Immutep Limited

Grant of Another US Patent for Cancer Treatment: Immutep Limited (ASX: IMM) is a biotech developer of novel immunotherapy treatments for infectious & autoimmune disease and cancer. It is listed on NASDAQ and ASX. As of 10 March 2021, the market capitalisation of the company stood at ~$214.07 million. On 9 March 2021, IMM notified the grant of a patent named “Combined Preparations for the Treatment of Cancer or Infection” by the US authorities. This second patent approval after the US parent patent grant was declared on 30 December 2020. The new patent claims add to the first patent’s protection and provide cancer treatment methods by regulating a PD-1 pathway inhibitor and IMM’s lead candidate, “eftilagimod alpha”. IMM has filed a further divisional application to undertake other aspects of the invention. The patent will expire on 20 January 2036.

Expansion of Part-B of Two Active Immunotherapies (TACTI-002): The company has notified to undertake a TACTI-002 (Two Active Immunotherapies) trial in partnership with Merck & Co., Inc. (MSD) US. IMM plans to launch the Phase II trial for Simon’s two-stage clinical trial design. For the said purpose, IMM has started recruiting of 13 more Non-Small Cell Lung Cancer (NSCLC) patients for Part B, Stage 2.

A Look at the 1H21 Result Highlights: The company generated no revenue for 1H21, and its other income also declined by 29.7% YoY to $2.26 million on pcp. It registered a net loss after tax of $19.84 million in 1H21, higher than $5.95 million for 1H20. This loss was primarily due to an estimated decrease of $7.4 million in milestone payment and an increase of $8.1 million from the warrant fair value movement (a non-cash expense). During 1H21, IMM progressed on its business development activity with MSD and entered a new LAG-3 licence & partnership agreement with Laboratory Corporation of American Holdings (LCAH) to co-develop immuno-oncology services or products. As per contract terms, IMM will receive an upfront payment of US$125k and up to three potential milestones payments.

During 1H21, IMM completed raised $29.6 million capital via a placement to the institutional investors in Australia and overseas. It will use the proceeds to advance on the LAG-3 related programs, such as developing its fourth lead candidate (IMP761) and clinical development of efti (its lead candidate). As of 31 December 2020, IMM held a cash and cash equivalents reserve of $54.9 million.

P&L Financial Highlights, 1H21 (Source: Company Reports)

Key Risks: The company faces the risk of developing its lead and other product candidates, undertaking clinical programs with desired outcomes, funding them timely and collaborate with partners as need be. It also faces the threat of protecting its IP and seeking timely regulatory approvals. 

Outlook: The company is optimistic about the clinical results of efti declared in FY20. It is confident about the three new trials of efti began during 1H21. The company is prioritising and trying to scale up the manufacturing of efti to prepare for the potential commercial manufacturing. It has grown the process from 200L to 2,000L capacity bioreactors at its biologics manufacturing plant in Wuxi, China and will take up key scale up steps throughout FY21.

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.

Stock Recommendation: The stock of IMM gave a positive return of 56.09% in the past six months and a positive return of 93.93% in the past nine months. The stock is currently trading towards its 52-weeks’ low level of $0.10. The stock of IMM has a support level of ~$0.308 and a resistance level of ~$0.344. 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). For the purpose, we have taken peers like Paradigm Biopharmaceuticals Limited (ASX: PAR), Medlab Clinical Limited (ASX: MDC), Adalta Limited (ASX: 1AD) to name a few. We believe that the company can trade at a slight discount as compared to its peer average, considering its nil licence revenue from partners and fall in other income for 1H21, rise in net loss after tax, and the risks associated with the outcome of the clinical trials, grant and expansion of IP and development of its product candidates. Considering the current trading levels, new agreement with LCAH, expansion of TACTI-002 trial to phase II with MSD, trial extensions for 1H21, steps to scale up efti manufacturing in FY21, and valuation, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.320, down by 3.031% on 10^th March 2021.

Orbital Corporation Limited

A Sneak-Peak at 1H21 Results: Orbital Corporation Limited (ASX: OEC) is engaged in the design, manufacturing processes, and testing to produce propulsion systems for Unmanned Aerial Vehicle (UAV) and flight critical components. As of 10 March 2021, the market capitalisation of the company stood at ~$57.46 million. The company reported an increase in revenue of 67% YoY to $19.04 million in 1H21 on a pcp basis. OEC incurred a net loss after tax of $3.88 million in 1H21, up by 54% on pcp. OEC has a long-term contract with Insitu Inc. (a subsidiary of The Boeing Company) to manufacture five distinct engine models for its fleet of UAVs. OEC has started operations with two engine pilot production lines. The company has one production line in Balcatta, WA and another in Oregon, US. During 1H21, OEC also advanced on its two new engine development programs declared with Northrop Grumman Corporation (NGC) and with a key defence company in Singapore in FY20. These engine development programs are being undertaken at the Balcatta facility. It garnered cash receipts of $13.40 million from the customers for 1H21, lower than 1H20. OEC held a cash and cash equivalents balance of $1.53 million as of 31 December 2020.

1H21 P&L Highlights (Source: Company Reports)

Key Risks: Since the company operates in the industrial technology domain, it faces the risk of technological disruptions in the industry, seeking large industrial clients, changes in customer’s demand and use of its products.  

Outlook: OEC has revised its production targets for Jan-June 2021 and adjusted its FY21 revenue estimate between $30-$40 million from the previously given guidance between $40-50 million. This revision is due to the lesser volumes needed by Boeing-Insitu on one of its engine models given the current market conditions. OEC has commenced development on the third engine model and has informed to be on track. OEC will start its production in Q4FY21. As per the contract with NGC, OEC will develop and deliver two initial propulsion systems for NGC’s UAV development platform. The delivery of these systems is on track for FY21.

Valuation Methodology: Price/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.

Stock Recommendation: The stock of OEC gave a negative return of 32.74% in the past six months and a positive return of 63.44% in the past one year. The stock is currently trading towards lower than the average 52-week price level band. The stock of OEC has a support level of ~$0.704 and a resistance level of ~$0.829. We have valued the stock using the Price to Sales based illustrative relative valuation method and have arrived at a target price of high single-digit downside (in % terms). For the purpose, we have taken peers like Xtek Limited (ASX: XTE), Electro Optic Systems Holdings Limited (ASX: EOS), and PTB Group Limited (ASX: PTB). We believe that the company can trade at a slight premium compared to its peer average, considering an increase in top-line for 1H21, higher gross margin & fixed asset turnover ratio in 1H21. Considering the rise in the net loss for 1H21, weak cash position and high debt levels in 1H21, and valuation, we give an ‘Avoid’ rating on the stock at the current market price of $0.760, up by 2.702% on 10^th March 2021.

Tinybeans Group Limited

Release of Shares from Escrow: Tinybeans Group Limited (ASX: TNY) is a provider of mobile and web-based platforms for parents to record and share data online safely and confidentially. It provides access to parents with reliable online tools and resources. As of 10 March 2021, the market capitalisation of the company stood at ~$67.96 million. Recently, TNY informed the market regarding its decision to release 702k ordinary shares from its voluntary escrow on 17 March 2021. These shares were issued to the shareholders of Red Tricycle at the time of acquiring the business of Red Tricycle in early FY20.

A Look at the 1H21 Results: During 1H21, TNY has registered a revenue of $5.63 million, up by 141% YoY in 1H21 on pcp. This revenue growth was due to a 253% YoY increase in the monthly active users (MAU) to over 4.8 million. TNY also witnessed growth in its subscription revenues, up by 18% YoY to $570k on a pcp basis. It incurred a lower net loss after tax of $1.07 million for 1H21 vs $1.87 million in 1H20. On 27 February 2021, TNY acquired Red Tricycle Inc. and therefore has included its statements in the 1H21 results. TNY has entered a key partnership with Apple to integrate content into Apple Maps and witnessed strong growth YoY of pages/session and active users at its platform. It also saw an increase in advertising revenues of more than $4.72 million, up 185% YoY on pcp as more brands signed up for direct advertising and more advertisers investing across its platform. TNY held a cash balance of $4.46 million and earned cash receipts of $5.29 million from its customers during 1H21.

1H21 P&L Highlights (Source: Company Reports)

Key Risks: The company is exposed to the pandemic’s threat, disruptions in the technological platforms, fall in advertisers’ demand and parents’ usage, income and preferences and competition from its peers.  

Outlook: Given the growth in advertisers and 92% retention of premium subscription audience over a year on TNY’s platform, the company plans to launch new products under premium content and Community to increase revenues. TNY believes it is in the initial stages of a strategic growth phase. TNY has formulated a new 3-year strategy starting with Red Tricycle’s acquisition, relocating the product team to the US, and identifying key executive officials to scale up the product to the next horizon.

Stock Recommendation: The stock of TNY gave a positive return of 73.41% in the past six months and a positive return of 57.06% in the past nine months. The stock is currently trading higher than the average 52-weeks’ price level band of $0.510 and $1.850. The stock of TNY has a support level of ~$1.38 and a resistance level of ~$1.65. On a TTM basis, the stock is trading at an EV/Sales multiple of ~6.6x higher than the industry (Technology) median of ~5.6x, thus seems overvalued. Considering the decent returns in the past six months and nine months, current trading level and valuation on a TTM basis, we believe that most of the key catalysts have been factored in at current juncture. Hence, we suggest investors to wait for better entry levels, and we give an ‘Expensive’ rating on the stock at the current market price of $1.500, up by 2.040% on 10^th March 2021.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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