Althea Group Holdings Limited

AGH Details

A Quick Look at Q4FY21 & FY21 Key Highlights: Althea Group Holdings Limited (ASX: AGH) holds licenses and permits for the importation, cultivation, production, and supply of medicinal cannabis in Australia.

• Rise in Revenues: The company reported unaudited revenues of $11.55 million in FY21 for the period ending 30 June 2021, depicting a rise of 128% on pcp, despite the COVID-19 led uncertainties. Monthly sales for June 2021 stood at $1.55 million. For 4QFY21, AGH posted revenue of $3.35 million, up by 111% on pcp.
• Increase in Cash Receipts: In 4QFY21, the company’s cash receipts stood at $2.84 million, up 86% YoY.
• Geographical Expansion: In Australian territory, the company’s unaudited revenue came in at $8.5 million for FY21, underpinned by big pharma approach. Revenues from UK stood at $1.1 million in FY21, underpinned by ongoing education of UK Specialists and experienced pharmaceutical representative team. The company’s Canadian business arm, Peak Processing Solutions, delivered $1.52 million of revenue for FY21 and record sales of $610,126 in June 2021.
• Cash Balance: The company ended the period with a cash balance of $6.76 million.

 Revenue Highlights; (Analysis by Kalkine Group)

Key Risks: The company is exposed to risks related to any severe movement in interest rates. Also, any adverse change in foreign exchange prices, approvals for new product launches, and stringent regulatory reforms in the evolving medicinal cannabis industry, may impact the company’s financials.

Outlook: The company’s Peak Processing Solutions is expected to produce a portfolio of ‘in-house’ cannabis brands. In addition, AGH expects more countries to legalise the use of recreational cannabis, which includes the USA. The company is taking necessary measures for an extensive new product development program and intends to scale up revenue and bottom-line growth.

Stock Recommendation: The stock of AGH gave a negative return of ~30.48% in the past three months. The stock is currently trading at par with its 52-weeks’ low level of $0.275 - $0.670. On a TTM basis, the stock of AGH is trading at an EV/Sales multiple of 8.4x lower than the industry median of 12.4x (Pharmaceuticals), thus seems undervalued. Considering the current trading levels, record sales for FY21, geographical expansion, expansion of product line, valuation on a TTM basis, and key risks associated with the business, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.275, down by ~3.509% on 10 August 2021.

AGH Daily Technical Chart, Data Source: REFINITIV 

Medlab Clinical Limited

MDC Details

Business Update for Q4FY21: Medlab Clinical Limited (ASX: MDC) facilitate nutritional pharmaceutical R&D that specialises in bio-therapeutics for chronic kidney diseases, pre-diabetes/obesity, and depression.

• The company has recorded a cash outflow from operating activity of ~$3.3 million in Q4FY21.
• In 4QFY21, the company undertook a capital raise program of ~$3 million in a placement to institutional and sophisticated investors.
• During the quarter, MDC has reported receipt from customers of $1.3 million. The company exited the quarter with a healthy cash balance of $13.4 million, with an additional anticipation of ~$2 million from the Australian R&D grant.
• Kerem Kaya was appointed as the company’s CFO and Company Secretary, effective from 17 May 2021. Mr Kaya’s nomination follows the resignation of Mr Alan Dworkin.
• MDC has completed its Phase 2a read-out of NRGBiotic™ Depression trial with positive outcomes.
• During the quarter, the company won 42 Global Patent approvals safeguarding NanoCelle® until 2036.
• The company is focusing more on partnering programs. The recent Jefferies Healthcare Conference and the granting of NanoCelle® Patents have produced robust interest in several MDC programs.
• During the quarter, the company de-risked NanaBis™ drug application, while moving towards an improved near-future Phase III trial program.

Cash Highlights (Source: Analysis by Kalkine Group)

Risk Analysis:  

• Forex Headwinds:Any adverse movement in foreign exchange price may impact the financial performance of the company.
• Failure of Clinical Trials: The clinical trial process is designed to assess the safety and efficacy of a medical device before commercialisation. A failure to achieve the desired results may hamper the company’s financial 

Outlook: Data from Phase 2a read-out of NRGBiotic™ Depression trial has given strong and has given direct insights for a cost-effective and easy formulation, which will likely to be used in future investigational work. MDC is focused on US Clinical and Northern Hemisphere partnering opportunities.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of MDC is trading below its average 52-weeks' levels of $0.135-$0.420. The stock of MDC gave a positive return of ~17.24% in the past one year and a negative return of ~10.53% in the past one month. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at some slight discount to its peer median EV/Sales (NTM trading multiple), considering the uncertainty over COVID-19 impact, failure of clinal trials, and technology advancement risk. For this purpose, we have taken peers such as Adalta Ltd (ASX: 1AD), Factor Therapeutics Ltd (ASX: FTT), CSL Ltd (ASX: CSL), to name a few. Considering the current trading levels, decent liquidity position, capital raising program, upside in valuation, grant of global patent approvals, and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.165, down by ~2.942% as on 10 August 2021.

MDC Daily Technical Chart, Data Source: REFINITIV

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

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

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices

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