AusCann Group Holdings Ltd

Adequate Fund for the next stage: AusCann Group Holdings Ltd (ASX: AC8), a small cap company with market capitalization of $ 143.12 m, is engaged in the medical marijuana cultivation and distribution. The company is looking for opportunities in the medical cannabis sector, including the acquisition or investment in other international plant breeders, producers and suppliers. AC8 continues to fall and has plunged 5.02% on August 15, 2018 to A$0.82. The company has recently raised approximately A$1.9m through a Share Purchase Plan (SPP) and will issue approximately 1.8m new shares. The company has earlier raised approximately A$33.4m through a share placement to institutional and sophisticated investors. The funds raised through placement and SPP will be used by the company to fund their clinical studies, R&D, the expansion of the Company’s Australian and Chilean operations, which is the medical outreach program, and for the company’s working capital. The company now has adequate capital for the next stage of growth as the company is moving towards Australian manufacturing of proprietary capsule based cannabinoid medicines. Moreover, during the June 2018 quarter, AC8 has completed second harvest at Chilean joint venture DayaCann. The harvest yielded grew by over 50 per cent to 620kg of dried cannabis buds, on the 400kg yielded from the first crop harvested late last year. The company during the quarter has received an import permit to receive finished cannabis oils from its major shareholder and strategic partner Canopy Growth Corporate. Further, AC8 has appointed a Master Grower for overview of Australian medical cannabis operation in Tasmania. The company has also signed a research agreement with Jade Cannabis for the development and optimization of AusCann’s cannabis cultivation system. AC8 has also increased R&D and staffing for the establishment of the commercial operations in Australia and targets to release a first product next year. Additionally, the company has ended the fourth quarter 2018 with approximately $12.8 million in cash and, after the post quarter cap raise, it is well-funded to maintain its operational momentum in FY19 and beyond. One of the Directors, Bruce Fielding McHarrie has acquired a further of 14,286 fully paid ordinary shares lately. Meanwhile, AC8 stock has fallen 42.33% in three months as on August 14, 2018. We give a “Hold” recommendation on the stock at the current price of $ 0.815 while the group is yet to make profits from the business.
 

Sigma Healthcare Ltd

Weak Trading Conditions in May and June:Sigma Healthcare Ltd (ASX: SIG), a small cap having a market capitalization of $ 556.23 m, is a wholesaler and distributer of pharmaceutical products. The company serves the healthcare sector in Australia by offering prescription, over-the-counter, and generic pharmaceutical drugs. SIG’s My Chemist/Chemist Warehouse Group (MC/CW) contract cannot be extended and the group will continue to supply the MC/CW Group as per the terms of the existing supply agreement that operates until 30 June 2019. On the other hand, SIG experienced weak trading conditions in May and June. For FY 19, the company expects an underlying EBIT of approximately $75 million, less than company’s earlier expectation for EBIT of $90 million for FY19. For FY 20, SIG expects the underlying EBIT to be in the range of $40 million and $50 million. SIG has improved its balance sheet due to the return of over $300 million as the current MC/CW payment terms unwind. Further, the company’s medium term strategy is to focus on further cost reductions in the business, structural rationalisation of the Sigma DC network and targeted sales opportunities including hospitals and 3PL/4PL contracts. Meanwhile, SIG stock has fallen 31.61% in three months as on August 14, 2018. Based on the foregoing, it might be better to wait for some positives and growth drivers. We give an “Expensive” recommendation on the stock at the current price of $0.535.
 

FY 18 Financial Performance (Source: Company Reports)

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