Stocks’ Details

Triterras Inc.

Robust Growth in Trade Volumes: Triterras Inc. (NASDAQ: TRIT) operates as a fintech company providing commodity trading and trade finance through its platform Kratos. The company launched Kratos in June 2019 and through August 2020, it had facilitated a trade transaction volume of $8.8 billion.  TRIT is expanding the platform to include other non-petroleum commodities. On the geography front, Kratos is diversifying from Asia (serving at present) to Europe and The Americas.

Merger Update:  Triterras Inc. was formed as a result of the merger between Triterras Fintech Pte. Ltd. and Netfin Acquisition Corp. In June 2020, Netfin Acquisition Corp. signed a letter of intent with Triterras Fintech Pte. Ltd. and operating entities of Triterras Holdings Pte. Ltd. Upon shareholders’ approval, the merger stands complete on November 10, 2020. Triterras Inc. started to trade under the ticker “TRIT”.

H1 FY20 Result Update: As commodity trading activities were increasingly shifted to online following COVID, TRIT reported average monthly transaction volume to reach $1 billion. For six months ending August 2020, TRIT generated trade and trade finance volumes of $4.98 billion. It had reported revenues of $23.7 million and EBITDA of $17.3 million (with EBITDA margin of 73.1%). TRIT showed a net income of $14.2 million during the six months.

Key Financials and Projections (Source: Company Reports)

Outlook: TRIT is expected to reach trade and trade finance volume by $10.32 billion in FY20. Revenues to accelerate from $56.6 million in FY20 to $122.7 million in FY21 as per the company guidance. Management expects Asia and non-petroleum commodities to drive growth post-COVID-19.

Stock Recommendation: The stock is currently trading below the average of its 52 weeks’ high and low trading level of $14.46 and $10.01, respectively. It had dropped about 17.69% in the one-week period ending December 22, 2020. The stock touched a 52-week low price of $7.70 on December 17, 2020. On this day, Triterras Inc. announced that its affiliate, Rhodium Resources, received a statutory demand for payment from one of its creditors. Rhodium must respond to this statutory demand within 21 days or a bankruptcy application could be filed by the creditor against Rhodium. As mentioned by Triterras, Rhodium Resources has sought a moratorium order from a Singapore court that will protect the company against such creditor action. Both Triterras and Rhodium Resources share the common founder, Mr. Srinivas Koneru. As per the Form 4 filings of Netfin Holdco, Rhodium Resources serves as the instrumental for the launch of Kratos platform. Substantially all of the customers of Kratos were referred by Rhodium Resources. About 15% of TRIT’s fintech platform revenue was contributed by Rhodium Resources. The news development will have a material effect on the operations and financial position of Triterras Inc. On the technical analysis side, the stock has a resistance level of $13.15 and a support level of $8.46. Considering the aforesaid facts, we suggest investors to “Avoid” the stock at the closing price of $10.33, up by 4.45% on December 22, 2020.

Veru Inc.

Increasing Top-line Driven by Prescription Channel: Veru Inc. (NASDAQ: VERU) is an oncology and urology biopharmaceutical company with a focus on developing novel medicines for the management of prostate cancer. The company derives a majority of revenue from the sale of FC2 to the US prescription channel and public healthcare channel. It had started to cater to the South Africa market starting from Q3 FY20. Overall revenues grew by 33.92% in FY20 over pcp. This was driven by an increase in the average selling price of FC2 and a change in channel mix to the prescription channel. Temporary shutdowns at a manufacturing facility in Malaysia impacted gross margin but offset by healthy topline growth. It had reported a net loss of $18.97 million in FY20 as compared to $12.02 million in pcp due to an increase in R&D costs and personnel expenses. VERU closed the FY20 with a healthy cash balance of $13.59 million, up from $6.29 million posted in FY19. During the period, it had realized net proceeds of about $14.0 million from the sale of common stock under its purchase agreements. Overall debt levels look on the higher side with a debt-to-equity of 0.42x (up from 0.37x in FY19).

Q3FY20 Results (Source: Company Reports)

Outlook: The company’s prostate cancer drug products are in various stages of development. It derives revenues from FC2 and PREBOOST sales. During recent times, the company experienced lower offtake from global health channel as government agencies and sponsors are turning down. The company also saw strong traction in the telehealth division during COVID-19 for the sale of FC2.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months 

Stock Recommendation: VERU is on a rally with solid YTD returns of 177.31%. The stock is trading close to its 52-week high price of $10.83 on December 22, 2020. The company experienced a lower offtake from the government channel for the sale of FC2. Its core prostate cancer drug products are yet to enter the commercialization phase. It had posted a net loss in FY20 higher than last year. VERU reported negative ROE of 60.8% against the industry median of +12.7%. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price with a correction of low single-digit (in percentage terms). For this purpose, we have taken peers such as Vertex Pharmaceuticals Inc. (NASDAQ: VRTX), Corbus Pharmaceuticals Holdings Inc. (NASDAQ: CRBP), BioCryst Pharmaceuticals Inc. (NASDAQ: BCRX), to name a few. Given the current rally in price, losses in FY20, and valuation, we suggest investors to wait for a better entry level and give an “Expensive” rating to the stock at the closing price of $9.29, up by 4.85% on December 22, 2020.

Retractable Technologies, Inc.

Looking at Q3 FY20 Performance: Retractable Technologies, Inc. (NYSEAMERICAN: RVP) manufactures safety syringes and medical products for healthcare professionals. The company experienced about 87.9% growth in domestic sales (sales to the US government) during the nine months ending September 2020. International sales were up by 10.1% (YoY basis). Overall revenues grew by about 70.9% over pcp. It had reported an operating income of $11.79 million during the nine months ending September 2020, up from $1.13 million reported last year. This was despite an increase in material costs and an increase in employee-related expenses and other operating expenses. RVP reported a healthy cash balance of $15.72 million (about 23% of total assets). It had a moderate debt of $3.81 million as of September 2020. The company’s sales were predominantly from an $83.8 million contract from The Department of Health and Human Services of the United States. It had sold $12.9 million under this contract for Q3 FY20. The company is expecting such revenues to increase each quarter through May 2021.

Key Financials Q3 FY20 (Source: Company Reports) 

Outlook: Revenues are expected to grow driven by a domestic contract from the US government. Its liquidity seems adequate with a government funding program in-place for the expansion of needles and syringes facility to the extent of $53.7 million. To date, the company received about $6.9 million from the facility.

Stock Recommendation: The stock generated 3-month positive returns of 45.68%. The stock is currently trading close to its 52 weeks’ high price of $14.4. On the technical analysis side, the stock has a resistance level of $12.14 and a support level of $11.32. It had generated sizeable revenues from The Department of Health and Human Services of the United States. RVP reported an EBITDA margin of 39.0% in Q3 September 2020 ahead of the industry median of 15.3%. It had reported a strong ROE of 23.9% (vs. 1.0% of industry median). On a TTM basis, the stock has an EV/Sales multiple of 6.3x, lower than the industry median (Healthcare) of 9.2x. Given the decent fundamentals, revenue visibility from government contracts, and decent outlook, we recommend a “Buy” rating on the stock at the closing price of $11.640, down by 4.20% on December 22, 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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