The Net Tangible Asset (NTA) value per share before tax of Australian-listed, specialist investment company Hygrovest Ltd (ASX:HGV, OTC:MMJJF) fell by 18% during the month of May and stood at A$0.1117 on May 31, 2024.
Despite the decline from A$0.1355 a month earlier, the company’s pre-tax return for the past three months was up 16%, for the financial year to date was a 9% improvement and for the past 12 months this was up 4%.
Weed Me EV/NRM lower
Hygrovest’s investment manager HD Capital Partners Pty Ltd said the decrease was primarily due to a 34% decrease in the Enterprise Value to Net Revenue Multiple (EV/NRM) used by HGV when valuing its investment in Canadian unlisted company Weed Me Inc.
HD’s monthly investment report for Hygrovest said: “This multiple is derived from the end-of-month market valuations of various listed Canadian companies, each of which HGV considers to be broadly comparable to Weed Me.”
It said that in the days immediately following the end of April, the EV/NRM multiple used by HGV when valuing its investment in Weed Me decreased materially.
“Shareholders should always, including but not limited to this month, be mindful that HGV’s reported month-end NTA is a point-in-time assessment only and that HGV’s NTA is constantly fluid,” HD said.
“HGV also applies a 15% discount to the derived valuation multiple to account for the fact that Weed Me is unlisted.”
Sequoya Cannabis sale
The company’s NTA was also positively impacted by its entry of a sale contract in relation to its investment in Sequoya Cannabis Inc.
HGV previously wrote down to zero its investment in Sequoya, after Sequoya advised that its insolvency was imminent, and that it had no means to avoid insolvency occurring.
HD Capital subsequently worked with Sequoya seeking to facilitate third-party funding for Sequoya and a sale of HGV’s investment.
“During May 2024 that work resulted in HGV executing a contract to sell its investment, the terms of which contract are confidential. HGV’s net asset value as at May 31, 2024, reflects the sale value according to the contract of sale,” HD stated.
Hygrovest investments
HGV was a foundation investor in Weed Me in December 2017 and its investment comprises:
- 4.24 million shares representing approximately 13% of Weed Me’s issued capital. As at month end, HGV had ascribed to these shares a valuation of C$2.28 per share); and
- 60,830 warrants each convertible at C$2.17 with an expiry date of October 29, 2024.
The company also became an investor in Southern Cannabis Holdings (SCH) in April 2018.
This investment currently comprises 21 million shares representing approximately 18% of SCH’s issued capital.
At month end, HGV had ascribed to these shares a valuation of A$0.18 per share.
Hygrovest was a foundation investor in Delivra Health Brands Inc. (TSX-V:DHB) (DHB) and its investment currently comprises 55,557,994 common shares of DHB representing an approximately 18% shareholding.