Zenabis Global (TSX: ZENA) this morning saw GMP Securities lower its price target on the firm from $3.25 to that of $1.00. The firm was also downgraded from a buy to a speculative buy in the face of a significantly dilutive financing as well decreased revenue expectations for the third quarter of 2019.
Revenue estimates for Zenabis for 2019 were also reduced by GMP as a result of operational challenges seen by the firm, from $100.1 million to that of $67.6 million. Estimates for 2020 also saw revisions, dropping from $261.6 million to $208.6 million. Analyst Justin Keywood commented on the revision, stating, “ZENA has disclosed some recent negative developments, including operational issues related to packaging for FQ3 results, expected budget overages at the Langley facility, leading to deferred capacity and a significantly dilutive rights offering. As a result, we have revaluated our thesis and reduced our forecasts and target price.”
GMP Securities however balanced the negative sentiment, by indicating that the firm is growing a high quality product, while maintaining good relationships with provincial retailers.
The downgrade at GMP Securities follows yesterdays announcement by Zenabis that it will be conducting a rights offering at $0.15 per common share, which was a 70% discount to the then price of the equity on the TSX. The financing is expected to yield up to $20.8 million for the cash strapped issuer, while diluting the equity by approximately 66%.
Further comments made by CEO Andrew Grieves to The Globe and Mail did little to reassure shareholders, when he stated that the low priced financing was a result of expected volatility in the market.
It could be that the market improves, or it could be that the market weakens, but if you have a market where you have observed meaningful sell-offs over short periods of time, then when pricing a rights offering you should price for the downside, rather than pricing aggressively, because you don’t have the option of amending your price once you’ve gone to market.
Andrew Grieve, CEO Zenabis Global. Via The Globe and Mail
Within the same interview, Grieve then went on to play a round of word play, wherein he indicated that the firm has not decimated shareholder value by conducting the raise at such a low offering price. Rather, it was the market’s perception of shareholder value – which evidently, is different than actual shareholder value.
I don’t believe it’s decimated shareholder value. I believe it has negatively impacted the market’s perception of shareholder value, but shareholder value in truth is an objective thing as opposed to something you see in the market. So the perception is that shareholder value has been eroded, but fundamental shareholder value from our perspective has been strengthened by a contribution of equity capital as opposed to debt.
Andrew Grieve, CEO Zenabis Global. Via The Globe and Mail
Zenabis Global closed yesterdays session at $0.295, falling 39.80% from its opening price of $0.49. It is currently trading at $0.265 on the TSX.
Information for this briefing was found via Sedar and Zenabis Global. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
