AusCann Group Holdings Ltd

AC8 Details

Registration of Scheme Booklet: AusCann Group Holdings Limited (ASX: AC8) is a developer, producer, and distributor of cannabinoid-based medicines in Australia (ANZ) and overseas. It is developing a pipeline of proprietary of differentiated medical cannabis products. AC8 has launched its first product based on the Neuvisâ platform in ANZ in 2020 and is accessible under special provisions for medicines. As on 1^st February 2021, the market capitalisation of the company stood at ~$58.65 million. On 3 February 2021, the company announced that Australian Securities and Investments Commission (ASIC) has registered the Scheme Booklet regarding the proposed acquisition of CannPal Anilaml Therapeutics Limited (CP1) by AC8 under a Scheme of Arrangement (SOA) and the same will be sent to CP1 shareholders on or before 4 February 2021. The dispatch of booklet has been ordered by the Supreme Court basis which the shareholders of CP1 have been ordered to convene a meeting to consider and, if thought appropriate, approve the Scheme. The scheme meeting is scheduled to be held at 12 PM (AEDT) on 8 March 2021. CP1 shareholders will also be able to join the scheme meeting and vote via an online platform as informed by the company. Subject to the receipt of shareholders’ approval and the other conditions of the Scheme being fulfilled or waived, the Scheme is expected to be implemented in March 2021. If the scheme gets effective, new AC8 shares will be issued on the Date of Implementation (18 March 2021 is the expected date). The trading of new AC8 shares is expected to begin on a normal settlement basis on market open on 22 March 2021.

AC8 Entered Scheme of Arrangement with CP1: On 16^th November 2020, AC8 announced entering a scheme of implementation (SID) with CP1 to acquire 100% of the issued share capital of CP1 as per a scheme of arrangement. As per the terms of the scheme, the shareholders of CP1 will be offered 1.3 new fully paid ordinary shares in AC8 for every fully paid ordinary share in CP1 (offer), valuing each CP1 share at $0.184 per share and the company at approx. $17.5 million on a fully diluted basis. Following the acquisition, the combined entity will be a larger listed firm with improved liquidity muscle and positioned to attract strategic and corporate investors to enhance shareholder value. AC8 has reported that Mr. Layton Mills, the Founder & MD of CP1 will head the combined entity upon completion of the proposed acquisition. Mr Nick Woolf will resign as the CEO of AC8 and stay with the company as Interim CEO until completion of the acquisition. 

December 2020 Quarter Financial Results: For Q2FY21, the company reported cash reserves of $15.2 million as on 31 December 2020. During the quarter, the company divested its 50% ownership in DayaCann JV in Chile for a sale consideration of US$1.5 million. It received an initial payment of $264k in relation to its divestment. The company continues to progress the development of its novel CBD-only product based on an improved Neuvisâ2.0 platform. The net cash used in operating activities stood at $1.8 million, a decline of 22% QoQ, reflecting rigorous cost control spanning all activities.

Cash Flow from Operations, Q2FY21 (Source: Company Reports)

Outlook: Through the acquisition of CP1, AC8 aims to capitalise on the opportunity to leverage across these Medical Cannabis in human and animal health space. Together with CP1, the addressable market, and products to be commercialised in mid-2021, and coverage of medical cannabis both human and animal health will increase for AC8. The company has further four products under review and development for the medium term.

Stock Recommendation: The stock of AC8 gave a positive return of 28.57% in the past three months and a positive return of 16.12% in the past six months. The stock is currently trading towards its 52-weeks’ low level of $0.125. The stock of AC8 has a support level of ~$0.13 and a resistance level of ~$0.255. Considering the current trading levels, decent Q2FY21 results, prospect of a larger entity after acquisition of CP1, expanded portfolio and synergies, and decent outlook for FY21, and valuation, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.180, down by 2.703% on 5^th February 2021.

AC8 Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

THC Global Group Limited

THC Details

A Look at Q4FY20 Results: THC Global Group Limited (ASX: THC) is a diversified healthcare and pharmaceuticals company running operations in Australia and Canada. THC operates Global’s Southport Facility in Australia is a pharmaceutical GMP cannabis manufacturing facility. THC Global is also a turnkey cultivation solutions provider rapidly increasing cannabis sectors in Europe & North America. As on 5^th February 2021, the market capitalisation of the company stood at ~$49.25 million.  The company is shifting its focus from being a cannabis manufacturer towards high value pharmaceutical production of finished dosages and healthcare services. Subject to shareholder approval in the upcoming extraordinary general meeting on 18^th February 2021, it will rename itself Epsilon Healthcare Limited. This marks company’s refocussed approach towards pharmaceutical manufacturing and healthcare services.

Q4FY20 Result Highlights: During Q4FY20, THC has expanded its finished dosage forms production capability, installed new IT infrastructure to automate cannabis extraction process, and expanded warehousing capability for Schedule 4 and Schedule 8 medicines. The company has got its Southport facility recently inspected by TGA to seek GMP licencing and expecting approval soon to produce ‘inhalation products’ to expand its finished dosage forms capability. During Q4FY20, THC has come up with a new fulfilment warehouse in Ontario, Canada through a 3PL arrangement to access more export markets including the US. For FY20, the company reported growth in cash receipts of $6.9 million, up by 68% YoY.

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

Look at Q3FY20 & 1H20 Results: At the close Q3FY20, THC had $7.26 million in cash and $2.12 million cash receipts from customers for the quarter. The company reported a revenue of $4.9 million at the end of 9 months ending September 2020 (YTD20). THC earned revenue of $3.48 million at the end of 1H20, up by 60% on YoY basis. 

Outlook: In Canada, for FY21, THC plans to continue to widen its product range – both as a distributor and across its proprietary brands and is looking to grow export opportunities in the US, the Asia Pacific and Europe.

Stock Recommendation: The stock of THC gave a positive return of 19.04% in the past three months and a negative return of 3.84% in the past six months. The stock is currently trading towards its 52-weeks’ low level of $0.18. The stock of THC has a support level of ~$0.203 and a resistance level of ~$0.290. On TTM basis, the stock of THC is valued using EV/Sales multiple of ~6.6x as compared to industry (Healthcare) of ~16.5 and is thus undervalued. Considering the current trading levels, decent results of 1H20 and last 2 quarters, decent outlook of CY21 for both ANZ and Canada business, and valuation, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.250, down by 3.847% on 5^th February 2021.

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

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