A Fresh Look at the MMJ Share Price: Is It Undervalued?
At time of writing, the share price of MMJ Group Holdings Ltd [ASX:MMJ] is down 1.96%, trading at 25 cents.
It has been a tough year for the MMJ share price, with it losing just over 20% of its value:
Let’s look at a few reasons why the company could start trending up over the coming months.
Significant discount to NTA per share could provide support for MMJ share price
After morphing into a listed investment company (LIC), MMJ is currently trading at a significant discount to its net tangible assets (NTA) per share post tax.
NTA is relevant here because in essence it tells you how much cash the company would have it sold its entire portfolio of investments.
The value of this as of 31 May 2019 is 38.5 cents, which compares favourably with its current price of around 25 cents.
So this is a discount of approximately 35%.
Its total portfolio inclusive of cash on hand if sold on 31 May would net them $94.7 million, which again stacks up well with its market cap of just around $58 million today.
WAM Leaders Ltd [ASX:WLE] for example, is another ASX-listed LIC which is significantly bigger (gross assets as of May 31 of $955.3 million), but trades at a much smaller discount to its NTA.
It has a post-tax NTA per share of 118.65 cents (May 31) and shares at time of writing go for $1.12 a pop. So the difference between the two values is far smaller.
Perhaps investors are sceptical about the value of MMJ’s portfolio long term.
Or alternatively, they have reservations about its unlisted investments.
These are its holdings as of the last quarterly report:
As you can see, its main holding is in Harvest One Cannabis Inc [TSX:HVT], which makes up nearly half of its portfolio.
Harvest One has its Dream Water product which is now available in Walmart, and this is its share price performance over the last year:
As you can see, it’s moving in quite a wide band and has largely traded sideways.
The company is not turning a profit at the moment, so this may be weighing on MMJ’s share price.
It has had revenue growth of 330% between FY2014 and FY2017 as well as revenue of CA$8.4 million for the nine months ended March 31. Harvest One also recently acquired a biotech company (Delivra) — so its prospects could improve.
Share buy-back/dividend policy may make MMJ shares more attractive to investors
Early last month (7 June), MMJ announced that it would engage in an on-market buy-back of up to 10 million MMJ shares over a 12-month period.
It will do so from existing cash and the company hopes this improves the valuation of the company.
On the same day it also announced a dividend policy which will pay out 20% of its yearly profit after tax — and the company has franking credits to boot.
As per their investment portfolio report:
‘The dividend would be payable within three months of each half year after the completion of the half year and annual financial statements.’
Crucially, they have also engaged Embark Ventures to manage their portfolio and have incentivised Embark with performance rights to grow returns.
In conclusion then, it appears the company have taken a number of steps to improve the MMJ share price.
Whether this improvement actually happens is not certain.
But with a discount to NTA, a share buy-back, a dividend policy and a new company managing the portfolio, MMJ has taken tangible steps to give the share price a jolt in the coming months.
For Money Morning