Stocks’ Details

THC Global Group Limited
 

THC’s Share Surged more than 12% Over Manufacture Permit Grant:High-quality medicinal cannabis product provider, THC Global Group Limited (ASX: THC) operates under ‘Farm to Pharma’ and services both domestic patients and the export market. Recently, the company informed the market that it has been granted a manufacturing permit by the Australian Office of Drug control for its Southport manufacturing facility. This allows the company to accept medicinal cannabis plant material from any Australian licensed and permitted cultivator, including its own cultivation facility. With this grant, the company has now the largest extraction capacity to serve at least 250,000 Australian patients in addition to having excess capacity for the global export market. The product validation is expected to commence soon and complete in December with an aim for commercial launch in early 2020. The company is expected to produce both packaged and bulk medicinal cannabis from the Southport facility.

September’19 Quarter Key Highlights:Canadian hydroponics equipment division reported a YTD unaudited revenue of over $3 Mn to end third quarter of FY19 with cash receipts increase of ~80% on q-o-q basis.At the end of the third quarter, the company held cash of $4.02 Mn. Moreover, it received $1.1 Mn in repayment of an employee loan in the quarter, which will be recognised in the fourth quarter of FY19.


September’19 Quarter Operation Cash Flow (Source: Company Reports)

Stock Recommendation:THC’s share generated a negative YTD return of 22.34%. Its current ratio for H1FY19 stood at 8.71x, better than the industry median of 1.38x. Its debt to equity ratio for H1FY19 stood at 0.02x, lower than the industry median of 0.20x. The company has nowthelargest pharmaceutical bio-floral extraction facility in the Southern Hemisphere and expects to offer patients higher quality, more consistent cannabis medicine at a significantly lower cost than the current imported products available to Australian patients. Hence, considering the aforesaid facts and current trading levels, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.415, up 13.699% on November 11, 2019 on manufacturing permit received for Southport facility.

Medlab Clinical Limited
 

MDC’s Share Surged Over 14% With Record Cannabis Bottle Sales in October:Medlab Clinical Limited (ASX: MDC) is involved in the sale of nutraceutical products and pharmaceutical research and commercialisation. Recently, the company published Cannabis update for October month, where it highlighted that it witnessed record dispensation of 846 number of cannabis bottles for the month, which led to the achievement of record revenue from Cannabis in October 2019. Moreover, NanaBis™ the company’s lead pain drug candidate programme saw an unprecedented increase in demand. Around 735 bottles of NanaBis™ were dispensed, an increase of 43% over the previous best month.

Key Highlights of September’19 Quarter:Collections for the period increased by ~96% to $2.401 Mn as compared to corresponding period last year. Cash Balance as on September 30, 2019 was reported at $6.942 Mn and the cash position improved further on receipt of $2.1 Mn in relation to the R&D Tax Incentive Scheme for FY 2019. The period witnessed first export order of MDC’s newest cannabinoid (NanoCBD™) of 1,500 units to Hong Kong with advanced deposit.


Operating Cash Flow for September’19 Quarter (Source: Company Reports)

What to Expect:Company’s Phase 2 trial with Royal North Shore hospital has completed recruiting, and independently prepared data results are expected to be available around the end of the fourth quarter. NanaBis™ sales were negatively impacted by production issues in the September quarter, however, the issue has been resolved.Additionally, the official launch of the 1st Brand of nutraceuticals is expected to occur at a major US medical conference, the 27th Annual World Congress, in December, run by the American Academy of Anti-Aging Medicine (A4M).

Stock Recommendation:MDC’s share generated a negative YTD return of 12.82%. Its cash cycle for FY19 stood at 93.8 days, lower than the industry median of 296.5 days. Its debt to equity multiple for FY19 stood at 0.06x, lower than the industry median of 0.19x. On valuation front, EV/Sales multiple on TTM basis stands at 8.7x, lower than the industry median of 19.4x, indicating undervalued position at the current juncture. Hence, considering the company's record cannabis bottle sales, decent cash position, valuation, and current trading levels, we recommend a "Speculative Buy" rating on the stock at the current market price of $0.390, up 14.706% on November 11, 2019, owing to the release of achieved record income in October 2019.

Cann Global Limited

CGB’s T12 Division Releases New Product Ranges for Australian and Asian Markets:Cann Global Limited (ASX: CGB) is involved in developing, growing, cultivating and producing hemp and medicinal cannabis products, and mining exploration and evaluation in Australia. On November 11, 2019, T12 food division of CGB announced the release of its new and nutritious ‘Black Label’ Hemp Seed Oil and Hemp Seed mixes product range for the discerning Australian and Asian consumer. The T12 division prepared VitaHemp Premium Hemp Seed Oil capsules over last couple of months, which met stringent standards required for delivery/sale to Costco and are now available for purchase from their Australia wide store network.

In a previous update, CGB secured an additional institutional support from New York based L1 Capital Global Opportunities Master Fund by issuing 2,600,000 secured convertible notes to raise $2.22 Mn after costs. The proceeds are expected to be used in building up inventory and production, to meet the growing demand on the existing inventory, the evaluation and advancement of growth initiatives (including the recently announced expansion of activities in Asia) and for general working capital.


Quarterly Consolidated Revenue (Source: Company Reports)

Key Highlights of Quarterly Update:On August 29, T12 became official supplier to Costco and on September 5, it signed an exclusive Vietnam Distributorship with EPCO. With the HHC upgrade program completed, revenues are expected to continue to increase in the fourth quarter, with $281K reported for the September quarter.

In the month of October, the company announced about its expansion plan for South East Asia. It also signed a deed of agreement with Sun Agriculture promotion industry and commercial Co. Ltd.

Stock Recommendation:CGB’s share generated negative a YTD return of 31.03%. Currently, the stock is trading close to its 52-week low level of $0.019. Its gross margin for FY19 stood at 6.9%, lower than FY18 and the industry median of 94.8% and 64.9%, respectively. With the company’s release of new products range for Australian and Asian market, we would like to see how the expansion of product mix impacts the financials of the CGB. Hence, considering the aforesaid facts, raise of funds to meet growing demand and current trading levels, we have a watch view on the stock at the current market price of $0.020 on November 11, 2019 and suggest investors to wait for a better entry level.
 

Auscann Group Holdings Limited

Decent Cash Position as on September 30, 2019 at $32.48 Mn:Auscann Group Holdings Ltd (ASX: AC8) is involved in the development of a stable, reliable dose form cannabinoid pharmaceutical product. Recently, Dr Paul MacLeman ceased to be the director in the company effective from November 4, 2019. In a previous update, the company appointed Mr. Christopher Mews as a Non-Executive Director, effective from December 1, 2019. Mr. Mews has over 20 years of experience in the financial services sector at senior positions. He is currently the Chief Financial Officer and Company Secretary of Merchant Group Pty Ltd, a Perth based financial services firm that provides funds management and corporate finance services, with investment experience both in Australia and internationally in the medical cannabis sector.

The company intends to finalise the production and packaging of its pharmaceutical cannabinoid-based products, with a release to clinical trials expected by the end of 2019.It aims to select and educate prominent physicians and medical opinion leaders in Australia regarding the unique and consistent characteristics of its products. It also intends to provide selected physicians with AusCann’s capsules for prescription to a controlled body of patients with an initial focus on chronic pain.

Finally, it is determined in ensuring financial rigour, discipline, and accountability in the execution of company’s business strategy, capital investments and operations to provide long-term benefits to the company’s shareholders.

September’19 Quarter Key Financial Highlights:Net operating cash outflow from operating activities was reported at $2,061,000. Net cash outflow from investing activities was reported at $774,000. Net cash inflow from financing activities was reported at $11,000. Cash and cash equivalents held at the end of the period was reported at $32,484,000.


September’19 Quarter Operating Cash Flow Statement (Source: Company Reports)

Stock Recommendation:Auscann Group Holdings Limited’share generated a negative YTD return of 56.35%. Currently, the stock is trading close to its 52-week low of $0.265. Its current ratio for FY19 stood at 29.74x, better than the industry median of 1.90x, which implies that the company is in a better position to address its short-term obligations. Company’s operational execution to date places it in a good position to commence commercial production of its Pharmaceutical cannabinoid-based hard-shell capsules within its budget and timelines. Its price to book multiple on TTM basis stands at 2.1x, lower than the industry median of 3.1x. Hence, considering the aforesaid factsand current trading levels, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.275 on November 11, 2019.

 
Comparative Price Chart (Source: Thomson Reuters)

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