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9 January 2018 ASX Announcement
Updated Independent Equity Research Report Published
PERTH, Australia, 9 January 2018: Algae.Tec Limited (ASX:AEB) an Australian listed company with interest in the fields of Algae-based Nutraceuticals, Aqua-feed and Medicinal Marijuana, today announced the publication of an updated independent equity research report.
A copy of the report by Empire Capital Partners is attached and will be made available at the company’s website http://www.algaetec.com.au/
For further information please contact: Mal James Managing Director Algae.Tec Limited T: +61 (8) 9380 6790 E: [email protected]
Follow us on Twitter @AlgaeTec_
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EmpireCapitalPartners|T:+61893889230|E:[email protected]|A:448RobertsRd,Subiaco6008
EmpireCapitalPartners
ALGAE.TEC(AEB)Plant-based health & wellbeing company Algae.Tec (ASX:AEB) is a specialistproducer focused on supplying key algae-based nutraceutical, animal andaquaculture and medical cannabis markets. AEB produces algae from theCompany’s state-of-the-art product development facility in Atlanta whichproducesmultiplehigh-demandspeciestoserviceboththegrowingnutraceuticalandaquafeedmarkets.Inaddition,AEBhasrecentlyapplieditsindustry-leadinggrowing technology towards medical cannabis-focused R&D and cultivationactivitiesinUruguay.Algae-basednutraceuticalsAEBownsastate-of-the-artalgaeproductdevelopmentfacility inAtlantawhichproduceshighqualityproductsforthenutraceuticalsmarket.Currently,AEBhasa supply agreement signed with USA’s leading wholesaler of algae basednutraceuticalproducts,GencorPacific.AEB is targetingcirca$2million revenueperannumcommencingQ12018fromsaleofoilsandpowderstoGencorPacificAlgae-basedaquafeedInadditiontosupplyingthenutraceuticalmarkets,AEBalsoproducesavarietyofhigh value algae strains for the growing global aqua feedmarkets. These aquafeedproductsaresoldviathisCompany’s ‘FeedMe’range.AEBhasestimatedaconservative revenue of $1 million targeted for CY18 and is currently amidstdiscussionswithmajorretailoutletsinNorthAmericaMedicinalcannabisAEBhasaclearnear-termfocusonscalingup itsmedicinalcannabiscultivationand R&D activities in Uruguay, having recently announced plans to acquire adirect 25% equity interest in Uruguay-based partner Auberna SA (trading asUnitedBiogenics)(“United”)(seeASXreleasedated22November).The initial crophascommencedplantationwitha forecast revenueof$6-8m inH12018withanadditionalcropcitedlaterin2018.AEB made major inroads into the Australian medical cannabis markets inDecember, 2017 through a licensing agreement between AEB and MedicalCannabisLimited(“MCL”)(asubsidiaryofQueenslandBauxiteLimited(ASX:QBL)see ASX release dated 22 December). The agreement states that AEB willexclusively license MCL’s low THC Delta 9 Cannabis cultivars from the uniqueAustralianCannabisseedbankownedbyMCL.AEBalsosubmittedanapplicationto theOffice of Drug Control for a license to Cultivate and Produce medicinalcannabis in Australia. It is anticipated that the license will be granted early in2018.RecommendationAEB presents a speculative buy with major developments coming into fruitionand multiple projects scheduled for significant ramp ups in 2018. SignificantrevenuesareforecastedasAEBcontinuesalongarealisticpathwaytoproductioninUruguayandoff-takeagreementswithGencorarescheduledforpositivecashflow in Q1 2018. Shares priceswill be further driven up upon receipt of AEB’slicensetoCultivateandProducemedicalcannabisinAustralia..
AEB.asxShareprice $0.057*52WeekHigh/LowA$0.070/0.01830DayAvgVolume16,366,780Recommendation SpeculativeBuyBriefCompanyDescription:Algae. Algae.Tec is an Australian listedcompany with interests in the fields ofMedicinal Marijuana, Algae-basedNutraceuticalsandAqua-feed.BoardofDirectors:MalcolmJames(ExecChairman,ManagingDirector)PeterHatful(ExecDirector)EarlMcConchie(ExecDirector)RamasamyVenkatesh(Non-exec)JonathonLim(Non-exec)CompanyAddress:Unit2,100RailwayRdSubiaco,WA6008IssuedCapital687.3M-fullydiluted874.9MMarketCap 39.8M*-fullydiluted50.6M*SharePrice(08Jan.18)
PeterBird
ResearchAnalyst
Ph:+61893889230
*asof08/01/2018
Algae-basedProducts/M
edicinalCannabisProducer
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9/01/18Algae.TecPtyLtd(AEB)
EmpireCapitalPartners|T:+61893889230|E:[email protected]|A:448RobertsRd,Subiaco6008
SummaryModel(AEB)
Algae.TecSharePriceAEB$0.057
SharePrice$0.057MarketCapatilisation39.8MMarketCapitalisation–fulldil.50.6MNetCash(Debt)IssuedCapital687.3MOptions–listed141.8MOptions–unlisted45.7MIssuedCapital(fullydil.alloptions)874.9M
Atlanta100%AmericaAlgae-basedNutraceuticals/Aqua-feedUruguay50%SouthMedicinalAmericaCannabis
NetRevenue2,787,904NetLoss3,787,794TotalAssets3,804,293TotalLiabilities7,330,100TotalEquity(-)3,525,807Basicloss/share0.00
8-Jan-2018SpeculativeBuy
MalcolmJames(ExecChairman/ManagingDirector)Level1,100PeterHatful(ExecDirector)RailwayRdEarlMcConchie(ExecDirector)Subiaco,WA6008RamasamyVenkatesh(Non-exec)JonathonLim(Non-exec)
TeciBioLLC17525.5Gencor849.3RelianceIndust.Investments&HoldingsLTD456.6HSBCCustodyNomineesLTD253.7BloomgoldResourcesPtyLtd19.92.9
Thecompanyhastwosolidprojectswithagoodcashpositiontodevelopthemfurther.AtlantaisaNutraceuticalsandAqua-feedproject,plusapromisingMedicinalCannabisprojectinUruguay.
Q3CY17$8MRightsissueFirstmed.CannabiscropplantedUruguayStrongtake-upofFeedMeproductsAtlantaQ4CY17LicenseApplicationSubmissionUruguayManagementQ&AsessionAppointmentofMDAEBinvestinmed.CannabispartnerUruguayAtlantaplantupgradeAtlantaQ1CY18QBL:MLC&QBLjointodevelopCannabisUruguayVeterinarymedications
Lastupdated:08/01/2018
KeyMarketInformation
ProjectsInterestLocationCommodity
P&LFY2017F
Directors
TopShareholdersmshe%
InvestmentSummary
NewsflowProject
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9/01/18Algae.TecPtyLtd(AEB)
EmpireCapitalPartners|T:+61893889230|E:[email protected]|A:448RobertsRd,Subiaco6008
Algae.tec-Nutraceuticals
TheglobalNutraceuticalmarkethasbeengrowing rapidly and offering immenseopportunities for players involved in thebusiness.The global nutraceuticals market willcontinue to grow at a CAGR of 7.3%through 2022, according to TransparencyMarketResearch. Themarketwas valuedat USD 205.39 billion in 2016, and isexpected to reachUSD297billionby theend of 2022. Nutraceuticals can be seenasthelatestandmostcurrenttrendinginsuccession of health food concepts. Bulkmarket prices range from US$15 to overUS$100perkilogram,dependentonalgalspecies, product form (algae biomass,algae oil or extracts thereof), productqualityandnutritionalvalue.
AEB has a State-of-the-art algae productdevelopment facility in Atlanta –producingmultiple high-demand species.
A$35m invested in plant technology todate.Well over $2m revenueper annumcommencing Q1 2018 is expected fromsaleofoilsandpowderstoGencorPacific.Gencor are expected to buy allnutraceutical offtake from AEB.Currently, The Atlanta plant is producingat70%ofits50MTperyearcapacity.Itis
expectedtorampuptoits50MTperyearcapacity by the end of January 2018.Projectedproduction capacity is at 50MTper year with plans to scale up to 300tonnesperyearforproductionofmultiplealgal species and products thereof,utilizingAEB’suniquetechnologyplatformandfacilityinfrastructure.
• Circa $2m revenue per annum
(basedon50MTpa) commencingQ1 2018 from sale of oils andpowderstoGencorPacific
• Supply agreement with Gencorunderpinsfuturerevenue
• Covers all corporate costs andCAPEX
AEB’s technology has demonstrated andvalidatedexceptionalperformanceversuscompetitivealgaeprocesstechnologies:
! Enclosedphoto-bioreactorsystem! 10-foldproductivityimprovement! 99+%biomass&oilproductyields! Optimumalgaeproductquality! Carbondioxidesequestration! Step-change reduction in plant
footprintrequirements! Substantialcapital/costsavings
Technology
Current Status of AEB
Market Overview
Key Points
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9/01/18Algae.TecPtyLtd(AEB)
EmpireCapitalPartners|T:+61893889230|E:[email protected]|A:448RobertsRd,Subiaco6008
Algae.Tec–MedicalCannabis
By most industry metrics, the legalcannabisisthefastestgrowingindustryinthe United States. Propelled bylegalization in 29 states,Washington DC,andevenCanada,themeteoricriseofthecannabis industry has resulted inconsistent, year after year growth onlymatched by the dawning of broadbandaccess.
Early CAGR estimates are set to lingerbetween25% to 27% over the course ofthenext fewyears tohitanapproximate$22.6billionin2021.
InMay2017,theCompanyenteredintoaformal Collaboration and LicenseAgreement with Jardin De Invierno(“JDI”), (trading as Winter GardenBiosciences),toexpanditstechnologyandproductfootprintintotherapidlygrowingmedicinal cannabis and associatedmarkets. AEB is at the forefront ofdeveloping technologies that optimizecontrolledgrowingenvironmentsforhighvalue natural products, includingmedicinalcannabis.MedicalCannabisPeerComparison
JDIisabiosciencescompanyfocusedon the production and development ofcannabis extract derivatives and relatedintellectualproperty.
• In late November, AEB entered
into an agreement to acquire a25% equity interest in aUruguayan cannabis producer,Auberna SA (thecommercializationvehicleforJDI).
• Under theHoA, AEBwill invest afurther US$1,000,000 (above theUS$1,500,000 under theCollaboration Agreement) intoAuberna.
• Forecastrevenueof$6-8mforQ12018fromonecrop.
• Expected to yield 1000kg of oils,seedextractsandfibreproducts.
• Capacity to expand to two cropsQ2 2018 with Establishedmarkets/buyersinplace.
• InlateDecember,AEBenteredintoanagreementwithQBLtoexclusivelylicenseMedicalCannabisLimited’sLowTHCDelta9Cannabiscultivars.
• UndertheLicensingagreement,itis intended that MCL be issuedwithAEBshares inorder forMCLto become a 19.99% shareholderofAEB,subjecttomilestones.
Company Ticker CurrentPrice
($)MarketCap 52week
rangePriceChangeYTD
ZeldaTherapeutics ZLD 0.125* 94.35M* 0.022-0.1425 107.69%AuscannGroup AC8 1.74* 431.4M* 0.19-0.94 218.75%MMJPhytotech MMJ 0.59* 123.3M* 0.17–0.83 86.36%MGCPharmaceuticals
MXC 0.115* 125.6M* 0.04–0.12 55.56%
CresoPharma CPH 1.21* 128.1M* 0.19–0.93 231.91%CannGroup CAN 3.61* 528.6M* 0.45–2.80 317%TheHydroponicsCompany
THC 0.89* 144.0M* 0.19-0.70 60.49%
QueenslandBauxite QBL 0.052* 81.4M* 0.006–0.38 315.38%Algae.Tec AEB 0.057* 39.8M* 0.018-0.070 ~115%
Market Overview
AEB Involvement
Key Points
*asof08/01/2018
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9/01/18Algae.TecPtyLtd(AEB)
EmpireCapitalPartners|T:+61893889230|E:[email protected]|A:448RobertsRd,Subiaco6008
Algae.Tec–AquaFeed
The 2017 aqua feed market is valued atmore than $100B and 75M tonnesdemand with industry projectionscontinuedstronggrowthratesat12%peryear. The global animal feed market isvalued at $25B with growth rates of 6%peryear.Within thesemarkets therehasbeen a sharp increase in demand fornatural and sustainable foodsupplements, containing essentialproteins,omega-3fattyacids,
vitaminsandmineralstoenhancenutritionalvalue.
AEBhasdevelopedaseriesofhighqualityliquid and powder algae-based productswith the optimum balance of essentialaminoacids,omega-3fattyacids,vitaminsand minerals for applications in theaquacultureandanimalfeedmarkets.TheFeedMe algae product line was officiallylaunched in April with first commercialsales through its website,www.feedmealgae.com, and to leadingdownstreamdistributors
• Conservativerevenueof$1m
expectedforCY18(basedon50MTpa)
• DiscussionswelladvancedwithmajorretailoutletsinNorthAmerica
• Potentialtoexponentiallyincreasesalespipelineinthe
comingmonths
Market Overview
Algae.tec Near Term Growth Factors
Key Points Future Forecast Revenue
Product $/kg Annualized -Chlorella Powder $20 $139,930 -Nanno EPA Oil $80 $28,530 -Nanno Refined Protein $10 $11,850 Biomass Powder Product $/kg Annualized -Chlorella Powder $22 $153,960 -Schizo DHA Oil $80 $406,090 -Schizo Refined Protein $10 $87,670 Biomass Powder
AEB Involvement
Nutraceuticals ex Phototrophic System
Nutraceuticals ex Heterotrophic System
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AEBisapremiumproducerofnutraceutical,aquaculturalandcannabisgoods.Itpresentsasolid investment opportunity, particularly in the highly sought after medical cannabismarket.Peercomparisonswith like-mindedcompaniesshow it is thecheapestentrypointintoanalreadyboomingandcompetitivemarketwithasharepriceof5.7c.AEBisgearingup for a huge year in 2018 with major developments coming into fruition and both theAtlanta and Uruguay projects scheduled for significant ramp ups. AEB is well positionedwithinallthreemarketstotakefulladvantageofboththecurrentandfutureclimate.
CarehasbeentakentodefinethelevelofrisktoreturnassociatedwithaparticularcompanyOurrecommendationrankingsystemisasfollows:Buy Companies with ‘Buy’ recommendations have been cash flow
positiveforsometimeandhaveamoderatetolowriskprofile.Weexpectthesetooutperformthebroadermarket.
SpeculativeBuy We forecast strong earnings growth or value creation that may
achieve a return well above that of the broader market. Thesecompaniesalsocarryahigherthannormallevelofrisk.
Hold A sound well managed company that may achieve market
performance or less, perhaps due to an overvalued share price,broadersectorissues,orinternalchallenges.
Sell Riskishighandupsideloworverydifficulttodetermine.Weexpect
a strong underperformance relative to themarket and see betteropportunitieselsewhere.
________________________DISCLAIMER: This report was produced by Empire Capital Partners Pty Ltd (“Empire”), which is a Corporate AuthorisedRepresentativeofPursuitCapital(AFSLNo.339211).EmpireisamandatedadvisortoAlgae.Tec.Empirehasmadeeveryeffortto ensure that the information andmaterial contained in this report is accurate and correct and has been obtained fromreliablesources.However,norepresentationismadeabouttheaccuracyorcompletenessoftheinformationandmaterialanditshouldnotberelieduponasasubstitutefortheexerciseof independent judgment.Excepttotheextentrequiredby law,Empiredoesnotacceptanyliability, includingnegligence,foranylossordamagearisingfromtheuseof,orrelianceon,thematerialcontainedinthisreport.Thisreportisforinformationpurposesonlyandisnotintendedasanofferorsolicitationwithrespecttothesaleorpurchaseofanysecurities.ThesecuritiesrecommendedbyEmpirecarrynoguaranteewithrespecttoreturnofcapitalorthemarketvalueofthosesecurities.Therearegeneralrisksassociatedwithanyinvestmentinsecurities.Investorsshouldbeawarethat theserisksmight result in lossof incomeandcapital invested.NeitherEmpirenoranyof itsassociatesguaranteestherepaymentofcapital.WARNING: This report is intended to provide general financial product advice only. It has been prepared without havingregarded to or taking into account any particular investor’s objectives, financial situation and/or needs. Accordingly, norecipients should rely on any recommendation (whether express or implied) contained in this documentwithout obtainingspecificadvicefromtheiradvisers.All investorsshouldthereforeconsidertheappropriatenessoftheadvice, in lightoftheirownobjectives,financialsituationand/orneeds,beforeactingontheadvice.Whereapplicable,investorsshouldobtainacopyofandconsidertheproductdisclosurestatementforthatproduct(ifany)beforemakinganydecision.DISCLOSURE: Empireand/or itsdirectors, associates,employeesor representativesmaynoteffecta transactionupon itsortheirownaccountintheinvestmentsreferredtointhisreportoranyrelatedinvestmentuntiltheexpiryof24hoursafterthereport has beenpublished.Additionally, Empiremayhave,within the previous twelvemonths, provided advice or financialservices to the companies mentioned in this report. As at the date of this report, the directors, associates, employees,representativesorAuthorisedRepresentativesofEmpiremayholdsharesinthiscompany
Summary
Empire Capital Research Recommendation Categories
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