Stocks’ Details 

Cann Group Limited

CAN Raises $25.9Mn to Aid Growth: Cann Group Limited (ASX: CAN) is in the cultivation of cannabis for medicinal and research purposes. CAN is also involved in the manufacturing of medicinal cannabis products. Recently, the company stated that it has oversubscribed and raised $25.9 million under the Share purchase plan (SPP) following strong support from retail shareholders. Notably, total funds raised from institutional Placement and SPP amounted to $40.2 million. The move places the company in a robust position to pursue future growth plans.

CAN Issues Shares: In a recent update, the company stated that it has issued 178,686 fully paid ordinary shares by way of a placement to the Commonwealth Scientific and Industrial Research Organisation (CSIRO). The company has also issued 1,983,890 fully paid ordinary shares by way of  placement to Zalm Therapeutics Limited (Zalm).

Quarterly Highlights: During the quarter ended 30 June 2020, the company remained on track to continue strong commercial momentum with numerous supply agreements executed for its medicinal cannabis products and dried flower material. The company has secured two new supply agreements, one with a UK-based specialist importer and distributor of medicinal cannabis products “Astral Health Limited” for the supply of a range of formulated oils, including high THC, high CBD, and a balanced formulation. CAN also signed another agreement with iuvo Therapeutics GmbH, which is based out of Germany. The company also implemented a five-year supply agreement with Zalm Therapeutics Ltd.

During the quarter, the company issued 100,000 convertible notes for working capital purposes. Revenue for the quarter came in at $49,000, CAN also received $937,000 as R&D rebate. Net cash used during the quarter stood at $4.623M. The company exited the quarter with a cash balance of $1.6 million.

Cash Flows (Source: Company Reports)

What to Expect: CAN is expecting FY21 revenues to be ~$15 million, reinforced by existing supply contracts. The company is also taking necessary measures to continue operating within the COVID-19 restrictions, ensuring the health and safety of its employees.

Key Risks: The main risks CAN is exposed to through its financial instruments are foreign currency risk, interest rate risk, liquidity risk and credit risk. On the flip side, the company is exposed to short-term disruptions from challenging macro-economic environment due to COVID-19 led outbreak. The company also faces stiff competition from peers.

Stock Recommendation: The company is pursuing a number of options with the objective of placing CAN in a position to proceed on the basis that represents a prudent outcome for shareholders while supporting the continued growth of the business. On the technical analysis front, the stock of the company has a support level at ~A$0.41 and a resistance level at ~A$0.69. Current ratio of the company stood at 2.32x in 1H FY20 as compared to the industry median of 1.69x, Debt to equity of the company stood at 0.02x in 1H FY10 against the industry median of 0.13x. The stock of CAN is trading at a price to book value multiple of 1.3x against the industry average (Pharmaceuticals) of 5.9x on TTM basis. The stock of CAN is inclined towards its 52-week low of $0.375, offering a decent opportunity for accumulation. Hence, considering the deleveraged balance sheet, execution of two supply agreements and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.445 per share, down by 2.198% on 21 August 2020. 

Medlab Clinical Limited

Record Sales of NanaBis™ in June Quarter: Medlab Clinical Limited (ASX: MDC) is engaged in nutritional pharmaceutical research and development. Recently, the company appointed Mr Laurence McAllister as an Independent Non-Executive Director of the company, effective from 5 August 2020.

NanaBis™ Study Progress Update: Recently, the company reported encouraging data from the ongoing observational study of NanaBis™, which is being used for treating cancer-induced bone pain. The study reveals that 432 of 2000 patients enrolled since study commenced in early 2020, out of which 15% of patients have cancer-related pain and 85% have non-cancer related pain.

Business Update: The company recently provided a business update for the period ended 30 June 2020, wherein the company announced that its newest CBD formulation, NanoCBD has been delivered to Australia with the first patient supplied under the Special Access Scheme of Government. During the period, the company experienced record quarterly revenue in NanaBis™ sales with a rise of around 122% over pcp. The company achieved these sales despite the negative impact of supply restrictions. The company reported a decline of 19% in invoiced sales for nutraceutical business on a QoQ basis, indicating the shifting environment. During the period, the company reported cash receipts of $1.4 million and a net operating cash outflow of $1.9 million. The company exited the quarter with a cash balance of $9 million.

NanaBis™ Quarterly Sales (Source: Company Reports)

Risks: MDC is exposed to a range of risks such as material business risk and interest rate risk. To manage the interest rate risk, the company may seek funding from a range of sources to diversify its funding base in the upcoming period.

Focus for Future: With respect to nutraceuticals business, the company currently expects improving conditions and anticipates sales to improve the overall upcoming quarter results. The company is focused on the opportunity to deliver a novel pain management alternative to opioids in the form of drug registration.

Stock Recommendation: MDC would continue to pursue growth opportunities in the commercial aspects of the business, pharmaceutical and nutraceutical. On the technical analysis front, the stock of the company has a support level at ~A$0.133 and a resistance level at ~A$0.24. Debt to equity of the company stood at 0.25x in 1H FY10 against the industry median of 0.23x. The stock of MDC is trading at a price to book value multiple of 3.4x against the industry average of 6.2x on TTM basis. The stock of MDC is inclined towards its 52-week low of $0.125, offering decent opportunity for accumulation. Hence, considering the above factors, and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.165 per share, up 6.452% as on 21 August 2020.

AusCann Group Holdings Limited 

AC8 Completes its First Clinical Trial: AusCann Group Holdings Limited (ASX: AC8) is involved in the cultivation, manufacturing, and supply of medical cannabis products. Recently, the company announced that it has appointed Nick Woolf as the new CEO of the company, effective immediately.

Quarter Update for the Period Ended 30 June 2020: During the period, the company completed its first clinical trial at an independent clinical site - Nucleus Network. Notably, AC8’s controlled-dose capsule products are now available for prescription in Australia under a special access scheme. The company existed the period with cash balance of $19.2 million as compared to $24.7 million as at 31 March 2020, and no debt. During the quarter, net cash outflows stood at $5.5 million, owing to manufacturing and operating costs of $3.1 million. Research and development costs for the June quarter stood at $1.1 million. The company’s strong capital position underpins the continued progress of its growth strategy.

Cash Flows (Source: Company Reports)

Growth Opportunities: The company is 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

Key Risks: The company is exposed to key financial risks such as interest rate risk, currency risk and liquidity risk. The inability of the company to compete successfully in its markets may impact its business. Moreover, any failure to comply with anti-kickback and fraud regulations may lead to substantial penalties and changes in business operations.

Stock Recommendation: The stock of the company generated a positive return of 3.45% over a period of one-month and is currently trading towards its 52-week lower level of $0.135. On the technical analysis front, the stock of the company has a support level at ~A$0.12 and a resistance level at ~A$0.33. Current ratio of the company stood at 27.31x in 1H FY20 as compared to the industry median of 1.69x, Debt to equity of the company stood at 0.00x in 1H FY10 against the industry median of 0.13x. The stock of AC8 is trading at a price to book multiple of 1.2x as compared to the industry median (Healthcare) of 3.4x on TTM basis. Thus, it can be said that the stock is proffering decent opportunity. Hence, considering the strong capital position, and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.15 per share as on 21 August 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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