Carr’s Group — Coping well with commodity price rises

Carr’s Group (LSE: CARR)

Currency in GBP

Last close As at 25/01/2023

GBP1.22

5.50 (4.74%)

Market capitalisation

GBP109m

Research: Industrials

Carr’s Group — Coping well with commodity price rises

Carr’s Group’s trading update for the 22 weeks ending 30 July 2022 notes that the overall trading performance for FY22 is in line with board expectations so we leave our estimates unchanged. The board states that the strategic review announced in December 2021 is nearing completion and it expects to make a separate announcement soon.

Anne Crow

Written by

Anne Margaret Crow

Director, TMT & Industrials

Industrials

Carr’s Group

Coping well with commodity price rises

Interim management statement

General industrials

8 August 2022

Price

132p

Market cap

£124m

Net debt (£m) at end February 2022 (excluding finance leases)

29.9

Shares in issue

94.0m

Free float

57.2%

Code

CARR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(2.9)

(9.1)

(17.0)

Rel (local)

(8.8)

(8.4)

(17.4)

52-week high/low

167.5p

125.0p

Business description

Carr’s Group’s Speciality Agriculture and Agricultural Supplies divisions serve farmers in the North of England, South Wales, the Welsh Borders and Scotland, the United States, Germany, Canada and New Zealand. The Engineering division offers remote handling equipment and fabrications to the global nuclear and oil and gas industries.

Next event

FY22 results

November 2022

Analyst

Anne Margaret Crow

+44 (0)20 3077 5700

Carr’s Group is a research client of Edison Investment Research Limited

Carr’s Group’s trading update for the 22 weeks ending 30 July 2022 notes that the overall trading performance for FY22 is in line with board expectations so we leave our estimates unchanged. The board states that the strategic review announced in December 2021 is nearing completion and it expects to make a separate announcement soon.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

08/20**

395.6

15.0

12.0

4.75

11.0

3.6

08/21

417.3

16.6

13.2

5.00

10.0

3.8

08/22e

477.6

17.3

12.7

5.20

10.4

3.9

08/23e

478.6

17.9

12.9

5.40

10.2

4.1

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Restated.

Passing on agricultural commodity price increases

Speciality Agriculture margins were notably improved compared with H122. Volumes in the UK and Ireland remained solid, supported by strong farmgate prices. While US volumes continued to be adversely affected by the prolonged drought affecting the northern part of the country, management had anticipated this, so divisional trading was in line with its expectations. The UK Agricultural Supplies business traded ahead of management expectations as the market fully absorbed sharp rises in commodity prices. Dairy feed volumes were stable, supported by higher farmgate milk prices, though volumes of beef and sheep feeds were lower than usual because of an abundance of grass in the area served by the division.

Global supply chain issues affect Engineering

As anticipated in our April update, the Engineering division benefited from a strong order book, particularly for the precision engineering business. Profitability however was lower than management expectations because global shortages of components such as motor controllers meant that the robotics business was not able to recognise milestone payments against some contracts. In addition, the costs associated with completing a major nuclear defence project were higher than management had anticipated.

Valuation: Releasing the value of divisions beneficial

Given the ongoing strategic review, we believe a sum-of-the-parts (SOTP) analysis is appropriate because it shows that stocks engaged purely in engineering activities or providing speciality agricultural inputs command substantially higher multiples than those involved in supplying commoditised agricultural inputs. Our SOTP calculation gives a value of 257.5p/share, which suggests that any potential strategic activity that released the value of individual divisions by splitting up the group would be beneficial for shareholders.

Strategic review and management changes

While the board continues to see potential for growth in each of the three divisions, there are limited opportunities to exploit inter-divisional synergies. Consequently, in December 2021 the board announced that it was carrying out a strategic review. The board expects to complete the process and provide an update ‘shortly’.

In line with the succession plan announced in August 2020, Hugh Pelham became CEO when the previous CEO, Tim Davies, stood down at the group's AGM in January 2021. Hugh left the group in October 2021 and Chairman Peter Page moved from a non-executive to an executive role while the group looked for a new CEO. The group has now announced that Peter is to stay in an executive role, becoming the new CEO. Prior to becoming non-executive chairman in January 2020, Peter was chief executive officer of Devro, which manufactures collagen casings for the food industry. Before that he worked for poultry breeder Aviagen and as an executive director of Adnams, a regional brewer. CFO Neil Austin, who has been in this post since May 2013, has announced his decision to step down from the board to take up a new role as CFO of the privately owned Westmorland Family group of businesses. He will remain in his current position until Carr’s Group’s AGM in January 2023.

Valuation

SOTP analysis

Exhibit 1: Peer-based multiples

Name

Market cap (£m)

EV/EBIT 1FY (x)

EV/EBIT 2FY (x)

P/E 1FY (x)

P/E 2FY (x)

Speciality Agriculture

!

Anpario

137.9

19.9

17.9

25.1

23.8

Benchmark Holdings

285.0

185.2

32.3

(76.9)

29.9

Mean

19.9

25.1

25.1

26.8

Agricultural Supply

ForFarmers

243.2

11.8

8.9

14.3

8.1

NWF Group

110.2

9.9

9.9

11.9

12.0

Ridley Corporation

309.8

10.8

9.6

15.8

13.9

Wynnstay Group

124.6

8.7

11.0

10.3

13.2

Mean

10.3

9.8

13.1

13.0

Engineering

Avingtrans

148.7

15.3

13.5

21.0

18.6

IMI

3,351.3

12.3

11.4

12.7

12.0

James Fisher

167.7

15.2

13.7

22.2

20.2

Weir Group

4,226.8

15.0

13.6

17.9

15.8

Mean

14.5

13.0

18.5

16.6

Carr's Group PLC @ 131.75p/share

123.8

9.0

8.7

10.4

10.2

Source: Refinitiv, Edison Investment Research. Note: Prices as at 4 August 2022. Grey shading indicates exclusion from mean.

In Exhibit 1 we compare Carr’s prospective EV/EBITDA and P/E multiples with those of its listed peers offering speciality products to livestock farmers (Speciality Agriculture), companies engaged in the supply of more commoditised inputs to livestock farmers (Agricultural Supply) and a sample of UK engineering companies. At the current share price (131.75p), Carr’s is trading at a relatively modest discount to our sample of companies engaged in agricultural supply and our sample of engineering companies on all metrics. The level of discount is much more pronounced when comparing Carr’s with the mean for the sample of companies offering speciality agricultural products. This suggests that Carr’s current share price does not attribute any uplift in value compared with agricultural suppliers such as ForFarmers for its Speciality Agriculture division.

We base our SOTP analysis (Exhibit 2) on the EBIT attributable to each division, including the contribution from the associate and JVs where appropriate, applying multiples derived from the peer comparison in Exhibit 1. Obviously, this is a relatively small peer group and the calculation is sensitive to the multiples used. Despite these limitations, the exercise illustrates the value in the individual divisions. Our calculation produces an indicative group value of 257.5p/share, suggesting that any strategic activity that released the value of individual divisions would be beneficial for shareholders.

Exhibit 2: SOTP analysis

FY22 EBIT (£m)

Multiple (x)

Value (£m)

Speciality Agriculture

7.6

19.9

151.6

Agricultural Supply

7.3

10.3

74.9

Engineering

5.6

14.5

80.9

Central costs

(2.2)

8.0

(17.6)

EV

289.8

Net debt at end February 2022*

(29.9)

Minorities at end February 2022

(18.0)

Equity value

242.0

Number of shares (m)

94.0

Indicative value per share (p)

257.5

Source: Edison Investment Research, Refinitiv. Note: *Excluding finance leases. Prices as at 4 August 2022.

Exhibit 3: Financial summary

£m

2020

2021

2022e

2023e

Year end 31 August

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

restated

Revenue

 

 

395.6

417.3

477.6

478.6

Share of post-tax profit from JVs and associate

0.0

0.0

0.0

0.0

EBITDA

 

 

23.4

23.9

24.8

25.4

Operating profit (before amort. and excepts.)

 

16.3

17.6

18.3

18.9

Amortisation of acquired intangibles

(1.4)

(1.2)

(1.2)

(1.2)

Exceptionals

(2.6)

(3.4)

0.0

0.0

Reported operating profit

12.3

13.0

17.1

17.8

Net Interest

(1.3)

(1.0)

(1.0)

(1.0)

Profit Before Tax (norm)

 

 

15.0

16.6

17.3

17.9

Profit Before Tax (reported)

 

 

10.9

12.1

16.1

16.8

Reported tax

(1.3)

(2.4)

(3.5)

(3.9)

Profit After Tax (norm)

12.7

14.7

13.8

14.1

Profit After Tax (reported)

9.6

9.7

12.6

12.9

Minority interests

(1.2)

(1.9)

(1.9)

(1.9)

Net income (normalised)

11.1

12.3

11.9

12.1

Net income (reported)

8.4

7.7

10.7

11.0

Average Number of Shares Outstanding (m)

92.3

93.1

93.9

94.0

EPS - normalised (p)

 

 

12.0

13.2

12.7

12.9

EPS - normalised fully diluted (p)

 

 

11.8

13.0

12.5

12.8

EPS - basic reported (p)

 

 

9.1

8.3

11.4

11.7

Dividend (p)

4.75

5.00

5.20

5.40

EBITDA Margin (%)

5.9

5.7

5.2

5.3

Normalised Operating Margin

4.1

4.2

3.8

4.0

BALANCE SHEET

Fixed Assets

 

 

124.4

123.4

120.3

117.2

Intangible Assets

38.4

36.7

35.5

34.3

Tangible Assets

53.1

53.0

51.1

49.3

Investments & other

32.9

33.7

33.7

33.7

Current Assets

 

 

120.4

139.1

148.4

155.4

Stocks

41.0

43.2

52.3

55.3

Debtors

59.8

68.9

80.3

80.9

Cash & cash equivalents

17.6

24.3

13.1

16.4

Other

2.1

2.7

2.7

2.7

Current Liabilities

 

 

(70.8)

(86.1)

(84.4)

(80.2)

Creditors

(56.6)

(72.0)

(73.3)

(72.1)

Tax and social security

(0.0)

(0.0)

(0.0)

(0.0)

Short term borrowings including finance leases

(14.2)

(14.1)

(11.1)

(8.1)

Other

0.0

0.0

0.0

0.0

Long Term Liabilities

 

 

(42.4)

(41.2)

(41.2)

(41.2)

Long term borrowings including finance leases

(36.2)

(35.6)

(35.6)

(35.6)

Other long term liabilities

(6.2)

(5.6)

(5.6)

(5.6)

Net Assets

 

 

131.6

135.2

143.2

151.2

Minority interests

(16.8)

(17.2)

(19.1)

(21.0)

Shareholders' equity

 

 

114.8

118.1

124.1

130.1

CASH FLOW

Operating Cash Flow

23.4

23.9

24.8

25.4

Working capital

5.2

3.2

(19.2)

(4.8)

Exceptional & other

(7.4)

(4.9)

0.0

0.0

Tax

(3.1)

(2.1)

(3.5)

(3.9)

Net Operating Cash Flow

 

 

18.2

20.0

2.1

16.8

Investment activities

(6.2)

(3.6)

(4.6)

(4.6)

Acquisitions/disposals

(2.7)

(1.1)

0.0

0.0

Net interest

(1.5)

(1.1)

(1.0)

(1.0)

Equity financing

0.0

0.9

0.0

0.0

Dividends

(3.3)

(5.5)

(4.7)

(4.9)

Other

0.8

0.3

0.0

0.0

Net Cash Flow

5.2

9.9

(8.2)

6.3

Opening net debt/(cash)

 

 

23.8

32.8

25.4

33.6

FX

0.0

0.0

0.0

0.0

Other non-cash movements

(14.3)

(2.5)

0.0

0.0

Closing net debt/(cash)

 

 

32.8

25.4

33.6

27.3

Finance leases

13.9

15.4

15.4

15.4

Closing net debt/(cash) excluding finance leases

18.9

10.0

18.1

11.8

Source: Company data, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Carr’s Group and prepared and issued by Edison, in consideration of a fee payable by Carr’s Group. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Carr’s Group and prepared and issued by Edison, in consideration of a fee payable by Carr’s Group. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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