Stocks’ Details
Unum Therapeutics Inc.
UMRX Wraps Up Kiq Buyout: A biopharmaceutical company, Unum Therapeutics Inc. (NASDAQ: UMRX) is engaged in developing & commercializing of new immunotherapy products of immune system to treat cancer. On July 6, 2020, the company stated that it has completed the acquisition of Kiq LLC ("Kiq"), a biotechnology company involved in the development of accuracy kinase inhibitors. Simultaneously, UMRX also inked a deal in a private placement with a group of institutional certified investors led by Fairmount Funds for the divestment of Series A non-voting convertible Preferred Stock. The company expects gross proceeds from the private placement to be ~$104.4 million, which will be used to develop clinical analysis of PLX9486, an extremely powerful and careful KIT D816V inhibitor, in multiple signals and will deliver runway beyond 2022.
Key Highlights for 1QFY20 for the Period Ended March 31, 2020: During the March quarter, the company reported collaboration revenue of $7 million, up from $3.1 million reported in the year-ago period. The year over year increase was due to the result of the conclusion of the ATTCK-17-01 Phase 1 clinical trial and the closure of the collaboration agreement. Research and development expenses for the quarter stood at $9.5 million, down from $12.4 million reported in 1QFY19. Net loss came in at $6.1 million, as compared to a net loss of $11.7 million reported in 1QFY19. The company exited the quarter with a cash balance of $29.6 million.
1QFY20 Key Highlights (Source: Company Reports)
Key Developments: In March 2020, the company had stated that its corporate restructuring plans to focus on the BOXR1030 program and BOXR platform. The company plans to file an investigational new drug (IND) application for introducing a clinical study on BOXR1030 later in 2020 to cure strong tumor cancers. BOXR103 is presently in pre-clinical studies.
Risks Analysis: Activities related to the development of BOXR1030 are expected to escalate operating expenses, going forward. The company is also exposed to risks relating to foreign operations that are required to be addressed from time to time. The company also faces stiff competition from peers which adds to the woes.
Stock Recommendation: The stock of UMRX closed at $3.32 with a market capitalization of ~$103.5 million. The stock made a 52-week low and high of $0.29 and $3.40, respectively, and is currently trading close to its 52-week high. The stock of the company went up by 850.2% in the past three months and ~429.1% in the last one-month period. The company believes that its existing cash and cash equivalents will fund operating expenses and capital expenditure needs into mid-2021. On the valuation front, the stock is trading at P/BV multiple of 4.8x as compared to the industry median of 2.9x on TTM (Trailing Twelve Months) basis. This demonstrates that the stock might be overvalued at current trading levels. Hence, we suggest investors to wait for price correction and give a watch stance to the stock at the current market price of $3.32, up 10.3% on 10 July 2020. The rise in share price can be attributed to the recent strategic alliance with a group of institutional certified investors led by Fairmount Funds. Notably, Fairmount Funds now own 19.99% of the outstanding shares of UMRX.
Tortoise Acquisition Corp
Hyliion Proposed Merger With SHLL: Tortoise Acquisition Corp (NYSE: SHLL) is a unique purpose acquisition company, which focuses to acquire one or more businesses and assets, through a merger, asset acquisition, capital stock exchange, stock purchase or reorganization. On June 19, 2020, Hyliion Inc. revealed its plans to merge with Tortoise Acquisition. Post the deal, the merged entity will be named as “Hyliion Holdings Corp.” and the stock will remain listed on NYSE under the new ticker symbol “HYLN”.
Digging into the Details: The combined company is expected to have a pro forma market capitalization of more than $1.5 billion. As a result, from an upsized $325 million PIPE, the company will receive ~$560 million. Proceeds from the merger deal will be utilized for operational expansion, product commercialization, & for general corporate purposes. Notably, both the company’s boards of directors unanimously approved the transaction. In the newly formed entity, Thomas Healy will continue with his role of Chief Executing Officer and will be joined by Tortoise’s Vince Cubbage and Stephen Pang. SHLL’s strong network of industry partners is likely to expand Hyliion’s business growth and support advancement and commercialization of its powertrain solutions. The move will help the combined entity to implement an electrified trucking solution to curb the emissions and make a cleaner energy future.
Stock Details: The stock of SHLL closed at $26.89 with a market capitalization of ~$783.2 million. The stock made a 52-week low and high of $9.5 and $34.67, respectively. The stock of the company went up by 166.24% in the past one-month period. Notably, the closing of the deal is subject to customary closing conditions. The transaction is expected to be finalized at the end of 3QFY20.
While taking any investment decision, investors should consider the risks and difficulties, the new entity will face being an early stage company with limited operational history. Absence of any immediate revenue generation, managing cash and business activities with a capital-intensive profile, delivering orders in time remain key concerns to watch out. The new entity aims to obtain major part of its revenue from the Hyliion’s technology solutions that transform transportation’s environmental impact which are in a nascent stage of development. Tortoise merger with Hyliion, will help the latter to accelerate the growth of the electrification of class 8 commercial vehicles. Hence, we suggest investors to remain cautious to include the stock in the portfolio. With the given limitations but decent prospects of the industry, investors with high risk-appetite may watch this stock. The stock closed at $26.89, down 0.07% on 10 July 2020.
Spartan Energy Acquisition Corp.
SPAQ In Talks to Acquire Fisker: Spartan Energy Acquisition Corp. (NYSE: SPAQ) is a unique purpose acquisition company, which focuses on energy value-chain in North America and is incorporated for the purpose to acquire one or more businesses and assets, through a merger, asset acquisition, capital stock exchange, stock purchase or reorganization. Reportedly, SPAQ is in talks to acquire electric-vehicle company, Fisker Inc. The news came after the successful deal made by SPAQ’s peer Nikola Corp earlier this year. Spartan Energy is backed by private equity firm Apollo Global Management Inc, which is likely to secure the buyout of Fisker’s deal worth $2 billion. Notably, the coronavirus outbreak in mid-March shook the market for electric vehicles.
What Investor’s Need to Know: The companies in electric-vehicle markets are on a radar and the Special purpose acquisition companies (SPACs) are coming out as clear winner. Spartan Energy’s focus on energy value-chain in North America along with the strength in investment management operations are expected to support its top-line growth. However, a major issue that is worrying governments all around the world in the electronic vehicle space is decarbonization in transportation, and harsher regulation and policies to fight climate change.
Stock Details: The stock of SPAQ closed at $16.7 with a market capitalization of ~$1.15 billion. The stock made a 52-week low and high of $9.75 and $15.05, respectively. The stock of the company went up by 70.89% in the past one-month period. Notably, the companies can confirm the deal as soon as next week. While taking any investment decision, investors should consider the risks and difficulties, the new entity will face being an early-stage company with limited operational history. Absence of any immediate revenue generation, managing cash and business activities with a capital-intensive profile, delivering orders in time remain key concerns to watch out. With the given limitations but decent prospects of the industry, investors with high risk-appetite may watch this stock. The stock closed at $16.7, up 11.41% on 10 July 2020.
Marathon Oil Corporation
Revenue up Year Over Year: Marathon Oil Corporation (NYSE: MRO) is engaged in oil and natural gas exploration and production, which has its business operation in the United States and Africa. The company operates under two business segments called United States units, & International units.
1QFY20 Key Financial Highlight: During the quarter, the company reported adjusted net loss of 16 cents per share, as compared to the previous corresponding quarter’s earnings figure of 31 cents per share. The company’s bottom-line was primarily impacted by the lower commodity price due to COVID-19 outbreak. Revenues during the quarter stood at $1.2 billion, up 2.8% from the prior corresponding period on account of robust sales volumes. Notably, the coronavirus crisis has led to significant ambiguity surrounding the near-term macroeconomic and historic oil market crash. In lieu of the uncertainty, the company took measures to save cash and therefore, suspended its quarterly dividend and share repurchase program. During the quarter, total costs stood at $1.2 billion, slightly higher than the year-ago figure of $1.1 billion. The company exited the period with cash and cash equivalents of $817 million. Net operating cash flow for the period came in at $701 million as compared to $515 million reported in 1QFY19.
1QFY20 Key Highlight (Source: Company Reports)
Risks: The view for exploration and production business seems dismal. The slump in commodity prices due to rising coronavirus pandemic along with the oil price war between Russia and Saudi Arabia is hurting energy demand worldwide. Currently, there is no significant sign of recovery in oil consumption. Marathon Oil is likely to get battered by this declining trend in the crude oil price.
Outlook: Considering the fall in commodity prices and market uncertainties related to the coronavirus pandemic, MRO decided to suspend its previously provided guidance. The company has revised its total capital expenditure guidance for 2020 to $1.3 billion or less, representing a minimum reduction of $1.1 billion on the initial guidance. This updated capital budget suggests only 50% of the company’s capital spending in 2019.
Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)
EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
Stock Recommendation: The stock of MRO closed at $5.35 with a market capitalization of ~$4.2 billion. The stock made a 52-week low and high of $3.02 and $14.39, respectively, and is currently trading below the average of its 52-week trading range. At the closing price of $5.35, current dividend yield for the stock stands at 3.53%. The stock has given a positive return of ~29.85% in the last three months but went down 24.75% in the last one-month period. Notably, the company is set to report its 2QFY20 results on August 5, 2020. The company’s debt to equity ratio stood at 0.46x in Mar’20, lower than the industry median of 0.86x. Considering the above factors, we have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price of lower double-digit upside (in % terms). For the purpose, we have taken peers like EOG Resources Inc (NYSE: EOG), Apache Corp (NYSE: APA), and Cimarex Energy Co (NYSE: XEC). Hence, we give a “Buy” recommendation on the stock at the closing price of $5.35, up 1.52% on 10 July 2020.
Comparative Price Chart (Source: Refinitiv, Thomson Reuters)
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