Stocks’ Details

Creso Pharma Limited

Launching its first medical cannabis product in Brazil– Support Topline growth:Creso Pharma Limited’s (ASX: CPH) stock climbed up 15.663% on November 01, 2018 as the group signed an import agreement with MedDepot Brasil for the import and delivery of its first medicinal cannabis product i.e., cannaQIX 50 lozeng in Brazil for an initial term of three years. The objective of this launch is to meet the need in the areas of neuropathic pain and pains related to cancer and other neurologic diseases in the Brazilian market and ensure to be well placed in the region. In addition to MedDepot Brasil, the company has also engaged the services provided through its established partnership with SIN Solution which has agreed to provide sales and marketing of Creso’s products via its well-established Call Center Service across Brazil. In our view, the aforesaid proposal will monetize the company with its first product launch. Further, the product development was in full swing in the third quarter of 2018 with new extensions or new products due to reach the market in 2019. Moreover, the company has enough liquidity with current ratio at 7.47x compared to the Industry average of 2.41x.

Creso’s Product Pipeline (Source: Company Reports)

Meanwhile, the stock has remained under pressure for most of the sessions this year, generating negative YTD return of 55.38% and is trading close to its low levels. New potential revenue and improving financials of the company would be positive for the company going ahead. Further, the company is focused on generating revenue via launching of its first medical cannabis product in Brazil. Hence, we maintain our “Hold” recommendation on the stock at the current market price of $0.480.
 

Zelda Therapeutics Limited

Positive Outcome of Insomnia Clinical Trial Could be an Opportunity:Zelda Therapeutics Limited (ASX: ZLD) has recently released its September 2018 quarterly report wherein the company showed solid performance on all front. As per the release, the company stated that the first patient received medication in its pioneering insomnia trial and the result from this clinical trial is expected in the first half of 2019. With the completion of Insomnia Clinical Trial, the company will be well positioned to continue leveraging its strong strategic position into the global market with the support of a strategic partnership with HAPA. Furthermore, it was observed that the company has continued to progress its core clinical and pre-clinical activities and has also established the foundations to rapidly commercialize its clinically validated formulations. Moreover, the group remains focused on generating shareholder value through identifying and securing new intellectual property and pursuing rapid a commercialization strategy for its medicinal cannabis products. Further, the positive results in this study will enable Zelda to consider commercialization opportunities of cannabinoid-based medicines in jurisdictions where it has a clear pathway to market and access to distribution partners. As of 30 September 2018, the company had a cash reserve of $5.06 million.
 

Meanwhile, the share price has fallen 19.48% in the past three months as at 31 October 2018 and traded at a lower level. The stock has a market capitalization of circa $46.83 Mn and beta of 1.82x as on 5-Year (monthly basis), representing overvalued at the current juncture. By looking at its current trading level and decent outlook backed by strong footprint in traditional cannabis business, we, therefore, we give a “Hold” recommendation on the stock at the current market price of $0.067, up 8.1% on November 01, 2018.
 

The Hydroponics Company Limited

Increased Expenses Impacted 1H 2018: The Hydroponics Company Limited (ASX: THC) ended 1H 2018 (June 30, 2018) with losses amounting to $3.1 million which implies the substantial YoY rise. In the same period of the previous year, the losses were $0.7 million. Even the revenues from continuing operations witnessed the YoY rise in 1H 2018, its effect got offset by the substantial increase in the expenses. The company saw net cash outflow from the operations amounting to $3.3 million in 1H 2018 implying a rise on the YoY basis mainly because of the increased payments which have been to the employees as well as suppliers. However, the company also witnessed a rise in the receipts from the customers from $0.2 million in 1H 2017 to $1.2 million.


Future Milestones (Source: Company Reports)

THC’s cash outflows from the investing activities were $2.9 million in 1H 2018 while in 1H 2017 it was $0.1 million. This substantial rise was witnessed on the back of increased payments for the plant and equipment.

Optimistic Outlook for Global Growth to Support THC: The management of The Hydroponics Company believes that the global cannabis market is still in its initial stages. However, the global market for cannabis is expected to witness robust growth momentum moving forward in the long-term which might also help the company.

From the past few months, the company has witnessed robust growth momentum. The company has been increasing the base in Europe as well as in the US which also includes fresh and new product deals. 

Technical Overview: On the daily chart of The Hydroponics Company, Moving Average Convergence Divergence or MACD indicator has been applied by considering the default values. As per the observation, the MACD line is expected to cross the signal line and, after the crossover, it might move in the upward direction. Therefore, we maintain our “Hold” rating on the stock at the current market price of $0.550, as the market players need to wait for the crossover to occur.  
 

Elixinol Global Limited

Well Diversified Business: Elixinol Global Limited (ASX: EXL) is a well-diversified company with two established consumer brands i.e., Elixinol and Hemp Foods Australia. Hemp Foods Australia is the largest supplier of hemp-derived foods and Elixinol is the US-based seller of cannabidiol based dietary supplements. On the financial front, the company posted 110% growth in revenues up to $14.9 Mn in 1HFY18 from $7.1 Mn in 1HFY17. It was mainly driven by the increased demand for product mix during the same period. Based on topline growth, the company has turnaround positive underlying NPAT of $0.6 Mn in 1HFY18 from negative underlying NPAT of $0.3 Mn in last year. In our view, the management is in line with its long-term strategic plan in relation to grow its top line growth and establish itself among the top five CBD business in Europe. As of now, the company is in the process to come up with 5+ new products byFY19 and focuses on the improvement of EBITDA margin through the effective cost optimization strategy.
 

Business Positioned with Major Growth Theme (source: Company Reports)

Technically, the scrip is making higher highs on the price chart with wicks showing rejection to the downside. Major indicators like RSI and MACD consolidating with the signal line indicate that the current levels are good to buy keeping in consideration the volatility prevailing across allmajor indices. On the back of strong quarter growth with diversified business base gives a positive outlook for the company for long-term and technically the price patterns are indicating rejection on downside. Hence, we maintain our “Speculative Buy” recommendation on the stock at the current market price of $1.945.  
 

Auscann Group Holdings Ltd

Raised Decent Capital through Placement and SPP event:Auscann Group Holdings Ltd (ASX: AC8) became one of the first companies to obtain the necessary licenses to both cultivate medicinal cannabis and manufacture cannabinoid medicines in Australia, during the start of the year. During the September Quarter 2018, the company completed an A$33.4 Mn placement to institutional and sophisticated investors from North America and Australia. Additionally, the company raised A$1.9 Mn via a share purchase plan. The fund will be used for cannabinoid pharmaceutical R&D and clinical studies expanding operation in Chile and Australia, promotion activity in the new international market. As Auscann moves ahead with the commercialization in cannabinoids medicines, these capital raising would provide a significant financial support to the growth strategy of the company.  

From the technical standpoints, the scrip is in the downtrend from the month of May, however, from October 29 the scrip has shown some recovery from the lows and trading near the middle Bollinger band. The scrip is making a higher high on the charts. The major indicators reflect some upside move going forward. Given the back drop of decent capital position of the company and the overall bearish trend that has been indicated so far by the technical charts, we recommend “Hold” rating on the stock at the current market price of $ 0.78, up 11.43% on November 01, 2018.


 
 Stock Price Comparative Chart (Source: Thomson Reuters)
 

  
 
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