Cann Group Limited

CAN Details

Recovery of Funds:  Cann Group Limited (ASX: CAN) specialises in research and development, cultivation, manufacturing, clinical evaluation, and commercialisation of medicinal cannabis for various diseases and medical conditions in Australia. As per a recent announcement, the company seeks to recover fund from the court proceedings for a cyber security incident and has received $1.2 million on 9 July 2021.

YTD April FY21 Financial Performance:

• The company has recorded revenue of $3.2 million, up to the end of April FY21.
• On 30 April 2021, Cann dispatched more than 20,000 bottles of cannabis to its German customer and partner, iuvo Therapeutics.

Q3FY21 Financial Performance:

• Improved Cashflow: The company has recorded improved cashflow of $3.98 million in Q3FY21 compared to the previous quarter.
• During the quarter, the company has strategically acquired Satipharm business from Harvest One for a total consideration of CAD$4 million.
• The company spent $0.55 million in R&D and has received $3.3 million from the ATO’s R&D Tax Incentive scheme in Q3FY21 against $0.5 million in Q2FY21.
• The quarter ended with the cash balance at $16.38 million as of 31 March 2021.

Revenue Trend (Source: Analysis by Kalkine Group)

Outlook: The company is estimating total revenue between $4 million and $5 million in FY21, compared to the previous guidance range of $8 million and $10 million. The balance of FY21 is expected to be received in FY22. CAN is focused to supply to its UK-based customers and build a pipeline of orders for the manufacture and delivery of product in FY22. The company continues to work with authorities to expedite regulatory approvals and clearances.

Key Risks:

• Shipment Delays: The third-party manufacturing, material supplier issues and timeline extended in international regulatory submissions caused a delay in shipping to Cann’s customer which might impact the company’s revenue receipt.
  

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 CAN is trading below its average 52-weeks' levels of $0.290-$0.915. The stock of CAN gave a positive return of ~5.26% in the past nine months and a negative return of ~2.438% 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 discount to its peer median EV/Sales (NTM Trading multiple), considering the decrease in revenue and negative EBITDA Margin. For this purpose, we have taken peers such as ECS Botanics Holdings Ltd (ASX: ECS), Mayne Pharma Group Ltd (ASX: MYX), Probiotec Ltd (ASX: PBP), to name a few. Considering the current trading levels and expected upside in valuation levels, received recovery fund, receipt of ATO’s R&D Tax Incentive scheme and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $0.390, down by 1.266% as on 14 July 2021.

CAN 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.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine do not hold interests in any of the securities or other financial products covered on the Kalkine website.