Donaco International Limited

DNA Details

Donaco International Limited (ASX: DNA) is an Australian based company engaged in leisure and entertainment businesses in the Asia Pacific region. The Company's segments are Casino operations-Vietnam, Casino operations-Cambodia and Corporate operations. Its casino operations-Vietnam segment consists of the Aristo International Hotel operating in Vietnam, hotel accommodation, and gaming and leisure facilities. The company was incorporated in 1990 and is based in Sydney, Australia.

Key Developments:

• Mega Bank Facility: The company showed the commitment to deleverage its books, by reducing its debt from the initially borrowed amounts of $131.54 million to $9.05 million as of ending 30^th June 2021.
• Shutdown of Star Vegas Casino: The rising COVID-19 cases and pertaining threat has led the Government to shut down all the casinos in the Banteay Meanchey province temporarily, which includes the DNA’s Star Vegas from 27^th April 2021.

Financial Highlights for 4Q FY21: June 2021

• Drop-in Revenue: Net revenue dropped to $1.46 million in 4Q FY21 as compared to the $2.77 million posted in 3Q FY21, led by COVID-19 lockdown challenges & disruption in the entertainment industry by various online gaming and betting platforms coming up ad gaining traction.
• Improved Cash from Operations: The company experienced a turnaround in improvement in its cash from outflows, which were curtailed to negative outflows to $0.62 million for the period ending 4Q FY21 ending on 30^th June 2021 as compared to the cash outflows of $5.14 million ending on 31^st March 2021. This was majorly achieved by the reduction in product manufacturing and operating costs savings achieved close to $5.0 million in 4Q FY21.
• Cash Balances: DNA deleveraged its book and stood with cash balances of $6.32 million at the end of Q4 FY21 ending on 30^th June 2021.

Summary of Cash Flows (Source: Company Report)

Key Risks:

The key risks with Donaco International Ltd. are the increasing COVID -19 cases and the arrival of Delta variant across various tourist place, which might again lead to the closure of Casinos and various other entertainment avenues for some more period. Also, the currency movement is a risk to the bottom line in case of any adverse movement.

Outlook:

Donaco International Ltd. to continue to pursue deleveraging its books and raising the cash balances, which will help the company to sustain in the tenure of lower revenues as the interest payment burden will be eliminated to a major level. The vaccination drive by the Thai government, vaccinating almost 270,000 on daily basis, gives a positive outlook to the entertainment industry.

Stock Recommendation:

The stock of DNA gave a negative return of ~31.37% in the last three months and negative return of ~49.27% in the last six months. The stock is trading below the average of the 52-week low price of $0.029 and the 52-week high price of $0.092. On the technical front, the immediate resistance appears at the $0.045 level while support is at the $0.0265 level. On a TTM basis, the stock has been valued using a Price/ Book Value multiple-based valuation method, indicating the stock is trading at 0.2x as compared to the Industry Average (Consumer Cyclicals) of 0.9x on a TTM basis, thus seems undervalued. Considering the deleveraging of its books, cost reduction, acquisitive strategies and healthy cash balance, current trading levels, TTM based valuation, and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the market price of $0.034, as of 27 August 2021, 11:35 AM (GMT+10), Sydney, Eastern Australia.

DNA Daily Technical Chart, Data Source: REFINITIV

AusCann Group Holdings Ltd.

AC8 Details

AusCann Group Holdings Ltd. (ASX: AC8) is a pharmaceutical company, researches, develops, cultivates, produces, and distributes cannabinoid-based pharmaceuticals in Australia and internationally. The Company focuses on investigating other opportunities in the medical cannabis sphere, including acquisition or investment in other international plant breeders, producers and suppliers. AusCann Group Holdings Ltd. is based in West Perth, Australia.

Key Development in Q4FY21 for the Period Ended 30^th June 2021

• Positive Clinical Results: The company received encouraging results from the clinical trials for the Phase 2A study for FDA veterinary drug prospect, CPAT-01, working of the improvements in pain, lameness and quality of life in dogs with osteoarthritis.
• Request Submissions: The company submitted a PAA request with the APVMA for DermaCann, which is a cannabinoid-based veterinary product used in the development of anti-inflammatory and immune support in dogs, suffering from dermatological conditions.
• The company further entered into a fresh agreement which governs the supply of the Company’s proprietary Neuvis THC/CBD 1:1 oral capsule to the Tasmanian Department of Health
• The company ventured to lease its Wangara facility which is a part of a growth strategy to curtail the operating expenses and maximise the company’s assets for the benefit of its shareholders.
• The group achieved a significant cost reduction of 49% in Q4FY21 over QoQ, bringing in synergies and operational efficiencies post-merger of AusCann and CannPal.

Results Highlights for 4Q FY21: June 2021

• Drop-in Revenue: Revenue dropped by 26% to $17K in 4Q FY21 compared to the revenues of $24k in 3Q FY21, led by COVID-19 lockdown challenges as well as changes in tastes & preferences of consumers.
• Improved Cash Outflows: The group improved its operation by turning around the net cash from operation from negative $1.55 million in 3Q FY21 to the positive $72k in 4Q FY21, primarily led by the Government grant of $1.66 million received.
• Cash balance: The group is well funded with a strong cash balance of $13.68 million, to fund its operations and expansionary plans.
  

Improved Operating Cash Flows (Source: Company Report) 

Key Risks:

The company is susceptible to regulatory changes in terms of clinical trials and tests protocols along with the patent approvals. Further, the niche segment company operates, can experience a shift in demand and a change in taste preferences by the consumers.

Outlook:

The company shared the positive outlook for various clinical trials in progress and the results of the tests awaited. Post-merging with CannPal, the company is more optimistic towards achieving synergies in the various verticals, as few of the aspects have been recognised in terms of cost savings. Further, the strong cash balance shares the optimistic view of the company to grew organically as well as inorganically. 

Stock Recommendation:

The stock of AC8 gave a negative return of ~-19.17% in the last three months and a negative return of ~39.37% in the last six months. The stock is trading below the average of the 52-week low price of $0.093 and the 52-week high price of $0.30. On the technical front, the immediate resistance appears at the $0.115 level while support is at the $0.080 level. The stock has been valued using a Price/ Book Value multiple-based valuation method using TTM, indicating the stock is trading at 1.4x as compared to the Industry Median (Healthcare) of 4.0x, this seems undervalued. Considering the acquisitive strategies and positive cash flow from operations, reaping benefits from synergies post acquisitions, strong capital base, current trading levels and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the price of $0.095, as of 27 August 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

AC8 Daily Technical Chart, Data Source: REFINITIV

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

Note 2: 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.

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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