Aphria Inc.

APHA Details

Business Combination: Aphria Inc. (NASDAQ: APHA) is a premier cannabis company. The company is engaged in the production, manufacturing, and selling of medical cannabis mainly in Canada. Recently, the company along with Tilray, Inc. (NASDAQ: TLRY), announced the unveil of the website: www.aphriatilraytogether.com. The implementation of the new business combination of the two companies will be voted by the respective shareholders of Aphria and Tilray. Subject to the approval of Hart-Scott-Rodino Antitrust Improvements Act of 1976, the business combination will mark a noteworthy step for both the companies to expand robust strategic footprint in Canada and internationally. The transaction is expected to close in 2QFY21. Notably, Tilray will host a Special Meeting of Stockholders on April 16, 2021 to authorize the intended Aphria-Tilray business combination. 

2QFY21 Key Highlights: During the quarter, the company reported net revenues of CAD 160.5 million, representing an increase of 33% on a year over year basis. The company recorded the seventh consecutive quarter of positive adjusted EBITDA, which came in at CAD 12.6 million in 2QFY21, up 26% from the previous quarter. The company reported a net loss of CAD 120.6 million during the quarter. The company ended the quarter with a cash balance of CAD 187.9 million, and long-term debt amounted to CAD 122.5 million.

Key Highlights (Source: Company Reports)

What to Expect: The company expects to benefit from the higher demand for medical and adult-use cannabis products. Further, the company is likely to benefit from an improved global team, new facility and production capabilities, brand-building endeavors, and higher investment in new systems and technology.

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

Data Source: Refinitiv, Thomson Reuters, 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. 

**1CAD= ~0.80 USD

Stock Recommendation: Over the last three months, the stock went up by ~160.2% and 322.5% in the six months period. The stock made a 52-week low and high of $2.47 and $32.29, respectively. On the technical analysis front, the stock has a support level of ~$13.9 and a resistance level of ~$21.4. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price with a correction of low-single digit (in percentage terms). We believe that the company can trade at a slight discount as compared to its peer’s median, considering the challenging market condition in which it operates, changes in government policies, and net loss in 2QFY21. We have taken peers like ACADIA Pharmaceuticals Inc (NASDAQ: ACAD), Allena Pharmaceuticals Inc (NASDAQ: ALNA), to name a few.  Considering the spike in the stock price over the last few month, current trading levels, increased expenses and COVID-19 led uncertainties, we are of the view that most of the positive factors have been discounted at current juncture. Hence, we suggest investors to wait for better entry level and give an “Expensive” rating on the stock at the closing price of $18.76, down by 3% on 22 March 2021.

APHA Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

CleanSpark, Inc.

CLSK Details

CLSK Faces Class Actions Lawsuit: CleanSpark, Inc. (NASDAQ: CLSK) is a microgrid company, which is engaged in offering energy software and control technology. On 22 March 2021, CLSK continued to grapple with legal hassles as it faces fresh allegations regarding the failure to disclose certain facts & figures to investors. A shareholder class action lawsuit was filed against CLSK on behalf of investors who bought shares of the company between December 31, 2020 and January 14, 2021. As per the lawsuit, the allegations that were made against CLSK pertained to several undisclosed related party transactions that CLSK made in relation to its recent acquisitions. Further, the investors alleged the company that it exaggerated its customer and contract figures. Lastly, the company was alleged of materially misleading its facts regarding its business, operations, and prospects.

Closing of Public Offering: On March 18, 2021, the company stated that it has closed its earlier announced underwritten public offering of 9,090,910 shares at a price of $22.00 per share. The proceed from the public offering amounted to around $200 million, which was before subtracting underwriting discounts and commissions and other subscription costs.

Securing of Additional Miners: On March 9, 2021, the company announced that it has secured an additional purchase of 1,150 new miners, which is competent of producing 100 PH/s. The delivery of new miners is scheduled for June 2021. In another update, the company informed the market that it has secured additional 2,500 ASIC mining rigs for delivery, which are likely to offer an estimated 218 PH/s of Bitcoin mining hash rate capacity. The delivery of the miners is expected to be implemented throughout June and July 2021.

CLSK Completes Solar Watt Acquisition: On February 24, 2021, the company informed the market that it has completed the planned buyout of Solar Watt Solutions, Inc for a consideration of up to 477,703 shares of the company's common stock and up to $3,850,000 in cash. Solar Watt is engaged in the development of  commercial and residential solar and energy storage. The acquisition is in-line with the company’s strategy to expand and accelerate CLSK's residential project by incorporating skilled energy storage and solar sales and installation team.

Key Results for Three-Months Ended December 31, 2020: During the quarter, the company reported revenues of $2.26 million, representing an increase of 130% year over year. Net loss for the quarter stood at $7.2 million against a loss of $1.9 million reported in the year-ago period. The company exited the period with a cash balance of $25.6 million, up from $3.1 million reported in the prior quarter.

Key Highlights (Source: Company Reports)

What to Expect: The company is expected to expand its residential projects, including the unveiling of a new offering. It remains focused to continue increasing its sales in each of its segments, along with pursuing additional accretive acquisitions.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, 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: Over the last six months, the stock went up by ~56.3% and 1,020.77% in the nine months period. The stock made a 52-week low and high of $1.03 and $42.6, respectively. On the technical analysis front, the stock has a support level of ~$18.51 and a resistance level of ~$25.48. We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price with a correction of low-single-digit (in percentage terms). We believe that the company can trade at a slight discount as compared to its peer’s average, considering, the integration risk, continuous legal hassles faced by the company, and increase in net loss in 1QFY21. We have taken peers like Workday Inc (NASDAQ: WDAY), Verisign Inc (NASDAQ: VRSN), to name a few.  Considering the spike in the stock price over the last few months, current trading levels, litigation hassles faced by CLSK, we are of the view that most of the positive factors have been discounted at current juncture. Hence, we suggest investors to wait for better entry level and give an “Expensive” rating on the stock at the closing price of $23.20, down by 4.92% on 22 March 2021.

CLSK Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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