Cellmid Limited

CDY Details

Growth strategy and the Lyramid divestment: Cellmid Limited (ASX: CDY) is engaged in the research, development, and commercialization of diagnostic and therapeutic products for cancer and multiple chronic inflammatory conditions in Australia, the United States, and Japan. The company raised $4.5 million in an underwritten rights issue in March 2021 to boost eCommerce capabilities and provide cash flow for new distribution channels in China. In addition, it received $500K+ costs upfront payment for the sale of Lyramid. Meanwhile, the company completed the sale of Lyramid, its wholly-owned biotech subsidiary, so that it can focus solely on the consumer health business.

Q3FY21 Result Update: Consumer health sales increased 12% YoY driven by an increase in eCommerce sales on Cellmid’s evolis branded platforms and through eCommerce retail partners.  Further, net cash burn from operating activities fell to $153K for the quarter. However, operating expenditure reported lower than pcp as staff and R&D costs as well as general operating expenses have been reduced. Meanwhile, the Company completed an underwritten rights issue and raised $4.5 million of this $3.8 million was received on 1 April 2021, bringing the company’s total cash balance to $8.3 million immediately following the reporting period.

Consolidated Cash Flows, Data Source: Company Reports

Outlook: In a move to capture e-commerce market share, the company is investing in its e-commerce infrastructure and digital marketing capabilities, in parallel building distribution partnerships with online retailers. The company generates over 70% of US sales and 50% of Australian sales through online channels. Meanwhile, the company plans to expand in China through cross-border e-commerce, social commerce, and import approval for Jo-Ju and Lexilis shampoos. In addition, the USA and Australia sales growth is expected to be driven by new products, new brand partnerships, and eCommerce. Japanese sales growth will follow the export of heritage brands from Japan to other Asian markets, increase Japanese sales through new partnerships. The launch of evolis in Korea and third-party distributors of the same in FY2022 is expected to drive growth.

Key Risks: International regulations are the biggest compliance risk for the company, followed by testing and ingredient requirements, and claims substantiation. Further, the company is exposed to several financial risks that include credit risk, liquidity risk, market risk, and interest rate risk.

Stock Recommendation: CDY posted a 3-month and 6-months returns of ~-17.35% and ~-23.25%, respectively. It is currently trading below the average of the 52-week low price of $0.056 and the 52-week high price of $0.172, indicating an opportunity for accumulation. Considering the positive long-term management outlook, strong cash position, better Q3FY21 result, focused strategic plan in key geographies, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.070, up 7.692% on 31st May 2021.

CDY Daily Technical Chart, Data Source: REFINITIV 

Angel Seafood Holdings Ltd

AS1 Details

Increasing productivity through innovation: Angel Seafood Holdings Ltd (ASX: AS1) is the Southern Hemisphere’s largest producer of certified organic and sustainable pacific oysters. The company introduced a 3-pillar growth strategy to accelerate annual production capacity to 20 million oysters and improve profitability. Further, it has achieved a 47% rise in productivity since listing in 2018. Meanwhile, the innovative biodynamic farming method associates well with AS1’s values of organic & sustainable farming. On the back of this, it expects to generate an attractive IRR and short capital payback period. Further, a successful summer oysters’ trial is expected to expand the sales period to the entire calendar year, up from the existing 10 months, growing annual sales by 10-15% with no further investment in assets.

The company changed its financial reporting year to a calendar basis, commencing from 1 January 2021. As a result, Annual Report covers the 6-months from 1 July 2020 to 31 December 2020.  

31 December 2020 Half Year Result Update: The revenue of the company jumped by 52% YoY to $3.8 million driven by sales of 5.1 million oysters. This indicates the continuing strength of the business model and its ability to accelerate further. Meanwhile, reported a 20% fall in operating cost achieved through benefits of scale and productivity gains. During the period, 6.25Ha of additional water leases acquired to increase scale in the Eyre Peninsula, which resulted in an increase in finishing capacity from 10 million to 12 million oysters per annum. Further, reported net profit after tax of $719k, and generated positive operating cash flow of $175k

Key Financials, Data Source: Company Reports

Outlook: In addition to the initiatives highlighted above, the company is building the Angel brand to improve pricing. Further, growing recognition around quality, supply positions, and leveraging its credentials in building retail relationships. Further, it is marketing actively and branding the same to tap new markets. Importantly, increasing export volumes into premium export markets. (Southeast Asia indicates an attractive export market where a phenomenal price premium for imported oysters exists). Broadly, the management is completely focused on its sales initiatives and on further progressing its 3-pillar growth strategy with a target to increase capacity and sales.

Key Risks: The company operates in a highly competitive market and therefore facing high competition from domestic and international players. Further, there is a risk that the company suffers a disease outbreak that could impact the supply of oyster stocks. Importantly, the company must timely abide by the rules set by Primary Industries and Regions South Australia (PIRSA), failing to which could impact the operations and financial performance. In line with this, there is no assurance that the company’s operations will not be affected by an environmental incident or subject to environmental liabilities.

Stock Recommendation: AS1 posted 3-month and 6-months returns of ~+3.33% and ~-18.42%, respectively. It is currently trading below the average of the 52-week low price of $0.095 and the 52-week high price of $0.275, indicating an opportunity for accumulation. On a TTM basis, the stock of AS1 is trading at an EV/Sales multiple of 7.5x, lower than the industry mean (Food & Tobacco) of 8.2x. Considering the 3-pillar growth strategy, export focus, strong retail momentum, valuation, and current trading levels, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.155 per on 31^st May 2021.

AS1 Daily Technical Chart, Data Source: REFINITIV 

Note: Investment decisions 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine do not hold interests in any of the securities or other financial products covered on the Kalkine website.