Stocks’ Details

AVITA Therapeutics, Inc.

Change of Name: AVITA Therapeutics, Inc. (ASX: AVH) is a regenerative medicine company, which is involved in the development and commercialisation of a technology platform that enables point-of-care autologous skin restoration for multiple unmet needs. The market capitalisation of the company stood at ~$529.77 million as on 7^th January 2021. As per the recent quarterly rebalance of the S&P/ASX Indices, AVH has been removed from S&P/ASX 200 Index, which became effective on 21^st December 2020. Following the approval of Delaware Secretary of State, the company announced the change of its name to AVITA Medical, Inc., which became effective on 3^rd December 2020. However, the company’s names will be updated on the ASX platform after a successful registration with ASIC.

Growth in Topline: During the quarter ended 30^th September 2020 (Q1 FY21), the company witnessed a positive recovery in procedure volumes and the addition of 9 new accounts, which took the total accounts to 86. During the period, the company recorded revenue amounting to $5.1 million against $3.3 million in Q1 FY20.  Operating expenses for the quarter stood at $14.9 million as compared to $8.3 million in Q1 FY20. This increase was mainly due to additional costs of its status as a dual-listed entity on NASDAQ and the ASX. In addition, the commencement of pivotal clinical trials for the treatment of pediatric scald injuries, soft tissue reconstruction, vitiligo and other research and development activities in order to further promote the RECELL System also derived growth in opex. Net loss for the period amounted to $10.2 million against $3.6 million in Q1 FY20.

Key Financials (Source: Company Reports)

Outlook: The company is focused on its efforts to leverage the RECELL system in other markets, going forward. AVH has particularly encouraged by the patient and physician interest and enrolment levels, which have been experienced in its vitiligo trial.

Stock Recommendation: During the quarter, the company recorded a gross margin of 82% as compared to 81% of Q1 FY20. As on 30^th September 2020, the cash balance of the company stood at $65.8 million. On a TTM basis, AVH has an EV/Sales multiple of 16.5x as compared to the industry median (Healthcare) of 9.1x, and thus seems overvalued. The stock of AVH is trading near to its 52-week low-high average of $4.952. On a technical analysis front, the stock has a support level of ~$4.537 and a resistance level of ~$6.542. Thus, in light of the higher valuation and current trading level, we are of the view that most of the positive factors have been discounted at the current trading level and give an “Expensive” rating on the stock at the current market price of $4.920 per share, up by 0.408% on 7^th January 2021.

VRX Silica Limited

Offtake and Financing for Projects: VRX Silica Limited (ASX: VRX) is engaged in the exploration of minerals. The market capitalisation of the company stood at $200.82 million as on 7^th January 2021. Recently, the company notified the market with an update on its progress for securing offtake and financing for its Arrowsmith North Silica Sand Project. The company added that it has received a remarkable level of interest for offtake from its Arrowsmith North and Muchea projects. The company is near to choose its first offtake partner to underpin the development and is likely to agree on terms in early 2021. In addition, VRX has continued positive engagement with potential debt financiers for the projects and received positive interests from groups based in Australia and overseas.

Financial Highlights: During the September 2020 quarter, the continued discussions with potential customers (Malaysia, Thailand, Taiwan, and South Korea) for long-term contracts for offtake of products from both its Arrowsmith Projects. The company also received a pending grant of a Mining Lease for the Muchea Project in the quarter. Net cash outflow from operating and investing activities stood at $353k and $186k respectively. For the year ended 30^th June 2020, the company recorded revenue amounting to $73,665 as compared to $96,228 in FY19. Loss for the year stood at $2,366,217 against $6,017,950 in FY19.

Financial Summary (Source: Company Reports)

Capital Raising: In the month of November 2020, the company has raised $7 million raised through a placement to institutional, professional, and sophisticated investors. This placement places the company rapidly advance the development of its silica sand projects. These funds would be used for pre-production preparatory work at its Arrowsmith North Silica Sand Project, additional drilling at Muchea and Boyatup Silica Sand Projects, and general working capital.

Outlook: Looking forward, the company would continue to undertake potential investment opportunities to strengthen shareholder value. The company is optimistic about a strong supply of suitable glassmaking silica sand with a commensurate future increase in price.

Stock Recommendation: As on 30^th September 2020, the cash and cash equivalents of the company stood at ~$2.0 million.  The stock of VRX has surged 211.53% and 285.71% in the last three and six months, respectively. As a result, the stock is trading towards its 52-week high level of $0.425. In addition, the stock is trading at a price to book value multiple of 18.1x, which is higher than the industry median (Metals & Mining) of 3.0x. Thus, it seems that the stock is overvalued at the current trading level. On a technical analysis front, the stock has a support level of ~$0.087 and a resistance level of ~$0.425. Therefore, considering the steep price movement in the past months, higher valuation, and current trading level, we are of the view that most of the positive factors have been discounted at the current trading level and give an “Expensive” recommendation on the stock at the current market price of $0.395 per share, down by 1.251% on 7^th January 2021.

Creso Pharma Limited

Mernova Medicinal Inc to Enter into Canadian Market: Creso Pharma Limited (ASX: CPH) is engaged in developing, registering and commercialising pharmaceutical-grade cannabis and hemp-based products. The market capitalisation of the company stood at $126.90 million as on 7^th January 2021. Recently, the wholly-owned Canadian subsidiary, Mernova Medicinal Inc. of CPH has taken a decision to grow its current operations and target the Canadian Hash market. This follows a comprehensive review of the significant market opportunities in Canada and positive customer feedback with respect to the current product range of Mernova.  

Financial Highlights: During the September 2020 quarter (Q3 FY20), Mernova Medicinal Inc produced A$596k of total sales revenue. In addition, the company’s Nutraceutical Product Line - cannaQIX® has signed an agreement with DHS Business/Lisbon for launching products of CPH into Portuguese and Spanish markets, which is supporting the company’s international expansion. During the same quarter, the company recorded a cash outflow of $1.9 million from operating activities. During Q3 FY20, the company raised A$7.992 million via a share placement to professional, sophisticated, and institutional investors. During 1H FY20, the company posted revenue of A$1,462k against A$960k in 1H FY19. Net loss for the half-year amounted to $17,406,878 as compared to $6,126,098 in 1H FY19.

Cash Flow (Source: Company Reports)

Outlook: The company’s strategies are likely to be supported by the change in strategic Board and Management in the near term.

Stock Recommendation: As a result of recent equity raising, the company has cemented its balance sheet and cash position and closed the quarter with cash reserves of A$2.56 million. In the last three and six months, the stock of CPH has moved up by 577.41% and 600%, respectively. CPH has an EV/Sales multiple of 30.3x as compared to the industry median of 16.7x on TTM basis. In addition, the stock is trading at a price to book value multiple of 17.5x against the industry average (Pharmaceuticals) of 9.8x on TTM basis. On a technical front, the stock has a support level of ~$0.154 and a resistance level of ~$0.47. Hence, in light of steep price movement in the past few months and higher valuation, we are of the view that most of the positive factors have been discounted at the current trading level and give an “Expensive” recommendation on the stock at the current market price of $0.265 per share, up by 47.222% on 7^th January 2021.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

Disclosure: VRX Silica Limited (Company) is a client of Kalkine Media Pty Ltd (Kalkine Media), an affiliate of Kalkine. However, under no circumstances have Kalkine or its related entities been, directly or indirectly influenced in making any related insights concerning Company as contained in this report, and no form of compensation is or will be received by Kalkine, Kalkine Media or Kalkine’s other related entities for the publication of this report.

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