Stocks’ Details

Medlab Clinical Limited

Record Quarterly Revenue: Medlab Clinical Limited (ASX: MDC) is engaged in the research and development of nutritional pharmaceutical products. The market capitalisation of the company stood at A$81.63 Mn as on 21^st January 2020. The company recently updated the market with highlights on its pharmaceuticals business and stated that it has achieved record quarterly revenue in cannabis sales, reflecting a rise of around 50% as compared to the previous best quarter as well as 400% against the previous corresponding period. Also, revenue from its core cannabis-based medicines such as NanaBis™ and NanaBidial™ are commencing to play a more prominent role in quarterly incomes. 


Quarterly Volumes of two Products (Source: Company Reports)

Focused on Opportunity: The company is focused on the opportunity with its pharmaceutical business and progress of its cannabinoid-based drug candidates for FY20. NanoCBD™ is expected to generate revenue for the first time in the March quarter 2020 with an introduction to Australia through the TGA SAS scheme.

Stock Recommendation: MDC has also completed a share placement, which was oversubscribed with 17,857,143 ordinary shares placed to institutional as well as sophisticated investors in Australia. With the help of placement, the company was successful in raising $5.00 million before costs. The stock has an EV to Sales multiple of 9.8x as compared to the industry median (Biotechnology & Medical Research) of 25.6x on TTM basis. Therefore, considering the aggressive product development pipeline, CAGR of 57.42% in total revenue over a period of FY15-FY19, impressive start to the NanaBis™ observational study, we give a “Speculative Buy” recommendation on the stock at the current market price of A$0.360 per share, up by 2.857% on 21^st January 2020.

AusCann Group Holdings Limited

Changes in Board: AusCann Group Holdings Limited (ASX: AC8) is engaged in the cultivation, manufacturing and supply of medical cannabis products. The company recently announced that Cheryl Edwardes AM has ceased to be a director in the company, effective from 19^th January 2020. In another update, the company announced that it has appointed Max Johnston and Krista Bates as Non-Executive Directors of AusCann. Max Johnston will also be appointed on the role of Chairman of the company. The company stated that during the September 2019 quarter, the company was focused on progressing the development of its hard-shell capsules, and its new product development facility. Furthermore, the company was also focused on optimising its supply chain.


Net Cash Outflow from Operating Activities (Source: Company Reports)

What to Expect: The focus of the company remains on the provision of high quality, economical as well as clinically validated cannabis medicines. In the near-term, the company will work on the development and commercialisation of its hard-shell capsules.

Stock Recommendation: The company is progressing on budget and on time with respect to the construction of its product development facility. AC8 also continues to engage in partnerships with key players in the supply chain. The company added that proprietary pharmaceutical product development, which is underpinned by clinical evidence, will help drive future growth. The stock of AC8 is trading at a P/B multiple of 2.7x as compared to the industry average (Healthcare) of 4.3x on TTM basis. During the span of one month and three months, the stock of AC8 has delivered returns of 56.52% and 33.33%, respectively. Therefore, in light of a decent outlook and current trading levels, we give a “Hold” recommendation on the stock at the current market price of A$0.350, down 2.778% on 21^st January 2020. 

THC Global Group Limited

Awarded with New Licence: THC Global Group Limited (ASX: THC) is a farm to pharma diversified vertically integrated cannabis company. The market capitalisation of the company stood at A$54.9 Mn as on 21^st January 2020. THC recently announced that it has been awarded a licence to manufacture therapeutic goods for the Southport Facility, namely GMP Licence, by the Australian Therapeutic Goods Administration. Pursuant to receiving the license, the company has completed the requirement of licences to commence commercial manufacturing of medicinal cannabis.

At the end of Q3 FY19, cash balance of the company stood at $4.02 million. Cash outflow from operations came in at $1.76 million. The company has received $1.1 million in repayment of an employee loan during October 2019, to be recognized in Q4 FY19.


Cash Flow (Source: Company Reports)

The company is in a top position to service domestic patients and the global export market. Commercial partners of the company operate throughout four continents, which is underpinning future international growth.

Stock Recommendation: The company has inked a Supply Agreement with MGC Pharmaceuticals Ltd, where MGC Pharma would be providing THC with an immediate supplementary source of medicinal cannabis products, which would be made available to patients under the Canndeo brand. The products are expected to be launched in Australia and New Zealand through Q1 FY20. Current ratio of the company stood at 8.71x in 1H FY19 as compared to the industry median of 1.66x. This reflects that the company is in a decent position to address its short-term obligations as compared to the broader industry.  Therefore, considering the completion of the licensing requirement, agreement with MGC, and decent liquidity position, we maintain a “Hold” rating on the stock at the current market price of A$0.430 per share, up 10.256% on 21^st January 2020. The upside is primarily because of the grant of licence by the Australian Therapeutic Goods Administration.

Elixinol Global Limited

Response to ASX Price Query:Elixinol Global Limited (ASX: EXL) is involved in the manufacturing and distribution of industrial hemp products. The market capitalisation of the company stood at A$178.57 Mn as on 21^st January 2020. The company has recently responded to the ASX Query related to the increase in price and volume of trading between 16^th January 2020 to 21^st January 2020. EXL stated that it is not aware of any information which has not been announced to the market and could be an explanation for the recent trading in the securities of EXL. In another update, the company announced that Raw With Life Pty Ltd as trustee for Benhaim Trading Trust (RWL) and Paul Elliot Benhaim, has made a change to its substantial holding in the company on 8^th January 2020 and the current voting power stands at 39.61% as compared to the previous voting power of 56.74%. The following picture provides an overview of quarterly revenue growth:


Revenue Growth (Source: Company Reports)

Future Growth strategy: The company will continue to diversify its business through a variety of channels and has made significant investments in people and operations within numerous key geographies globally, which include strong headway in Europe. The company is confident in its future growth strategy as it continues to diversify its branded product mix on the back of a multi-channel sales approach.

Stock Recommendation: During Q3 FY19, the company reported revenue amounting to $9.6 million, reflecting normalised revenue growth of 12% against pcp. The partnership with PharmaCare continues to grow with additional product development opportunities. EXL is focusing on channel penetration, cost control, as well as margin improvement. Over a period of one month, EXL’s stock generated a return of 121.37%.Considering the current price movement and business developments, we are of the view that most of the positives are factored in at the current level. Thus, we have a watch stance on the stock at the current market price of A$1.135 per share, down 12.355% on 21^st January 2020, probably due to the update on ASX price query.
 

Zelira Therapeutics Limited

ZLD Completes Insomnia Trial: Zelira Therapeutics Limited (ASX: ZLD) is a global therapeutic medicinal cannabis company. The market capitalisation of ZLD stood at A$50.6 Mn as on 21^st January 2020. The company recently announced that Merchant Funds Management Pty Ltd as manager of Merchant Leaders Fund, and Merchant Group Pty Ltd, have ceased to be substantial holders in the company, with effect from 2^nd January 2020. In another update, the company announced that the last patient has finished dosing in its pioneering medicinal cannabis trial for insomnia. ZLD anticipates the release of interim results for the trial by February 2020. The following picture provides an idea of net cash used in operating activities for the September 2019 quarter:


Cash Flow from Operating Activities (Source: Company Reports)

Target to Secure Agreements: ZLD is continuing to consider opportunities in order to expand its clinical programs where they align with its strategic objectives. The company is also progressing discussions with third parties with a target to secure agreements to globally distribute clinically validated Zelda products.

Stock Recommendation: At the end of September 2019 quarter, cash balance of the company stood at $1.8 million. Also, the company has wrapped up acquisition of 100% of the issued capital of Ilera Therapeutics LLC. The merger between Zelda Therapeutics Limited and Ilera Therapeutics LLC has created a global medicinal cannabis company, which has been renamed as Zelira Therapeutics Limited. Hence, taking into account the merger between Ilera and ZLD, good liquidity position, and decent outlook, we give a “Hold” recommendation on the stock at the current market price of A$0.061 per share, up by 5.172% on 21^st January 2020.
 
 
Comparative Price Chart (Source: Thomson Reuters)

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