Creso Pharma Limited

CPH Details

LOI with Polvet to Enter Eastern Europe: Creso Pharma Limited (ASX: CPH) develops and markets cannabis and hemp-derived nutraceutical, therapeutic, and lifestyle products for animal and human health. Mernova Medicinal Inc. (Mernova), a wholly-owned subsidiary of CPH, distributes dried cannabis plant retail products in Canada and overseas. As of 21 May 2021, the market capitalisation of CPH stood at ~$176.33 million. On 21 May 2021, CPH announced entering a non-binding Letter of Intent (a non-exclusive“LOI”) to advance a commercial contract with Polvet Healthcare Teodorowski Spółka Jawna (“Polvet”). Under the agreement, “Polvet” will distribute CPH’s anibidiol® product lines for stress management and animal health products for livestock and pets via its retail and wholesale network. The “LOI” expands CPH’s footprint into Eastern Europe and access to the Polish market considered as one of the biggest pet markets in the Central-Eastern European region.

Finalised Development of Anibidiol® Swine: On 18 May 2021, CPH announced the finalisation of the development of a new hemp four and oat bran-based feed product. This product allows CPH to enter the livestock market, particularly in the Swine hemp-based complementary feed segment in Europe. CPH will initially focus on distributing in Europe and Latin American markets with its first sales to livestock feed shops, vets, and online in 2HCY2021.   

Revenue Growth in Q1FY21: The company reported an increase in revenue to $1,385K, up by 237% on QoQ. Mernova, the overseas Canadian sales division, reported sales revenue of $759K, up by 340% YoY in Q1FY21. The increase in sales is due to the repeat orders for its Ritual Green product and ongoing change to a recurring revenue model. Mernova has secured its first order for the recently introduced new pre-roll joint range under the brand-Ritual Sticks.

CPH’s Nutraceutical Swiss Division reported revenue of $626,000, up by ~1600% QoQ, due to sales of cannaQIX® product sales and anibidiol® product. CPH has a contract to acquire Halucenex Life Sciences Inc. (“Halucenex”), pending due to the grant of Dealers Licence from Health Canada. During the quarter, CPH raised $18 million (before costs) from institutional investors via placement of ~94.7m new fully paid ordinary shares at $0.19 per share on 1 April 2021. It held a cash balance of $18.6 million as of 31 March 2021. 

Cash Flow from Operating Activities, Q1FY21 (Source: Company Reports)

Key Risks: The company faces risks of regulatory changes in the evolving cannabis industry. It bears the risk of the launch of new products in new geographies, changes in the production and supply of cannabis. 

Outlook: CPH management expects growth to continue with its Swiss and Canadian business advancing on the back of multiple orders, market entries, LOIs, and distribution agreements. It has a clear growth strategy to execute. With favourable regulatory changes (such as permission of OTC sales of low-dose CBD products in Pharmacies and others) in cannabis industries, CPH seeks to unlock these avenues. With the LOI signed by CPH’s Swiss division with CERES Natural Remedies (“CERES”), it aims to expand anibidiol® distribution in the US (subject to US cannabis legislative reform). CPH progressed on its application to dual list on the OTCQB (“OTC”) market in the US and planning to get listed in Q2FY21.

Stock Recommendation: The stock of CPH gave a negative return of 31.91% in the past three months and a positive return of 142.42% in the past year. The stock is currently trading lower than the 52-weeks’ average price level of $0.024-$0.470. The stock of CPH has a support level of ~$0.109 and a resistance level of ~$0.228. Considering the current trading levels, decent financial performance in Q1FY21, revenue growth in Swiss and Canadian divisions in Q1FY21, a new LOI with Polvet, sales expected for Anibidiol® Swine in Europe in 2HCY21, and associated risks of new product launch and changes in cannabis production, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.160 as on 21 May 2021.

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

Zelira Therapeutics Limited

ZLD Details

Launch of HOPE^TM Products in the US: Zelira Therapeutics Limited (ASX: ZLD) develops proprietary formulations (HOPE^TM) for treating autism spectrum disorder. It has been launched in the US and Australia (ANZ). As of 21 May 2021, the market capitalisation of ZLD stood at ~$55.94 million. On 17 May 2021, ZLD announced the introduction of the HOPE™ range of products and distribution in alliance with Alternative Solutions LLC (Alternative Solutions). It is currently available for sale to authorised dispensaries in Washington DC. ZLD will obtain ongoing royalties and a licensing fee on sales of HOPE™ within the state. Given the launch experience in Pennsylvania, ZLD is confident of its market acceptance in other US territories.

Record Receipts in Q3FY21 Results: The company collected the highest cash receipts of $225,000, up 249% on 1HFY21 in Q3FY21. The growth is due to increased licensing payments and sales of new SprinjeneCBD oral care product in the US. In February 2021, ZLD announced its addition to the National Cannabis Roundtable (NCR) Board of Directors in Washington DC, US. ZLD reported $2.3 million of net cash flow used in operations for Q3FY21. It held a cash balance of $6.5 million as of 31 March 2021.

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

Key Risks: ZLD faces the risk of launching new products in new markets and seeking regulatory approvals for the timely launch of products. It also faces issues arising from partnership agreements for increasing product distribution and reaches in new markets.

Outlook: ZLD plans to commercialise and generate revenues from its multiple current product launches in the US and ANZ markets. It plans to launch a new suite of cannabinoid-based products in the next two quarters. It will advance on additional licensing discussions for HOPE™ and Zenivol™ in the US. In other markets, including the UK and Germany, ZLD plans to finalise its current negotiations for expanding the distribution of these products.

Stock Recommendation: The stock of ZLD gave a negative return of 36.98% in the past three months and a negative return of 32.35% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level of $0.045-$0.140. The stock of ZLD has a support level of $0.0417 and a resistance level of ~$0.0523. On a TTM basis, the stock of ZLD is trading at a price to book value multiple of 1.3x lower than the industry (Biotechnology & Medical Research) median of 5.1x. Considering the current trading levels, record receipts for Q3FY21, launch of HOPE^TM in Washington DC, plans for new product launch and market entries in next quarters, high gross margins, valuation on TTM basis, and associated risks of product launch and regulatory approvals, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.046, down by ~2.128% on 21 May 2021.

ZLD 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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