The Ecofibre Ltd (ASX: EOF) share price briefly leapt 7.6% this morning after the hemp products producer announced a strategically important acquisition. The company will acquire a portfolio of businesses and assets of a key manufacturing partner. The portfolio includes five businesses with deep technical expertise across a range of textile disciplines. This will help accelerate the transition of the company's Hemp Black products from R&D to commercialisation. At the time of writing, the Ecofibre share price had been sold down to currently trade at $2.50. This is level with the company's share price at Friday's close. Ecofibre shares were placed in a trading halt on Monday pending today's announcement.
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What does Ecofibre do?
Ecofibre is a producer of hemp products in Australia and the United States. Its Hemp Black business is focused on developing naturally anti-microbial, hemp-based textiles and composite materials. Its Ananda Hemp Food brand produces Australian grown hemp food products. The Ananda Health and Professional brands produce nutraceutical products for humans and pets.
Why has Ecofibre made the acquisition?
Ecofibre is acquiring the business and assets of TexInnovate which comprises a portfolio of five businesses that work as an integrated manufacturing platform. This will drive innovation and delivery for a range of products envisaged for Hemp Black. The acquisition creates an integrated value chain for Hemp Black's key intellectual property and technology processes.
Ecofibre will pay US$42 million for the business. This is comprised of US$10.5 million cash, US$10.5 million in Ecofibre shares and an earnout with a value of up to US$21 million. Completion is scheduled to occur on 1 September 2020 with the acquisition funded via a $29.5 million share placement at an issue price of $2.50.
How has the Ecofibre share price been performing?
The Ecofibre share price fell throughout June but has been on an upward trajectory in July. As mentioned, the share price leapt more than 7% on opening this morning but has since pulled back with shares now trading at $2.50. In FY20, Ecofibre grew revenues by 42% to over $50.7 million with growth in sales across all businesses. Net profit after tax grew 119% to $13.2 million, above the $12.5 million previously forecast.
Ecofibre says it is in a strong financial position with cash and equivalents of $18.3 million and no debt. The company is developing the industrial hemp market through the Hemp Black business, which recently tapped into demand for personal protective equipment (PPE). Hemp Black sold around 135,000 face masks in May and June contributing $2.4 million to revenue. Mask manufacturing capacity is expected to double this quarter.
What's the outlook for Ecofibre?
Ecofibre's businesses are performing strongly. Ananda Health is the number one hemp brand for US pharmacies, and is on track to launch in CVS in 2Q21. CVS is the largest retail pharmacy chain in the US with some 10,000 outlets. Ananda Food has seen steady growth and is building a quality customer base for the long term. This latest acquisition will speed the commercialisation of Hemp Black products.
