Stocks’ Details

AusCann Group Holdings Limited

Achievement of Major Milestone: 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 $88.77 Mn as on 14^th February 2020. The company recently released its results for the quarter ended 31^st December 2019 (Q1 FY20), wherein it stated that it has achieved a major milestone by finalising the successful development, manufacturing and testing of its proprietary cannabinoid-based hard-shell capsules, which was announced on 18^th December 2019.

The company reported net cash outflows for the period at $6.405 million largely because of construction costs amounting to $3.426 million in relation to the product development facility, and operational costs of $2.871 million including R&D costs of $0.979 million.


Net cash used in operating activities (Source: Company Reports)

Plan for 1H CY20: The company is aiming to provide the hard-shell capsules for physicians to prescribe in Australia during 1HCY20, via the Therapeutic Good Administration (TGA) special access scheme and authorised prescriber scheme.

Stock Recommendation: The cash balance of the company stood at around $26 million at the end of Q1 FY20. However, for the upcoming quarter, the company is expecting cash outflows of around $4.678 million. The stock of AC8 is trading at a price to book value multiple of 2.1x as compared to the industry average (Healthcare) of 4.3x on TTM basis. Hence, in the light of the developments in Q1FY20, undervalued position at the current juncture, and a decent liquidity position, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.265, down 5.357% on 14^th February 2020.

THC Global Group Limited

Growth in Cash Receipts: THC Global Group Limited (ASX: THC) is a farm to pharma diversified vertically integrated cannabis company and the market capitalisation of THC stood at $51.38 Mn as on 14^th February 2020. The company recently announced that it will begin the international supply of medicines in Australia and worldwide under the Canndeo brand.  The company would initially provide four products including a full spectrum CBD medicine under the Canndeo brand, which has been scheduled to be launched by the end of Q1 2020.

On the financial front, the company reported unaudited trading revenue amounting to $4.79 million reflecting a rise of 81% in full year 2019, as compared to 2018 full year audited revenue. During Q4 2019, the cash receipts stood at $1.87 million with the growth of 30% on QoQ basis and 189% growth as compared to Q4 2018. The company has received the GMP licence for the manufacturing of Therapeutic Goods at the Southport Facility, from the Australian Therapeutic Goods Administration.


Overview of Cashflows (Source: Company Reports)

Delivery due in 2H 2020: The company has received orders from licenced producers in Canada in order to supply finished and bulk GMP product from the Southport Facility and the delivery for the same has been scheduled in 2H 2020.

Stock Recommendation: At the end of Q4 2019, the cash balance of the company stood at $3.55 million.The stock of THC has an EV to sales multiple of 13.5x as compared to the industry median (Pharmaceuticals) of 16.1x on TTM basis. It is trading at a price to book multiple of 2.0x against the industry median (Pharmaceuticals) of 2.7x on TTM basis. Thus, considering the favourable valuation metrics and strong balance sheet, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.365 per share as on 14^th February 2020.

Medlab Clinical Limited

Launch of NanaBis™ Observational Study: Medlab Clinical Limited (ASX: MDC) is engaged in the research and development of nutritional pharmaceuticals. The market capitalisation of the company stood at $69.97 Mn as on 14^th February 2020. The company through a release dated 4^th February 2020 announced that it has formally launched the NanaBis™ observational study, to review the impact of the medicine on patients with other prescriptive medicines. 125 Doctors along with 256 patients were enrolled during the soft launch. 

In another update, the company announced that it has executed an agreement with Tasmanian Alkaloids Pty Ltd to manufacture NanaBis™, that will offer improved product quality and a strong manufacturing compliance for regulatory bodies. The following picture provides an overview of revenue and volume growth of NanaBis™ and NanaBidial™:


Quarterly Volumes (Source: Company Reports)

Focus for 2020: For 2020, the company is focused on the opportunity with its Pharmaceuticals business and will work for the progress on its Cannabinoid based drug candidates, led by the cancer pain drug NanaBis™.

Stock Recommendation: The stock of MDC has an EV to sales multiple of 8.1x as compared to the industry median (Healthcare) of 10.8x on TTM basis. It is trading at a price to book multiple of 4.6x against the industry average (Biotechnology & Medical Research) of 7.2x on TTM basis. During the span of one month, the stock of MDC has provided returns of 3.45%.  As per ASX, the stock is trading near its 52-week low of $0.285. Therefore, considering the valuation metrics and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.310 per share, up by 3.333% on 14^th February 2020.
 
 

MMJ Group Holdings Limited

Announcement of Fund Raising: MMJ Group Holdings Limited (ASX: MMJ) is a global cannabis investment company, which owns a portfolio of minority investments. The market capitalisation of the company stood at $26.93 Mn as on 14^th February 2020. The company recently announced a Share Purchase Plan for raising an amount of around $5 million. SPP provides the opportunity to eligible shareholders to purchase up to $30,000 worth of new shares in MMJ. The offer price for the SPP stood at $0.11, which reflects a discount of 10.9% and 51% to 5-day volume weighted average market price (VWAP) of shares  and net tangible asset value per share of the company, respectively. 

The company would be utilising the funds for investment in new cannabis and hemp businesses, operating expenses as well as general working capital.


SPP Timetable (Source: Company Reports)

Confident on Outlook: The Board of the company is optimistic about the outlook on the back of well positioned investments to participate in the significant growth anticipated in each of their market segments.

Stock Recommendation: As per the key personnel of the company, the recent SPP is anticipated to help the company in taking the benefit of the growing global cannabis and hemp market. Currently, the stock is trading close to the 52-week low of $0.110. The stock has corrected 54.072% in the last 6 months. Going forward, we would like to see how the recent share purchase plan spans out for the business. Considering the future growth strategies, business prospects and current trading levels, we have a wait and watch stance on the stock at current market price of $0.110 per share, down by 8.333% on 14^th February 2020.

Ecofibre Limited

Robust Growth in Revenue: Ecofibre Limited (ASX: EOF) provides hemp products in the United States and Australia. The market capitalisation of the company stood at $888.19 Mn as on 14^th February 2020. For 1HFY20, the company reported revenue amounting to $29.0 million, reflecting a rise of 118%. The company experienced a turnaround from the loss of $0.4 million to NPAT of $7.1 million. 1H FY20 has delivered profitable growth while investing in future growth businesses.

The company witnessed a strong performance in the Ananda Health business with revenue amounting to $28.3 million for the half-year and gross margins increasing to 82%.


Revenue Growth (Source: Company Reports)

What to Expect: The company is focused on working capital efficiency so that its operating cashflows can fund investment programs. The company is expecting that Ananda Food will report steady sales supported by quality clients.

Stock Recommendation: Gross margin of the company stood at 72.4% in FY19 as compared to the industry median of 66.7%. Return on equity of the company stood at 27.4% in FY19 against the industry median of 17.0%. This reflects that the company has provided decent returns to shareholders. The stock of EOF has an EV to sales multiple of 9.4x as compared to the industry median (Consumer Non-Cyclicals) of 1.9x on TTM basis. It is trading at a price to book multiple of 8.2x versus the industry median of 1.8x (Consumer Non-Cyclicals). As per ASX, the stock of EOF is trading above the average of its 52-week low high of $1.450 and $3.900, respectively. Thus, considering the stretched valuations and current trading levels, we have a watch stance on the stock at the current market price of $2.870 per share, up by 1.773% on 14^th February 2020.

 
Comparative Price Chart (Source: Thomson Reuters)

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