Genetic Signatures Limited

GSS Details

Substantial Shareholder Terminated: Genetic Signatures Limited (ASX: GSS) is involved in the commercialization and development of 3base^TM, an in-house platform technology. The company manufactures a collection of PCR-Polymerase Chain Reaction-based products to detect infectious diseases under its brand EasyScreen™. As of July 1, 2021, the market capitalisation of GSS stood at ~$157.19 million. On June 1, 2021, GSS announced that Regal Funds Management Pty Limited had been terminated to be a substantial shareholder in the company.

Key Takeaways from Q3FY21 (March Quarter): The company reported $23.00 million in revenue for YTD2021 (nine months ending 31 March 2021), representing more than double revenue on FY20. GSS revenue for Q3FY21 is $4.30 million, up by 136% YoY led by the growing sales contribution of test kits in Europe and North America (43% in Q3FY21 versus 24% in Q2FY21). GSS generated $3.40 million of net operating cash outflows in Q3FY21. It held a cash balance of $31.90 million and nil debt as of 31 March 2021.

Revenue Trend from FY16-FY20; (Analysis by Kalkine Group)

Key Risks: The company faces negative price changes in foreign exchange rates and regulatory delays from authorities. The COVID-19 uncertainty may cause a delay in shipping products or the launch of new products.

Outlook: GSS is progressing well on its US FDA application clearance for the EasyScreen^TM Enteric Protozoan detection kit. GSS has obtained the CE-IVD registration for the EasyScreen^TM STI / Genital Pathogen detection kit to distribute in the UK and Europe. Besides, the company is working on a next generation product sample expected to be completed in the next two years. EasyScreen^TM SARS-CoV-2 detection kit has allowed GSS to access new customers in Europe, the USA, and Australia. The management believes it is well placed to take advantage of its technology and regulatory approvals for the detection kits in Europe and Australia.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of GSS gave a negative return of 28.25% in the past three months and a negative return of 43.78% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level of $1.040 - $2.940. We have valued the stock using the Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at some premium than its peer average, considering the increase in revenue of Q3FY21 and YTD21 and international sales in Q3FY21. For this purpose, we have taken peers like ImpediMed Limited (ASX: IPD), Micro-X Limited (ASX: MX1), Medical Developments International Limited (ASX: MVP), and others. Considering the current trading levels, increase in Q3FY21 and YTD21 revenue, increase in overseas sales in Q3FY21, no debt reported in Q3FY21, valuation, and associated risks of regulatory delays, COVID-19 led supply chain issues, and adverse foreign exchange movements, we give a ‘Speculative Buy’ rating on the stock at the current market price of $1.110, up by 0.909% on 1 July 2021.

GSS Daily Technical Chart, Data Source: REFINITIV  

Imagion Biosystems Limited

IBX Details

First Quarter (Q1FY21) Highlights: Imagion Biosystems Limited (ASX: IBX) is a new non-radioactive and safe diagnostic imaging technology developer. It aims to detect cancer and other diseases sooner by combining nanotechnology and biotechnology. As of 1 July 2021, the market capitalisation of IBX stood at ~$100.08 million. On 23 June 2021, IBX announced the termination of 3.0 million options (IBXAR) due to their expiry or convertible conversion on 20 June 2021. It also ceased 2.25 million options under IBXAF due to the lapse of conditional right to shares on 21 June 2021.

During Q1FY21, the company reported establishing and training for a second clinical site for its Phase I HER2 breast cancer study. IBS is now screening patients for the study enrolments at its two sites. IBS has commenced preclinical research with Monash University’s Biomedicine Discovery Institute for prostate cancer imaging funded by CSIRO. IBX generated marginally improved operating cash outgoings of $1.40 million in Q1FY21. It held a cash balance of $13.007 million as of 31 March 2021.

Net Loss After Tax from FY17-FY20; (Analysis by Kalkine Group)

Key Risks: The company faces regulatory hurdles and delays for progressing clinical studies. It faces lower patient enrolment and screening at the sites due to COVID-19 restrictions and the environment.

Outlook: IBX is finalising the third site for enrolling patients for the Phase I HER2 breast cancer study. It had planned to commence the patient enrolment from May 2021. IBX has implemented a lease for new office place in San Diego and will move in November 2021 to facilitate product development and offer commercial manufacturing services to third parties in the future. As Phase I clinical study and development pipeline will advance, IBX’s planned R&D expenditures and staff costs will also increase in the coming quarters.

Stock Recommendation: The stock of IBX gave a positive return of 22.22% in the past nine months and a positive return of 191.17% in the past year. The stock is currently trading lower than the 52-weeks’ average price level of $0.028 - $0.225. Considering the low trading levels, high current ratio in FY20 signalling decent liquidity position, addition of sites and involvement with more medical professionals and breast cancer clinics for patient enrolment for Phase I study, new premises in November 2021 reducing third party’s support for product development & manufacturing, associated risks of patient enrolments and ongoing COVID-19 situation, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.099, up by 3.125% on 1 July 2021.

IBX Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: 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.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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