Mosaic Brands Limited
MOZ Details
Business Update: Mosaic Brands Limited (ASX: MOZ) is involved in retailing women’s apparel and accessories via multiple channels in Australia. MOZ owns a 50.1% stake in EziBuy, an e-commerce apparel brand in New Zealand. As of 9 July 2021, the market capitalisation of MOZ stood at ~$57.99 million. On 23 June 2021, MOZ announced that Sue Morphet, one of the Directors, has stepped down from his position and will no longer be working with the firm from 21 June 2021.
On 26 May 2021, MOZ announced the completion of a string of strategic measures, including the renewal of its working capital facilities. MOZ is experiencing sales improvements after the Easter & Mother’s Day trading period and COVID-19 vaccination drive. Regarding the EziBuy acquisition, MOZ has renegotiated the exercise option period to 30 September 2021 and payment terms to 31 December 2021. The EziBuy acquisition will propel the digital revenue of the Group to over $200 million per annum (~30% of the Group sales).
March Quarter (Q3FY21) Cash Flow Update:
- Increase in YTD Cash Flows: MOZ reported $45 million of net cash used in operating activities for Q3FY21 due to the working capital seasonality of fashion purchasing. MOZ generated $76 million of cash inflows from operating activities for YTD21, up by 29.9% YoY.
- Reduction in Finance Facilities: At the end of 3QFY21, the balance of year-to-date finance facilities stood at $51.5 million, down by 32.2% year over year.
- Increased Cash Reserves: It held a cash balance of $48.6 million as of 31 March 2021, up by 85.5% YoY.
Revenue & Net Income from FY16-FY20; (Analysis by Kalkine Group)
Key Risks: The company is exposed to the subdued retail environment, changes in consumer spending, income levels and preferences. It faces the risk of store closures due to the ongoing COVID-19 uncertainty and restrictions.
Outlook: MOZ expects an underlying EBITDA of ~$48 million (excluding EziBuy) in FY21, given no large-scale shutdowns. The Group forecasts comparable sales growth in FY22 and an underlying EBITDA of ~$50 million (excluding EziBuy) next year. MOZ expects EziBuy to generate a normalised underlying EBITDA of ~NZD 2.5 million in FY21 and ~NZD 5 million in FY22 before synergies. MOZ forecasts synergies between ~NZ$3-$5 million on a yearly run rate post complete integration with MOZ operations.
Valuation Methodology: EV/EBITDA 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 MOZ gave a negative return of 25.46% in the past three months and a positive return of 14.28% in the past nine months. The stock is currently trading lower than the 52-weeks’ average price level of $0.455 - $1.190. We have valued the stock using the Enterprise Value to EBITDA based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at some discount than its peer median, considering its cash outflows from operating activities in Q3FY21, low current ratio and risk of changes in consumer spending and preferences. For this purpose, we have taken peers like Michael Hill International Limited (ASX: MHJ), Super Retail Group Limited (ASX: SUL), Shaver Shop Group Limited (ASX: SSG). Considering the current trading levels, the decent outlook for underlying EBITDA for FY21 and FY22, expected contribution of EziBuy’s acquisition to the Group’s digital revenue, valuation, and associated risk of COVID-19 lockdowns, low consumer spending and demand, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.600 as on 9 July 2021.
MOZ Daily Technical Chart, Data Source: REFINITIV
Medlab Clinical Limited
MDC Details
Correction in the Directors’ Shareholding: Medlab Clinical Limited (ASX: MDC) distributes nutraceutical products and undertakes pharmaceutical research for pain management, chronic kidney disease, depression, obesity, and skeletal health. As of 9 July 2021, the market capitalisation of MLC stood at ~$54.74 million. On 9 July 2021, MDC updated the market regarding a correction in the shareholding of Directors Michael Hall and Drew Townsend. MDC had previously reported on 25 March 2021 in the CommSec retail trading platform that the Directors mentioned above have sold off their shares in the company. However, it has now been confirmed that two directors have not sold their shares between 1 January 2021 - 7 July 2021.
Positive Outcomes from NRGBiotic™ Study: On 5 July 2021, MDC announced the results from the depression study undertaken for NRGBiotic™, a patented product for mental health. The results demonstrated higher treatment efficacy on combining NRGBiotic™ with an anti-depressant than solely consuming the anti-depressant medicine. MDC is marketing NRGBiotic™ product to healthfood stores, pharmacies, and medical practitioners. MDC is now preparing to publish the study outcomes in journals and engage with Australia's health regulators for further product development.
NanoCelle® Secured till 2036: On 23 June 2021, MDC announced the receipt of patent approval from the Canadian and European offices for its delivery platform NanoCelle® till 2036.
Q3FY21 (March Quarter) Result Highlights:
- Revenue Growth: MDC reported growth in revenue from the sales of NanaBis™ and NanoCBD™ via Special Access Sales (SAS) in the quarter. The company reported product Sales of NanaBis™ increased consistently under SAS in Q3FY21.
- Nutraceutical Business Rationalisation: The company’s nutraceutical business segment is still progressing through rationalisation in Q3FY21. MDC reported improvement in nutraceutical sales via its traditional business model in Q3FY21, further to the recovery witnessed in the 1HFY21.
- Capital Raise: During the quarter, MDC received $11.6 million from the proceeds of issued equity shares. MDC held a cash balance of $14.032 million as of 31 March 2021.
Revenue & Net Loss from F17-FY20; (Analysis by Kalkine Group)
Key Risks: MDC is exposed to the risk of delays in seeking regulatory approvals for conducting trials, obtaining a patent licence, and launching products in the market. The company is also exposed to foreign exchange rate fluctuations, which may impact its earnings.
Outlook: MDC plans to deploy the funds raised in Q3FY21 to start Phase 3 clinical trials in the UK, the US, and Australia. MDC will also use the funds for working capital requirements on the research programs. In addition, MDC will continue to engage with interested parties to expand the delivery of its NanoCelle® technology for a range of medicines and treatments. MDC has filed for patent applications across various jurisdictions and awaits approval to further product sales and development. In addition, MDC continues to explore a range of alternatives concerning the strategic approach to the nutraceutical business.
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 gave a negative return of 41.81% in the past three months and a positive return of 6.67% in the past year. The stock is currently trading lower than the 52-weeks’ average price level band of $0.135-$0.420. We have valued the stock using the Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight premium than its peer median, considering the growth in product sales of NanaBis™ reported under the Australian health department’s special access scheme in Q3FY21. For this purpose, we have taken peers like Neuren Pharmaceuticals Limited (ASX: NEU), Mayne Pharma Group Limited (ASX: MYX), Ecofibre Limited (ASX: EOF) and others. Considering the low trading levels, positive outcomes from the depression study, grant of another patent approval and applications filed across jurisdictions, valuation, and associated risks of COVID-19, regulatory approvals, and ongoing rationalisation of nutraceutical division, we give a ‘Speculative Buy’ rating on the stock at the current market price of AUD 0.160, as on 9 July 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 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.
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 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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