Holista Colltech Limited

HCT Details 

Collagen Market Update: Holista Colltech Limited (ASX: HCT) is a research-driven biotech company developing and commercialising food ingredients, ovine collagen, biomedical applications. The market capitalisation of the company as of 26 May 2021 stood at $14.32 million. As per a recent announcement, the company has lifted the suspension in trading of its securities, following the release of a pending announcement. It is in regards to the previously announced news that it has signed a distribution agreement with Mutiara Seribumi Sdn Bhd (Mutiara) for the distribution of its ovine (sheep) collagen into China. As per the latest update, Guangzhou Sinbio Cosmetic Co Ltd, which is a Chinese State-Owned Enterprise (SOE) and is an existing customer of Mutiara, will test HCT’s collagen product in terms of safety and efficacy in the Chinese Market. 

Successful Securement of Grant: As per an update on 26 May 2021, the company has been successful in securing a grant of $501,250 from the Western Australian state government. It plans to use the proceeds to upgrade Holista’s collagen plant to produce medical-grade collagen for the global market.

Q1FY21 Financial Performance: During the quarter, the company has reported a surge in Ovine Collagen's sales by 312%, Healthy Food Ingredients increased by 64%, and Dietary Supplements gained by 32% compared to pcp. Additionally, HCT has recorded a significant improvement in operating cash outflow to $17,000, compared to $514,000 in the previous quarter. The cash position of the company stood at $2.9 million as of 31 March 2021. 

Q1FY21 Cash flow from Operating Activities (Sources: Company Reports)

Outlook: The company has anticipated growth in Infection Control Solutions division in the coming quarter due to robust growth in iGalen's performance. Moreover, the company has made agreements for collaboration in the USA, Malaysia, which could give sustainable growth going forward. The management expects optimistic prospects for the company in FY21 with positive growth momentum.

Key Risk: HCT is exposed to market risk like foreign exchange rates, interest rates and equity prices, which could impact the company's earnings. The restructure in iGalen has also directly impacted the performance of the Infection Control Solutions division previously.

Stock Recommendation: The company has recorded an improved operating expense by 25% in Q1FY21, compared to the previous quarter, due to significant cost control and material improvement. The stock of HCT is trading below its average 52-weeks’ levels of $0.048-$0.200. The stock of HCT gave a positive return of ~4.0% in the past one month and a negative return of ~24.63% in the past six months. On a TTM basis, the stock of HCT is trading at an EV/Sales multiple of 1.6x, lower than the industry median (Healthcare) of 14.7x. Considering the current trading levels and valuation on a TTM basis, the improved performance, strategic distribution agreement, substantial cost control measures, optimistic outlook and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.052, as on 26 May 2021.  

HCT Daily Technical Chart, Data Source: REFINITIV

Vortiv Limited

VOR Details 

Business Update: Vortiv Limited (ASX: VOR) is a technology-driven & IT management services company focused on cloud and cloud security, mainly in the financial service sector. The market capitalisation of the company as of 26 May 2021 stood at $6.04 million. As per a recent update, the company has announced that the equal capital reduction approved by the shareholders at the meeting on 19 April 2021, has been paid to eligible shareholders on 30 April 2021. It plans to apply for an Australian Taxation Office (ATO) class ruling with regards to the capital reduction. 

Withdrawal of Notices: The company has announced that it has received a letter from Rocket

Science Pty Ltd ATF, the Trojan Capital Fund, regarding the withdrawal of notices received under section 203D and 249D of the Corporations Act 2001 (Cth). This is in regards for a general meeting of the company to consider the removal of Nicholas Smedley as a director.

H1FY21 Financial Performance: During the period, the company has recorded an increase in revenue by 21% to $6.8 million, compared to $5.6 million in H1FY20. VOR has reported a surge in net profit before tax by 96% to $0.88 million in H1FY21, compared to $0.45 million in H1FY20. Additionally, the company reported an increase in net cash flow from operations by 21% to $1.7 million during the period, compared to $1.4 million in H1FY20. The cash position of the company stood at $1.8 million as of 30 September 2020.

H1FY21 Financial Performance (Source: Company Reports) 

Outlook: The management has estimated the sufficient cash inflow to meet all commitments and working capital requirements until H1FY22. 

Key Risk: The company has done an upgrade programme, which increases the ATM asset largely funded by long-term borrowing, resulting in an increase of debt to $25 million. The company is facing challenges in the COVID-19 disruption, which might further impact the earnings of the company. 

Stock Recommendation: During H1FY21, the company has reported robust performance by TSI India with a revenue of $21.7 million and an underlying EBITDA of $3.6 million. The stock of VOR is trading below its average 52-weeks’ levels of $0.037-$0.335. The stock of VOR gave a positive return of ~22.86% in the past six months and a negative return of ~2.38% in the past one week. Considering the current trading levels, decent cash balance, improved financial performance, optimistic outlook and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.042, down by ~2.32% as on 26 May 2021.   

VOR Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV        

Note 2: Investment decision should be made depending on the investors' appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above.

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