Comment on STENOCARE Adding a new Product in Australia

STENOCARE announced on November 23rd that the company has signed agreements that will make a new product, a Balanced 25-25 oil, available for patients in Australia from Q1-24. The decision comes after sales in the country have performed better than budgeted.

Adding a new Product is seen as a Natural Step

STENOCARE entered Australia in 2022 with the Balanced 12.5-12.5 oil and the response from doctors and patients has exceeded the expectations. As a result, STENOCARE is now launching a new product in the country, a Balanced 25-25 oil, hence providing choices for both first-time medical cannabis users and experienced patients, which will expand the reach to doctors and patients. Typically, when patients start medication with medical cannabis, a lower dose is needed to avoid more significant side effects. Therefore, STENOCARE began by introducing the slightly weaker 12.5-12.5 oil. However, as patients become accustomed to the dosage, and symptoms evolve, it may be relevant to increase the dosage. Consequently, STENOCARE is now launching the balanced 25-25 oil. The launch is seen as a natural step to continue treating patients who need to progress to a stronger dosage, thus preventing the loss of these patients to competitors.

Market with Large Potential

The Australian market has grown to over 200,000 patients, which can be compared to Europe’s largest market Germany with approximately 230,000 patients, showcasing the market potential. Moreover, just like the European market, the Australian market is expected to show continued growth over the coming years. According to Grand View Research, the Australian Legal Cannabis Market is expected to grow at a CAGR of 29.6% from 2023 to 2030 and be valued at USD 525m at the end of the forecast period. Drivers of market growth are expected to be the growing legalization of cannabis, mostly for medical use, as well as the increasing public knowledge of health benefits of cannabis intake.

Analyst Group’s view

In our last equity research report we stated that the ramp-up in sales in international markets have been lower than our expectations, at the same time as patient growth has been strong in Denmark. Consequently, we see positive on the news of stronger sales and the introduction of the new product. Although sales have been below our expectations thus far, and market penetration has taken longer than initially anticipated, we still see significant potential in the vast Australian market, which is also expected to grow substantially. The introduction of the new balanced oil is considered as a natural step to diversify the offering in the country and continue treating existing patients who require a stronger dosage. Consequently, STENOCARE is expanding the number of addressable patients through the new oil, which is expected to result in more individuals being treated with the company’s products and contribute to sales growth in the market.

How Analyst Group sees STENOCARE as an investment

The number of patients continued to grow strongly during Q3-23 for STENOCARE A/S (“STENOCARE” or “the Company”) which resulted in actual sales of DKK 2.3m. The reported net sales amounted to DKK 0.2m but included a large product return from Norway of DKK 2.1m, which we consider as a one-of occasion. Adjusted for the product return, EBITDA amounted to DKK -1.7m, the best in a quarter since Q1-19 and we estimate STENOCARE to reach break-even by the end of 2024. With estimated net sales of DKK 66.6m by 2026, and with an applied P/S multiple of 5x, a potential present value per share of DKK 9.4 (10.2) is derived in a Base scenario.