Stocks’ Details

Creso Pharma Limited

Inking of Distribution Agreement: Creso Pharma Limited (ASX: CPH) is a small-cap health care company with the market capitalization of ~A$ 63.53 Mn as on May 10, 2019. Recently, the company confirmed by the press release for the receipt of an import permit for its first shipment of its innovative therapeutic product cannaQIX® 50 to Australia to be sold as therapeutic product via approved channels. cannaQIX® 50 is Creso’s proprietary buccally formulated cannabidiol (“CBD”) lozenge which is designed to support the management of chronic pain. The company inked a Comprehensive Distribution Agreement with Burleigh Heads Cannabis, which is one of Australia’s leading medicinal cannabis distribution companies. As per the release, Creso and Burleigh Heads Cannabis agree to explore the introduction of additional therapeutic/medicinal products from Creso’s pipeline of new products which is to be produced by Creso at its production facilities globally. Following chart gives a broader overview of the potential patients in Colombia:


Patients Data (Source: Company Reports)

A Quick look at March Quarter FY19: The company has been granted a license to cultivate cannabis at the Creso’s state-of-the-art Mernova Medical facility in Nova Scotia, Canada. The company raised A$3m in a placement to support the sales and marketing of its human and animal products in Europe and Canada. CPH reported revenues from human and animal products for the quarter of CHF119,690 (~ A$167,633).

What to expect from CPH: The company is expecting benefits of its expanded distribution network in coming quarters of CHF716,610 (~A$1,000,000) on the back of decent orders which were already placed by repeat customerfor delivery in Q2 and Q3. The company is working to achieve strong sales performance in coming quarters.

Stock Recommendation: The stock of CPH has delivered a good return of 26.67% in the span of the previous three months, while in the time frame of past one month, the stock posted a decent return of 6.74%. The company is ready to launch its four new CBD hemp-oil and hemp-seed based products. The company’s commercialised products have been progressing steadily and they have started generating revenues. Hence, considering the aforesaid facts and decent outlook, we maintain our “Hold” recommendation on the stock at the price of A$0.455 per share (down 4.211% on 10 May 2019).
 

Zelda Therapeutics Limited

Received Cash refund under the R&D Tax Incentive Scheme: Zelda Therapeutics Limited (ASX: ZLD) is an Australian-based bio-pharmaceutical company with the market capitalization of ~A$33.24 Mn as of 10 May 2019. The company stated that, in collaboration with St Vincent’s Hospital in Melbourne, it is undertaking an opioid reduction study. The company has got a $769,000 cash refund under the Federal Government’s Research and Development Tax Incentive Scheme. As a result of this refund, the company is well positioned to advance its current Human clinical trial programme and Pre-clinical research programme.

Looking for commercialization opportunities: The company stated by press release that it has been granted an Australian patent for novel methods to predict disease-free survival of breast cancer patients. It has entered into a binding Heads of Agreement with US-based medicinal cannabis company Ilera Healthcare, LLC to explore a broad range of commercialization opportunities. The company reported net cash used in operating activities of A$1.17 Mn. During the same quarter, the company made payment of A$0.88 Mn and A$0.128 Mn on research and development and administration and corporate costs, respectively. Moreover, the company entered into collaboration with SUDA pharmaceuticals Ltd wherein SUDA will apply its proprietary OroMist® oro-mucosal spray technology to deliver Zelda’s pharmaceutical-grade cannabis formulations.
 
Cash Flow March Quarter FY19 (Source: Company Reports)

Outlook: The company is looking for the outcome of its clinical trials for insomnia, autism and opioid reduction later in 2019. The company is planning to continue to assess the opportunities to expand its clinical programs. Additionally, the company is also having discussions to secure agreements with third parties to distribute clinically- validated Zelda products. For the next quarter, the Company is expecting expenditure of around $0.85 million. This reflects prudent cost management approach despite its expanding clinical trial activities and intellectual property portfolio. The Company remains fully funded for all of its upcoming clinical milestones.

Recommendation: In the span of the previous 6 months, the stock posted -27.87% return while, in the time horizon of 5-years, the company’s stock witnessed 780.0% appreciation. Based on its ongoing developments and decent outlook, we, therefore, maintain our “Hold” rating on the stock at the current market price of A$0.046 per share (up 4.545% on 10 May 2019).
 

THC Global Group Limited

Export License Application Lodged: THC Global Group Limited (ASX: THC), formerly The Hydroponics Company Limited, is an Australia-based diversified cannabis company with the market capitalization of ~A$57.27 Mn as of May 10, 2019. The company recently released its March 2019 quarterly report wherein the company stated that it received cultivation permits in late December for its Queensland strain R&D and cultivation facility in Bundaberg, Queensland. It commenced cultivation in early Q1 2019 using the company’s proprietary strains which are expected to be high yielding plants genetically suited for greenhouse cultivation in sub-tropical climates such as North Eastern Australia.

The company also stated that it has also applied for an Export License from the Australian Office of Drug Control for the export of medicinal cannabis. The company closed its Share Purchase Plan and it raised $3 million.

Significant Rise in Cash Receipt: The company reported its Hydroponics equipment unaudited revenue for Q1 2019 of $991,000 ($3.964 Mn annualized), reflecting a growth of 22% over Q4 2018. This represents stronger sales within certain product lines as well as a broader distribution network across North America, Europe and now the United Kingdom.

THC stated that its cash receipts grew by 30% on the last quarter to A$843,000. Additionally, the company also stated in its Q1 report 2019 that net cash used in operating activities stood at A$1.811 Mn. During the same quarter, the company made payments of A$0.80Mn and A$1.04 Mn for product manufacturing and operating cost and administration and corporate costs, respectively.

Operating Cash Flow Statement Q1 2019 (Source: Company Reports)

What To Expect From THC:THC Global Group limited is expecting receipt of final Australian cannabis licenses and permits enabling two manufacturing facilities and cultivation sites. The company is planning to develop better patient access to import cannabis products in Australia and New Zealand. Additionally, the company is planning to sign key off-take agreements for products and securing cannabis supply through domestic producer strategy.

Stock Recommendation: The company entered into a partnership with Heleogenics, a Malaysian Bio-tech firm to explore joint research and development opportunities in Malaysia. Considering the strong cash receipts growth of 30% (as mentioned above), there are expectations the market players might be attracted towards the stock moving forward. Strong cash receipts growth of 30% with the diversified business base gives a positive outlook for the company for long-term. Hence, we give a “Hold” recommendation on the stock at the current market price of A$0.430 per share (up 1.176% on 10 May 2019).
 

Medlab Clinical Limited

Overview of Collaboration and partnership: Medlab Clinical Limited (MDC) is a small-cap Australian-based medical life science company with the market capitalization of A$89.68 Mn as of May 10, 2019. The company stated by a press release that it has collaborated with Chronic Pain Australia. The alliance has been designed to support doctors and patients throughout Australia. It also executed a Heads of Agreement (HoA) for NanaBis™ with Canadian pharmaceutical company, Pharmascience Inc for further commercialisation of NanaBis™.

Lucrative Growth in Sales: Medlab Clinical Limited reported their achievement of over A$1 Mn sales in April 2019 for the first time. The company also stated that their costs increased from nutraceuticals launch to pharmacies.

The company’s gross margin stands at 65.6% in 1H FY19 which reflected growth of 5.5% on YoY basis, showing its better position to address its expenses. The company also reported their net cash used in operating activities of A$3.26Mn. However, the company made payment of A$1.63 Mn and A$0.95 Mn for research and development and staff costs.


Operating Cash Flow Statement Q1 2019 (Source: Company Reports)

Outlook: Medlab Clinical Limited is expecting a substantial growth in revenue from nutraceuticals launch. The company is planning for NanaBisTM registration and global market access. It stated that depression research phase 2 is progressing well. MDC is expecting increase in revenue from AU national pharmacy roll out for Nutraceuticals.   

Stock Recommendation: MDC stands with strong balance sheet with net assets of A$16Mn and debt position of A$400k. The company reported their cash position of A$13.169 Mn as of 31 March 2019. NanaBis^TM is strongly aligned to global regulatory models, and the National Health priorities for Australia, United States, Europe and United Kingdom. However, the stock’s return on one-year chart stood at -31.25%.

Based on decent outlook and current trading level, we give a “Speculative Buy” rating on the stock at the price of A$0.420 per share (down 1.176% on 10 May 2019).
 

Cann Group Limited

Mildura facility In Progress:Cann Group Limited (ASX: CAN) is engaged in the business of cultivating medicinal cannabis for both medicinal and research purposes. For the purpose, the company has two cultivation & R&D facilities, currently operational in Victoria.

CAN has purchased a site for major Stage III expansion which is located near Mildura, Victoria. The shipping date has been set for first construction materials. Aurora Cannabis Inc, one of Canada’s leading listed medicinal cannabis company, hold strategic 22.9% in CAN. The company released an update on 03 May 2019 related to the issuance of 100,000 new fully paid ordinary shares.

The company released its Quarterly Activities Report and Appendix 4C for March 2019. CAN updated that it had entered into a non-binding HOA (Heads of Agreement) to buy a site in North West Victoria, located within the Mildura region, and plans to construct a state-of the-art greenhouse for large scale cultivation and production of medicinal cannabis. Production capacity of this greenhouse facility is projected up to 50,000 kg of dry flower per annum to be fully commissioned in the 3Q of calendar year 2020. Construction cost for the projects is estimated at ~$130 million, funded with a mix of debt and existing cash reserves. CAN had entered into a 5-year agreement with Aurora Cannabis Inc (‘Aurora’) for the offtake of medicinal cannabis produced by it.


Mildura facility provides a clear pathway to sustained profitability (Source: Company Reports)

Financial Performance in 1H FY19:The revenues for the company in 1H FY 2019 stood at $95K which comprises research and development credits received of $92K and $3K from the sale of products. The net loss at $4.898 million were higher reflecting a rise of $3.436 million as compared to the same period of previous year.

What to Expect From CAN: The Company is working and negotiating with prospective lenders on its debt funding plans for the Mildura expansion facility. Along with that, CAN is in the process of preparations for construction of the new facility, with the shipping date set for first construction materials. With the production of resin for Victoria’s Department of Health going on, the management expects regular orders under this agreement. IDT Australia (Manufacturing partner for CAN) has installed extraction equipment required for medicinal cannabis. As patient approvals in Australia has continued to see rapid growth, the company is continuously focusing on its commercial strategy with supply to Australian patients and involvement in clinical studies.

Stock Recommendation: CAN has been working with its major expansion program comprising world class facility to ramp up the business and meet the opportunities. Australia offers potential $1 billion per annum local industry at 1.2% of population using cannabis for medicinal purposes.

Considering the existing facilities and proven cultivation capability, various strategic initiatives lead us to give a “Buy” rating on the stock at the current market price of $2.150 (up 0.467% on 10 May 2019).


Comparative Price Chart (Source: Thomson Reuters)   

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