Stocks’ Details

1300SMILES Limited

Despatch of Dividend Despite Economic Challenges:1300SMILES Limited (ASX: ONT) serves patients by providing self-employed dentists with the use of dental surgeries, practice management and other services. In a recent update on COVID-19, the company stated that it has seen a material impact on operations since late-March and currently has 50% of its practices open on a part-time basis. The company has introduced cash conservation methods and is prioritising on the health and safety of the patients and team members.

Decent 1H Performance:During the first half ended 31^st December 2019, statutory revenue stood at $23.5 million, up 14.5% on pcp. NPAT came in at $4.4 million, up 6.8% on pcp. EBITDA for the period reported double-digit growth of 31.6% to $9.4 million. On 27^th March 2020, the company paid dividend amounting to 13.25 cents per share for the first half.


Revenue Growth (Source: Company Reports)

Outlook:Prior to the difficulties associated with COVID-19, the company was performing better than expected with strong same stores sales growth in March. Therefore, the management is optimistic about a good recovery as soon as the hard times pass.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation Method

EV/Sales Multiple Based Relative Valuation Method (Source: Thomson Reuters)

Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months 
 
Stock Recommendation:The stock of the company corrected by 17.21% in the last 3 months and is currently inclined towards its 52-week low level of $4.690. The company has an objective of increasing the profits by attracting more dentists on the platform, encouraging the existing dentists to increase turnover and income, introducing new practices in existing and new regions, and delivering shareholder returns through consistent performance. We have valued the stock using EV/Sales based illustrative relative valuation method and arrived at a target price with an upside of lower double-digit (in percentage terms). Considering the above factors along with the impact of COVID-19 on the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $5.08, up 0.594% on 21^st April 2020.
 

MGC Pharmaceuticals Limited

Approval for Phase II Clinical Trial of ArtemiC:MGC Pharmaceuticals Limited (ASX: MXC) specialises in the production and development of phytocannabinoid-derived medicines. Recently, the company has been granted Human Research Ethics Committee approval from the Nazareth Hospital EMMS in Israel, to conduct a Phase II clinical trial of ArtemiC, as natural anti-infective based formulation, on patients diagnosed with coronavirus. On 4^th April 2020, the company entered into a binding agreement with Micelle Technology AG to avail research, manufacturing and distribution support of ArtemiC.

Amid the COVID-19 crisis, the company has continued to operate and has implemented the business continuity plan, enabling continued production at the GMP pharmaceutical facility while keeping the health and safety checks in place.Despite the disruption in supply lines, the company has managed to maintain production levels and distributed over 1,800 MGC Pharma products into the UK, Ireland, Australia and New Zealand, from February until early April. The company has also taken cost cutting measures through salary reductions, deferral of non-essential R&D expenditure, along with cancellation or renegotiation of all existing contracts.

Half Yearly Financial Highlights: During the first half ended 31^st December 2019, the company reported revenue from ordinary activities amounting to $1.78 million, up 520% on pcp revenue of $0.29 million. The period was marked by material increases for new prescriptions in Ireland, the UK, Brazil and Australia, which represents the revenue generation potential of the business. 


Financial Results (Source: Company Reports)
 
Stock Recommendation:The stock of the company gave returns of 17.86% in the last one month and is currently trading near the average of its 52-week low and high level of $0.015 - $0.067. The recent agreement with Micelle followed by the approval for Phase II clinical trial of ArtemiC, represents a major milestone for the business. The company is looking forward to assess the safety of the product on patients with COVID-19 and update the market with the relevant developments. However, the recent steps taken to reduce the costs of the business are an indicator of the potential risk from COVID-19 related disruptions. Therefore, considering the performance in 1HFY20, recent business developments, along with the risk associated with COVID-19, we have a watch stance on the stock at the current market price of $0.030, down 9.091% on 21^st April 2020.
 

Cann Group Limited

Business to Continue Throughout the Coronavirus Pandemic: Cann Group Limited (ASX: CAN) is engaged in breeding, cultivation, manufacture and supply of medicinal cannabis, for sale and use within Australia and exports to some overseas markets. The company has recently executed a five-year supply agreement with Pure Cann NZ, wherein it will be the primary production and manufacturing partner for Pure Cann. The company currently holds 3.9% of the issued capital of Pure Cann through its wholly owned subsidiary, Botanitech Pty Ltd, which will now rise to ~7.7% in exchange of new shares. Moreover, both the parties have also extended their technical services agreement until 29^th April 2026.

Recent Update on Operations and COVID-19:In response to COVID-19, the company has implemented a business continuity plan and has moved to shift-based operations for its cultivation facilities, with the remaining staff working from home. While the company is continuously pursuing funding facilities for its Mildura production facility, it does not expect a final decision until the end of FY20. Amid the crisis and uncertainty, the company also achieved a manufacturing milestone with the GMP manufactured product formulations, dried cannabis flower and cannabis oil from the Australian-grown cannabis ready to be released to the market.

During the half year ended 31^st December 2019, revenue from sales amounted to $0.57 million and operating loss came in at $8.4 million.


1HFY20 Income Statement (Source: Company Reports)

Valuation Methodology: EV/Sales Multiple Based Relative Valuation Method

EV/Sales Multiple Based Relative Valuation Method (Source: Thomson Reuters)

Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months 
 
Stock Recommendation:The stock of the company gave returns of 28.15% in the last one month and is currently trading below the average of its 52-week low and high level of $0.375 - $2.470. The recent agreement with Pure Cann supports the company’s expansion plans and enforces it as a leader in cannabis genetics, cultivation and manufacture. Despite the deferment of the funding decision, the business possesses sufficient working capital to continue its operations.We have valued the stock using EV/Sales multiple based illustrative relative valuation method and arrived at a target price with an upside of lower double-digit (in percentage terms). Considering the backdrop of the above factors, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.875, up 1.156% on 21^st April 2020.
 

Somnomed Limited

Completion of Entitlement Offer:Somnomed Limited (ASX: SOM) engages in the commercialisaton of oral devices for sleep related disorders in Australia and overseas. The company recently announced the completion of the retail component of the 1 to 3.24 fully underwritten accelerated non-renounceable entitlement offer. The company raised around $5.8 million from the offer on close. This represented the second stage in the company’s planned entitlement offer of $15.5 million, with the first stage raising $9.7 million and the second stage raising the remainder amount.

COVID-19 Update: The company expects a short-term material impact on the business of providing the SomnoDent oral appliance for the treatment of obstructive sleep apnoea. The company will see a growing strain on its practices due to rising awareness about the health and wellbeing of patients and will require additional working capital to secure its future. The company has also revoked its FY20 guidance due to uncertainty surrounding the impact of coronavirus and has taken various cost cutting measures, including salary cuts, complete ban on travel, down sizing and right sizing of manufacturing, and a halt to all technological advancements or investments.

1HFY20 Highlight:During the first half ended 31^st December 2019, the company reported core revenue growth of 15% on pcp and EBITDA growth of 130%. In terms of regional growth, North America reported the highest growth in revenue of 26%, followed by APAC and Europe, with growth rates of 11% and 10%, respectively. Cash in hand at the end of the period stood at $8.9 million.


Strong EBITDA Growth (Source: Company Reports)

Stock Recommendation:The stock of the company corrected by 46.81% in the last three months and is currently trading below the average of its 52-week low and high level of $0.900 - $2.953. The stock has an EV/Sales multiple of 1.8x, as compared to the industry median of 8.7x. The company is expecting to fund its working capital requirements from the recently completed entitlement offer. While the company delivered a decent performance in the first half of FY20, it is uncertain about its future performance due to the impact of COVID-19 related restrictions on the business. Considering the backdrop of the above factors, we have a watch stance on the stock at the current market price of $1.120, down 11.462% on 21^st April 2020.
 
 
Comparative Price Chart (Source: Thomson Reuters)

Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as personalised advice.