer restricted to 25% of total assets.
HGV believes that this further diversification in its investment portfolio will provide greater opportunities to enhance the returns to shareholders.
Reducing gap between share price and NAV
Whilst HGV is pleased that it materially exceeded the benchmark, the company will continue to focus onreducing the significant gap between its share price and NAV (currently, four cents per HGV share) by:
- dealing with existing cannabis investments on an opportunistic basis. For example, HGV is working with Weed Me, its largest investment, to achieve a liquidity event during 2022. This would provide HGV with the option of realising a material portion of its $11 million investment in Weed Me;
- realising underperforming and/or illiquid investments. HGV was able to negotiate the early repayment of its Entourage Health Corp convertible debenture and at 60% of its face value compared to 38% before the transaction was agreed; and
- investing surplus funds in companies that provide shareholders with high capital growth potential derived from either sector-specific or company-specific growth opportunities.
Funds received from any divestments will either be paid as dividends to HGV shareholders and/or reinvested in high growth sectors, such as healthcare and biotechnology, to provide further diversification and the prospect of better capital growth.
Encouragingly, HGV has started FY2023 with both considerable internal funding of $7 million enabling the company to make further investments aimed at materially increasing returns from capital growth, and holdings in a number of portfolio companies that have the potential to realise latent returns.