Stocks’ Details

Medlab Clinical Limited

Expansion into the UK:Medlab Clinical Limited (ASX: MDC) is engaged in the research and development of nutritional pharmaceutical. The market capitalisation of the company stood at A$68.8 Mn as on 9^th January 2020. The company recently announced that it has successfully wrapped up share placement. This placement was oversubscribed with 17,857,143 ordinary shares placed to institutional and sophisticated investors in Australia. It added that the placement would be raising $5.00 million before cost. To expand into the UK, the company announced the execution of an exclusive distribution agreement with Cultech Ltd. This agreement focuses on 2 unique Medlab products such as ORSBiotic™ and NanoCBD™. The below picture provides an idea of net cash used in operating activities:


Net cash Used in Operating Activities (Source: Company Reports)

What to Expect:The company is committed to deliver significant advancements in pain management with global commercial opportunity. For the upcoming year, the company is planning to strengthen and expand its Australian Pharmacy position for nutraceuticals. The company is also planning for licencing deals in order to facilitate global distribution.
 
Stock Recommendation:The parallel commercial activities in Nutraceuticals and Medical Cannabis/Pharmaceuticals has been delivering decent progress, and MDC remains focused towards the opportunity to deliver the pain management alternative to opioids. The stock is available at an EV to Sales multiple of 7.8x in comparison to the industry median (Healthcare) of 9.2x on TTM basis. Also, the stock is trading at a price to book multiple of 4.6x against the industry average (Biotechnology & Medical Research) of 6.2x on TTM basis. Thus, considering the expansion into the UK, decent outlook, and lower valuation, we give a “Speculative Buy” recommendation on the stock at the current market price of A$0.300 per share, up by 1.695% on 9^th January 2020.

THC Global Group Limited

Exercise of Options:THC Global Group Limited (ASX: THC) is the owner of the largest bio-pharma manufacturing facility in Southern Hemisphere. The market capitalisation of the company stood at A$51.48 Mn as on 9^th January 2020. In an update, the company announced the appointment of Ms Angela Macquire on the role of Chief Operating Officer of THC Pharma Pty Ltd, which is the company’s extraction and manufacturing division operating the Southport Facility.


Net Cash used in Operating Activities (Source: Company Reports)

THC in a Prime Position:The company is in a prime position for commencing medicinal cannabis production in order to service domestic patients and the global export market. The commercial partners of the company operate throughout four continents, which supports future international growth.

Stock Recommendation:At the end of Q3FY19, the cash balance of the company stood at $4.02 million. THC received $1.1 million in repayment of an employee loan during the month of October 2019, to be recognised in the Q4 2019. The stock of THC is trading at a price to book multiple of 2.0x in comparison to the industry average (Industrials) of 3.3x on TTM basis. Current ratio of the company stood at 8.71x in FY19 as compared to the industry median of 1.66x. This implies that the company is in a decent position to address its short-term obligations as compared to the broader industry. Thus, considering the margins and decent liquidity position and above-mentioned factors, we give a “Speculative Buy” recommendation on the stock at the current market price of A$0.360 per share, down by 4% on 9^th January 2020.
 

AusCann Group Holdings Limited

Appointment of Non-Executive Director: AusCann Group Holdings Limited (ASX: AC8) is engaged in the cultivation, manufacturing and supply of medical cannabis products. The market capitalisation of the company stood at A$85.6 Mn as on 9^th January 2020. The company has recently appointed Mr Max Johnston and Mrs Krista Bates as Non-Executive Directors of AC8 as part of the Board renewal process. It has wrapped up manufacturing and testing of its proprietary cannabinoid-based hard-shell capsules and released the same for clinical evaluation. The below picture provides an idea of the net cash used in operating activities in September 2019 quarter:


Net Cash Used in Operating Activities (Source: Company Reports)

Progressing on Budget:The company’s aim is to have the hard-shell capsules commercially available for physicians to prescribe in Australia during the 1H CY20. The company is currently focused on the treatment of Chronic Pain, which is a high unmet medical need.

Stock Recommendation:The stock of AC8 is trading at a price to book multiple of 2.1x against the industry average (Healthcare) of 3.8x on TTM basis. Current ratio of the company stood at 29.74x in FY19 as compared to the industry median of 1.91x. This implies that the company is in a decent position to address its short-term obligations as compared to the peer group. As per ASX, the stock of AC8 is trading towards its 52-week lower levels, proffering an opportunity for share accumulation. Hence, considering the company’s target for hard-shell capsules, liquidity position and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of A$0.295 per share, up by 9.259% on 9^th January 2020. 
 

Ecofibre Limited

Overview of Financial Performance:Ecofibre Limited (ASX: EOF) provides hemp products in the USA and Australia and has the market capitalisation of A$790.56 Mn as on 9^th January 2020. The company has advised that 2,259,212 fully paid ordinary shares in Ecofibre (Escrowed Shares) has been released from escrow on December 31, 2019. The company has recently noted the recent industry developments in the US CBD market and added that the US Food and Drug Administration, on 25^th November 2019, had issued warning letters to 15 companies for illegally selling products containing cannabidiol, in the ways which violate the Federal Food, Drug, and Cosmetic Act. The company added that it has not received any warning letter or product class action claims and, as per the release, is fully compliant with 2018 Farm Bill.

The company welcomes the focus of the FDA on this market and believes that the market would benefit from considered regulation in the new and forming industry. The following picture provides an idea of financial performance:


FY19 Highlights (Source: Company Reports)

Future Aspects:The company would be looking to co-brand with specific partners, sell bulk intermediate products to customers and licence its technology as the time passes and the business matures. 

Valuation Methodology: PE Multiple Approach 
 
P/E Based Valuation (Source: Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months
 
Stock Recommendation: For year ended June 30, 2019, the company produced small tax assisted profit (i.e., $6 million net profit after tax), which was resulted by strong sales as well as profit growth in its Ananda Health business in the United States, that is still a relatively new business in an early growth stage. We have applied P/E based Valuation and there are expectations that the stock might witness some sort of correction moving forward.Thus, we have a watch stance on the stock at the current market price of A$ 2.550 per share, up by 1.594% on 9^th January 2020.
 
 
Comparative Price Chart (Source: Thomson Reuters)

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