Stocks’ Details

Recce Pharmaceuticals Ltd

Entered into an Antiviral SARS-CoV-2 Screening Program Agreement: Recce Pharmaceuticals Ltd (ASX: RCE) is an emerging leader in the new generation of antibiotic therapies, primarily focused on unmet medical needs of safe and efficacious treatment for sepsis, a life-threatening blood infection for which no specific treatments currently exist. The company recently entered into an Antiviral SARS-CoV-2 Screening Program Agreement, with CSIRO & University of Melbourne at the Doherty Institute following their selection of RECCE® 327 and RECCE® 529’s in the Priority 1 candidate group. Both, RECCE® 327 and New RECCE® 529 compounds were selected for their unique mechanism of actions against hyper-mutation, as indicated on bacteria and viruses.

Positive Data on RECCE® 327 Against Neisseria gonorrhoeae: Earlier in May 2020, the company had received positive data on its lead compound RECCE® 327 against Neisseria gonorrhoeae in STD Animal Model. The data from the study highlighted the potential of RECCE® 327 to not only become a potent broad-spectrum antibiotic but most critically to continue working against antibiotic-resistant bacteria or superbugs, even with numerous repeated uses.

March Quarter Update: In the month of February, the company announced successful in-vivo toxicity (safety) studies in small and large animal species; further reinforcing indications of RECCE® 327’s wide therapeutic window. During the quarter, the company spent $817,255 on research and development. The total cash outflow for operative activities stood at $973,257. The company ended the quarter with cash reserves of $4.09 million.

Cash outflow from operating Activities (Source: Company Reports)

What to expect: Looking ahead, the company expects to make announcements in relation to the progress of its compounds. The company also expects that the increasing global awareness of the threat of infectious diseases and the need for new antibiotics will provide significant opportunities for the company in the time ahead.

Key Risks: The company’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk and interest rate risk), credit risk and liquidity risk. As the company’s future plans are dependent on its ongoing clinical trials, any material deviation in the actual and expected results could significantly impact its future operations.

Stock Recommendation: Over the last three months, the stock of RCE has increased by 231.75% on ASX and is trading close to its 52-week high. This could mean that most of the positive factors have been discounted at the current trading levels. The stock is trading at a price to book multiple of 30.3x, higher than the industry median of 7.0x, on TTM basis. This demonstrates that the stock might be overvalued at current trading levels. Hence, we suggest investors to wait for price correction and give a watch stance to the stock at the current market price of $1.045, down by 0.476%, on 10 July 2020.

Novatti Group Limited

Record Revenue Achieved in March 2020 Quarter: Novatti Group Limited (ASX: NOV) provides payment processing platform that facilitates mobiles and alternative financial payments solutions and services. The market capitalisation of the company stood at ~$56.52 million as on 10^th July 2020. The core business of the company provides infrastructure and platforms to process the digital payments of consumers and businesses globally, from any device. The business continues to rise strongly and is well placed to thrive through increased automation and online processing in a post-COVID-19 world. During March 2020 quarter, the company booked strongest-ever total quarterly revenue amounting to $3 million (unaudited) for the first time, reflecting a rise of over 21% against the previous quarter. This growth was strongly supported by growth in the core processing business, which went up by 67% on YoY basis and more than 11% over the previous quarter.

Novatti Quarterly Revenue (Source: Company Reports)

Funding Secured for Next Growth Phase: On 29^th June 2020, the company stated that it secured the funds for its next growth phase, with binding commitments from institutional and sophisticated investors for a $10.2 million capital raising. These funds would be utilised to ramp up its current growth strategy. These include (1) increasing business development resources, (2) acquiring new Visa card issuing programs; (3) securing new strategic, global partnerships and (4) fast-tracking its integration into other payment networks.

Key Objectives of Novatti: The objective of the company revolves around payments processing growth, revenue growth, strategic partnerships and building digital payments bank. The company is expecting revenue of $11.5 million in FY20.

Key Risks: The company’s business is exposed to investment risk, which arises from its investment in unlisted entities. Moreover, the company’s financial performance is also sensitive to liquidity risk and currency risk. Liquidity risk is influenced by the inability of the company to address its financial obligations as they fall due while currency risk arises due to fluctuation in foreign currency.

Stock Recommendation: The company has been methodically developing and acquiring the complementary capabilities to provide consumers with a fully digital banking service. The company possesses a strong balance sheet and ready for its next growth phase, with $11.9 million in cash and cash equivalents. The stock of NOV has EV/Sales multiple of 5.7x as compared to the industry average (Professional & Commercial Services) of 37.3x on TTM basis. Therefore, considering the expected revenue growth, recent capital raising and key risks, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.285 per share, up by 14% on 10^th July 2020.

Holista Colltech Limited

Global Rights to Distribute Natshield™:  Holista Colltech Limited (ASX: HCT) is a bio-industrial company committed to the development and commercialisation of food ingredients and ovine collagen for cosmetic and biomedical applications. The market capitalisation of the company stood at ~$25.33 Mn as on 10^th July 2020. Recently, the company referred to its previous announcement in relation to NatShield™ sanitizer and stated that it has global rights to distribute Natshield™ for use as a disinfecting hand sanitizer. Moreover, the company has received an exemption from the Australian Department of Health’s Therapeutic Goods Administration to sell hand sanitiser under the cosmetic category in Australia. The company also continues to work on the development, regulatory approval and commercialisation of other disinfection products which are alcohol and chemical-free like nasal balm.

As of now, the company distributes Natshield™ hand sanitisers in the bottle sizes in various markets. During the quarter ended March 2020, the company experienced a growth in sales of Natshield™ due to the outbreak of COVID-19. Over the quarter, the company raised A$4,327,000 from the Controlled Placement Agreement with Acuity Capital. Further, the company recorded a total cash inflow from customers of $1.989 million.

Cash Flow (Source: Company Reports)

Expected Revenue From Natshield™:  For the six months ended 30 June 2020, HCT is likely to generate revenue amounting to A$0.5 million from the sale of Natshield™ hand sanitisers globally, out of which around a third is from Health Therapies LLC.

Key Risks: The company is mainly exposed to credit risk, which arises mainly due to the non-performance of counterparties on their contractual obligation. This can lead to financial loss to the Group. Moreover, HCT also deals with market risk influenced by the changes in market prices like foreign exchange rates, interest rates and equity prices, which are likely to affect the Group's income or the value of its holdings of financial instruments.

Stock Recommendation: Recently, the company accepted the resignation of its Director Brett Fraser, who will be replaced by Jonathan Pager having 25 years of experience as a management consultant and corporate adviser. Debt to equity of the company stood at 0.21x in FY19, reflecting a YoY growth of 26.8%. Despite the positive announcement in relation to growth in sales and expected revenue from Natshield™, and capital raising, the stock of HCT went down by 43.57% in the last five-days. Hence, considering the mixed scenario, we have a wait and watch stance on the stock at the current market price of $0.079 per share, down by 14.13% on 10^th July 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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