An 8% decrease in the Net Tangible Asset (NTA) value per share before tax for Hygrovest Ltd (ASX:HGV, OTC:MMJJF) to A$0.1030 during June 2024 was primarily due to a 24% 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.
In its monthly investment report Hygrovest’s investment manager HD Capital Partners Pty Ltd 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.”
Hygrovest is an Australian-listed specialist investment company which concentrates on producing capital growth for shareholders over the medium term from investments in listed and unlisted equities and debt securities. The company’s shares are trading at A$0.042 on the ASX.
Weed Me valuation declines
HGV was a foundation investor in Weed Me in December 2017 and its investment comprises 4.24 million shares representing about 13% of Weed Me’s issued capital and 60,830 warrants each convertible at C$2.17 with an expiry date of October 29, 2024.
As at the end of June, HGV had ascribed to the Weed Me shares a valuation of C$1.94 per share, down from C$2.28 per share at the end of May.
At June 30, 2024, HGV’s NTA per share post-tax was A$0.0910 down from A$0.0978 a month earlier, HD said.
HD stated in its report: “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.
“HGV also applies a 15% discount to the derived valuation multiple to account for the fact that Weed Me is unlisted.”
Valo sale contract
HD said that HGV’s NTA during June was positively impacted by its entry of a sale contract in relation to its investment in Valo Therapeutics. HD has been working with Valo to seek to facilitate a sale of HGV’s investment.
During June 2024 this work resulted in HGV executing a contract to sell its investment at a 20% premium to its carrying value.
“HGV’s net asset value as at June 30, 2024, reflects the sale value according to the contract price, which was then received in cash after the end of the month,” the report said.
Investment report
The main driver of HGV’s investment returns for FY24 continued to be investments in the cannabis industry. HGV uses a basket of comparable listed stocks (with a discount applied for private companies) to value these investments.
HD Capital said that overall, these listed peers saw their stocks decline significantly in the back end of FY24, particularly for the Australian listed peers.
“However, we are pleased that our largest investments continue to see their businesses grow, which offset some of the decline (carrying valuation is equal to listed comparable peers x LTM operating performance of our investments x private market discount),” HD said.
“Further, we managed to continue to realise proceeds from the legacy portfolio in FY24. As previously communicated, we entered a sale agreement for our investment in Sequoya.” The Valo Therapeutics sale arrangement is also part of this process.
"In FY25 we will continue to support our investee companies where needed and seek to realise value if the right opportunities present,” the investment manager said. “The manager’s confidence in the underlying value of HGV’s investment portfolio is reflected in our continuing on-market purchases of HGV shares."
Other investments
As well as Weed Me, HGV is an investor in Southern Cannabis Holdings (SCH). 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$0.19 per share, up from A$0.18 a month earlier.
Hygrovest was a foundation investor in Delivra Health Brands Inc. (TSX-V:DHB) and its investment currently comprises 55,557,994 common shares of DHB representing an approximately 18% shareholding.