Stocks’ Details

THC Global Group Limited

Significant Increase in Revenue: THC Global Group Limited (ASX: THC) is a Farm to Pharma diversified and vertically integrated cannabis company. As on 31 January 2020, the market capitalization of the company stood at $52.79 million. The company has recently announced that it has started the production of medicinal cannabis extract from its Southport Facility, which is scheduled to be completed by the end of Q1 2020. During FY19, unaudited trading revenue of the company witnessed a yoy growth of 81% and stood at $4.79 million. This was mainly due to the company’s hydroponics equipment business, Crystal Mountain. The company also reported a strong balance sheet with no debts and a cash balance of $3.55 million. For the quarter ended 31 December 2019, net cash used in operating activities was $2.4 million.


Cash Flow Statement (Source: Company Reports)

TGA GMP Manufacturing License Granted for Southport Facility: The company has recently announced that it has received a License to Manufacture Therapeutic Goods from Therapeutic Goods Administration for the Southport Facility. This will authorize the company to manufacture extracts of Active Pharmaceutical Ingredient, formulation and packaging of medicines, testing and analysis, and supply of medicinal cannabis for human trials.

Stock Recommendation: As per ASX, the stock of THC is trading close to its 52-week low of $0.305, proffering a decent opportunity for accumulation. For 1H19, the company witnessed a substantial improvement in EBITDA margin. In the same period, the company reported a stable balance sheet with Debt/Equity ratio of 0.02x, lower than the industry median of 0.15x. The company expects Crystal Mountain’s 2020 full-year revenue to exceed $7 million. On TTM basis, the stock is trading at an EV/Sales multiple of 14.1x, lower than the industry median (Pharmaceuticals) of 18.4x. Considering the trading levels, improvement in EBITDA margin and stability in the balance sheet, and lower EV/Sales multiple, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.380, up by 1.333% on 31 January 2020.
 

Medlab Clinical Limited

Record Quarterly Revenue: Medlab Clinical Limited (ASX: MDC) is engaged in the research and development and sale of nutraceutical products. As on 31 January 2020, the market capitalization of the company stood at $73.46 million. The company has recently released its quarterly report for December 2019. During the period, the company achieved record quarterly revenue with an increase of ~50% over the previous best quarter. The company also stated that the clinical trial for Royal North Shore Hospital had been completed.

For the quarter ended 31 December 2019, products dispensed under SAS showed substantial growth of 262% in revenue. In the same time span, the number of bottles dispensed for the quarter grew to over 2,000, representing a growth of over 50% quarter on quarter basis. 


Cannabis bottles dispensed (Source: Company Reports)

Growth Opportunities: The company is focused on delivering progress in the significant pain management commercial opportunity globally. It expects an exciting 1HFY20, owing to its release of Phase 2 trial data, preparation of Phase 3 trial protocols for the US and Australia and aiming for IND status for NanaBis in the USA. 

Stock Recommendation: As per ASX, the stock of MDC gave a return of 5% in the past one month and is inclined towards its 52-week low of $0.285. This offers a good opportunity for investors to enter the market. Over the span of 4 years, the company witnessed a CAGR of 57.14% in revenue and a CAGR of 41.19% in gross profit. During FY19, the company witnessed a substantial improvement in EBITDA margin. In the same time span, Debt/Equity ratio of the company stood at 0.06x, lower than the industry median of 0.15x. On TTM basis, the stock is trading at an EV/Sales multiple of 9.0x, lower than the industry median (Healthcare) of 10.6x. Considering the returns, trading levels, CAGR in revenue and gross profit and lower EV/Sales multiple, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.330, up by 4.762% on 31 January 31, 2020, taking cues from its recent release of the quarterly report. 

Auscann Group Holdings Ltd

Quarterly Update for December 2019: Auscann Group Holdings Ltd (ASX: AC8) is engaged in the cultivation, manufacturing and supply of medical cannabis products. As on 31 January 2020, the market capitalization of the company stood at $95.11 million. The company has recently released its quarterly report for December 2019, wherein it stated net cash outflows for the quarter were $6.405 million and net cash used in operating activities was $2.87 million. This was primarily due to construction costs with respect to the product development facility and operational costs. For the period, the company had a cash balance of $26 million. The company has also announced that the testing of Hard Shell Capsules has been completed. 


Cash flows from operating activities (Source: Company Reports)

Growth Opportunities: The company is targeting to have the hard-shell capsules commercially available for physicians through the SAS/AP scheme. It is also prioritising to generate real world outcome data and feedback from healthcare professionals and to initiate the development of new proprietary and differentiated cannabinoid-based pharmaceutical dosage configurations.

Stock Recommendation: As per ASX, the stock of AC8 gave a return of 13.21% in the past 3 months and a return of 7.14% in the last one month. The stock is trading close to its 52-week low of $0.170, which is a good opportunity for investors for accumulation. During FY19, the company witnessed an improvement in EBITDA margin and net margin. On TTM basis, the stock is trading at a Price to Book multiple of 2.3x, lower than the industry average (Healthcare) of 4x. Considering the returns, trading levels, revenue growth, and decent growth opportunities, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.295, down by 1.667% on 31 January 31, 2020.
 
Comparative Price Chart (Source: Thomson Reuters)

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