Althea Group Holdings Limited

AGH Details

Capital Raise Update: Althea Group Holdings Limited (ASX: AGH) is engaged in the sale and distribution of medicinal cannabis products in the geographies of Australia and the United Kingdom. As per a recent update, the company has successfully completed $10.64 million in capital raising from existing shareholders and new investors. It plans to use the proceeds to support strategic growth initiatives and continue its global expansion. AGH will issue 44,351,885 new ordinary shares at a price of $0.24 per security.

Agreement with Subsidiary of Canopy Growth:

The company’s Canadian subsidiary Peak Processing Solutions has executed a manufacturing agreement with Supreme Cannabis Ltd, with minimum order quantities over the initial one-year term being valued at CAD$600,000. Peak Processing Solutions had posted revenue of $1.52 million in FY21 and anticipates to clock revenue of over $15 million in FY22.

Trading Update:

• The company’s pharmaceutical cannabis operations have witnessed increased traction in growth and reported revenues of $10.02 million in FY21, compared to $5.05 million in FY20.
• It has now 20,322 registered patients as of 23 August 2021.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: The company’s line of business makes it prone to strict regulatory purview, which can have an impact on its operations and profitability.

Outlook: The company expects to grow revenue materially faster in FY22 and anticipates further growth from its European operations in FY22. The population of the UK and Germany, which is much larger than Australia, provides a decent opportunity to pursue its growth initiatives.

Stock Recommendation: As per ASX, the stock of AGH is trading below its average 52-weeks’ levels of $0.250-$0.670. The stock of AGH gave a negative return of ~34.21% in the past one year and a negative return of ~20.63% in the past one month. On a TTM basis, the stock of AGH is trading at a P/BV multiple of 1.5x, lower than the industry median (Healthcare) of 4x. Considering the current trading levels & valuation on TTM basis, improvement in revenues, agreement of its Canadian subsidiary Peak Processing Solutions with Supreme Cannabis Ltd, and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.25, down by ~1.961% as on 27 August 2021.

AGH Daily Technical Chart, Data Source: REFINITIV

Zelira Therapeutics Ltd

ZLD Details

Q4FY21 Performance Update: Zelira Therapeutics Ltd (ASX: ZLD) is a biopharmaceutical company and is engaged in the manufacturing and marketing of cannabinoid-based medicines. The company has recently updated about its Q4FY21 performance.

• Cash receipts grew by ~38% to $311,000 during the period, compared to the previous quarter. The growth in receipts was aided by sales of SprinjeneCBD Toothpaste and licence and management payments.
• ZLD’s HOPE range of products were available for sale to dispensaries in Washington DC.
• The company has entered into licensing and management agreement with Levin Health in order to conduct chronic pain treatment trials on retired athletes.
• Net cash flow used in operations stood at $1.5 million during the quarter.
• It ended the period with a cash position of $4.97 million as of 30 June 2021.
  

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: The company plans for expansion of its operations to global markets, and as such it should have access to efficient distribution mechanism in place. Any challenge to pursue distribution effectively might impact the profitability of the company.

Outlook: The company is well-positioned for future growth with plans of generating revenues from the multiple products that it has launched into the Australian and USA markets. It also plans on further expansion into new geographies. It is in the middle of negotiations for additional licensing discussions for HOPE and Zenivol in the USA and is also looking to expand the distribution of these products into other global markets.

Stock Recommendation: On 12 July 2021, the company has received approval from Institutional Review Board (IRB), which allows Zelira’s pain observational trial in USA to proceed. As per ASX, the stock of ZLD is trading close to its 52-weeks’ low level of $0.036. The stock of ZLD gave a negative return of ~34.48% in the past one year and a negative return of ~15.55% in the past one month. On a TTM basis, the stock of ZLD is trading at a P/BV multiple of 1.1x, lower than the industry median (Healthcare) of 4.0x, thus seems undervalued. Considering the current trading levels & valuation on TTM basis, growth in cash receipts, licensing and management agreement with Levin Health, optimistic outlook and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the market price of $0.036, as on 27 August 2021, 02:35 PM (GMT+10), Sydney, Eastern Australia.

ZLD 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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