Acumentis Group Limited

ACU Details

Termination of a Key Government Contract: Acumentis Group Limited (ASX: ACU) is a property valuation and advisory firm with 45 offices spanning regional, rural, and metropolitan Australia. ACU offers specialist services such as insurance and property valuation, advisory and buyers advocacy services across its property sectors. As of 19 May 2021, the market capitalisation of ACU stood at ~$17.49 million. On 28 April 2021, ACU announced the cessation of its valuation services contract to a large federal Government department. Though the company received a preferred tenderer status, appointed to the panel of suppliers by the Department and executed a formal agreement, ACU has not been issued a purchase order on the terms submitted by it under the agreement. Upon expiring the current contract extensions, ACU does not anticipate any additional revenue at this stage and might be engaged under the new deal with the Department in the future. ACU believes given the current extensions of the Government contract, FY21 revenue will not be impacted and continue at similar levels for the rest of FY2021.

A Look at the March Quarter 2021 Results: The company posted revenues of $10.5 million for Q3FY21 and completed five successive quarters of positive EBITDA. The YTD2021 revenue stood at $33.7 million, up by 21% YoY. ACU has been successfully appointed to many additional mortgage valuation panels in metro centres in Victoria and NSW. ACU repaid $650,000 of debt in December 2020 quarter and planned to pay $650,000 in April 2021. On 1 April 2021, ACU completed the acquisition of Saunders & Pitt, a valuation company in Tasmania and paid $107,000 in cash. ACU held a cash balance of $2.7 million as of 31 March 2021.

Monthly Fee Income, FY2020 & FY2021 (Source: Company Reports)

Key Risks: The company faces the challenge of being appointed on the client’s valuation panel and deriving synergies from its recent acquisitions.  The company is also exposed to the risks of COVID-19 uncertainties.

Outlook: ACU is planning to diversify its Government services projects and bring in more clients at the local, state and, federal levels. ACU expects a strong Q4FY21 as the Government revenues are in sync with the previous two years. The company is making attempts to diversify the client base, and with the growth in the national residential property market, ACU anticipates higher revenue for FY2022. It expects to accrue acquisition benefits by generating more operational profit, increasing the shareholders’ wealth, and advancing its growth trajectory.

Stock Recommendation: The stock of ACU gave a negative return of 11.99% in the past three months. The stock is currently trading near the 52-weeks’ average price level of $0.075-$0.160. The stock of ACU has a support level of ~$0.084 and a resistance level of ~$0.142. On a TTM basis, the stock of ACU is trading at a price to earnings value multiple of 7.4x lower than the industry (Real Estate Operations) median 17.2x, thus seems undervalued. Considering the current trading levels, increase in Q3FY21 & YTD21 revenue, growth in mortgage valuations and appointment to many mortgage valuations panels in metros, revenue outlook for Q4FY21 and expected acquisition synergies, valuation on a TTM basis, and associated key risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.110 on 19 May 2021.

ACU Daily Technical Chart (Source: Refinitiv, Thomson Reuters) 

PharmAust Limited

PAA Details

Change of Principal Investigator for Phase IIb Trial: PharmAust Limited (ASX: PAA) is a clinical-stage oncology firm engaged in developing its drug discovery IP. It operates a Pharmaceutical segment offering products in synthetic and medicinal chemistry to pharma and drug discovery companies. The Corporate division takes care of all the overhead costs. As of 19 May 2021, the market capitalisation of PAA stood at ~$30.40 million. On 14 May 2021, PAA announced the appointment of Dr Kim Agnew as the new Principal Investigator for its Phase IIb Veterinary Trial. The study will test the use of the monepantel drug for cancer treatment in pet dogs across five Sydney, Perth, and Brisbane sites.

A Look at the Q3FY21 Results: The company completed an assessment for six dogs with stage 4 to 5 B-cell lymphoma across its five participating sites under its Phase II clinical trial for canine cancer. The interim analysis of the test has provided additional evidence of MPL suppressing the growth of cancer cells growth in dogs. MPL evaluation in the current stage of the trial reflected no material adverse impact. The results allow PAA to optimise treatment levels of MPL further and design a Phase III study.

PAA is engaging with a broader pharmaceutical group of firms for veterinary partnerships to license its MPL for anti-cancer treatments in pets commercially. Syngene International Limited (India) has started manufacturing GMP-Grade MPL for Human Clinical Trials and reported progress on track.

During Q3FY21, PAA has been in discussions with the clinicians in the US, Eastern & Caucasus countries and the Balkans regarding a Phase I trial in humans to examine COVID-19. It has started preparations for the Phase I trial to evaluate MPL in Motor Neurone Disease patients to be funded by FighMND, Australia (grant of $881,085 for the trial). During the quarter, PAA entered a licensing agreement (through its R&D subsidiary Epichem Pty Limited) with Thermaquatica Inc, Illinois, to develop and research a new waste to fuel technology. The subsidiary intends to capitalise on the latest Government policies across levels towards a zero organic waste to landfill.

PAA earned cash receipts of $738,000 and net cash flows of $368,000 from operating activities for the quarter. It held an adequate cash reserve of $3.94 million as of 31 March 2021 to fund its current activities.

Cash Flows from Operating Activities, Q3FY21 (Source: Company Reports)

Key Risks: The company faces the risk supplying raw materials for conducting trials and developing products. It is exposed to regulatory delays by authorities and possible disruptions due to the uncertain pandemic environment. 

Outlook: The company continues to identify further sites for MPL Phase II trial in humans to widen patient recruitment possibilities. It expects to start a human cancer Phase II trial in Q1CY2022. PAA plans to begin the Phase I trial patient recruitment in Q4CY2021 for MND. It awaits the first instalment of $201,615 from FightMND to proceed further with the trial preparations.

Stock Recommendation: The stock of PAA gave a negative return of 9.52% in the past three months and a positive return of 13.63% in the past six months. The stock is currently trading towards its 52-weeks’ low level of $0.090. The stock of PAA has a support level of ~$0.084 and a resistance level of ~$0.109. On a TTM basis, the stock of PAA is trading at an EV/Sales multiple of 8.1x lower than the industry (Pharmaceuticals) median 14.7x, thus seems undervalued. Considering the current trading levels, positive net cash flows from operating activities in Q3FY21, MPL manufacturing in CY2021, plans for Phase I trial in humans for MND in FY21, valuation on a TTM basis, new contract to develop waste to fuel technology, and the associated risks of regulatory delays and supply chain disruption due to the pandemic, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.095, down by 1.042% on 19 May 2021.

PAA Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Note: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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