Cellular Goods (CBX) looks to be the next stock on the runway to cheer up home schooling / furlough battered investors. It has everything the private clients a.k.a. the punters might like: a frisson of being involved in the (formerly) forbidden fruit of the cannabis space, a massively oversubscribed IPO allocation, and the prospective of a sharp rally on the first day of dealings from the 5p listing. Oh, and former footballer, David Beckham, whose investing acumen now appears to be outdoing anything he managed on the field.
Skin In The Game
To provide an indication of demand and the likely trajectory, Cellular Goods received more than £105m in subscriptions. All existing shares prior to flotation are locked up for 12 months. Another positive is the way that Directors have “skin” in the company to the amount of 35% of shares. Apparently, no one is selling which is unusual.
Punters In Play
Going against the ongoing grain of the City insider gravy train, the company has clearly tried to look after private clients for a change. As many as 6,000 clients got circa £500 each. This is the largest number of private clients in any flotation since Margaret Thatcher’s utility privatisations three decades ago.
All Star Cast
It has been reported that private clients have been enthused by Cellular’s management and its scientifically based cannabinoid offering as well as the endorsement by Mr Beckham, through his DB Ventures investment vehicle. It might be that Peter “Argo Blockchain” Wall as Non-Executive Chairman is just as much a draw to some in the market. Indeed, it can be said that the management of the company is as “all star cast” as one could hope for in terms of new economy and tech heroes du jour.
CBX’s Global Market
The fundamental headline is that CBX is reaching out to a global market worth $3.5bn, and 70% of users are over 35 years old. The macro trend is for wellness and self care, with the hope for some being that Cannabinoid products will likely prove to be the king of wellness ingredients. Indeed, Cellular’s skin products are undergoing product testing and will be approved and are set to be released in the third quarter of 2021. The focus is set to be on Skin, Orthopedic Movement, and Petcare.
Blank Cheque Orders
Market makers have been left orders up to 40 to 50p as four institutions were heavily scaled back in preference to small holders and now these institutions will look to build a decent holding and get stock from private clients who were favoured in this issue.
Comparable Kanabo (KNB) moved up from 6.5p to 51p on an intraday peak, giving a market cap of £100 Million with hardly any sales on low margin unregulated products. The margins on Cellular are nearer to 50-70% in regulated products. MGC Pharma (MXC) also hit a market cap of nearly £200m a few days ago. Chill brand group Zoetic (ZOE) at 80p is on a market cap of £150m plus.
“Cheap” Valuation
So, a market cap of £150m -£200m on CBX seems possible. Starting from Q3 2021, revenue sales should top 40 million as soon as 18 months out, making the current valuation cheap.
When all three aspects of the business are on stream by 2023, £100m to £150m of sales look reasonable. On this basis of expectation, a “10 bagger” rating versus the listing price of 5p for CBX in the first few days seems to be a possible scenario for the optimists.
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