THC Global Group Limited

THC Details

THC Held an EGM on 18 February 2021: THC Global Group Limited (ASX: THC) is a diversified healthcare and pharmaceuticals firm operating in Australia and Canada. The company undertakes commercial production of medicinal cannabis through its Southport Facility in Australia. As on 19^th February 2021, the market capitalisation of the company stood at ~$45.46 million. The company announced holding an Extraordinary General Meeting (EGM) on 18 February 2021 and conducted all resolutions put to EGM on a poll basis.

Q4FY20 (December 2020 Quarter) Financial Results: In a move to shift focus on high-value pharmaceutical production of finished dosages and healthcare services, the company announced changing its name to Epsilon Healthcare Limited subject to shareholder approval in the EGM on 18 February 2021. During the quarter, the company’s cash receipt stood at $6.9 million, up 68% year over year. The company completed its operational and strategic review during the quarter, and exited from the New Zealand market, as a local contributor. As part of the review, THC reduced net operating costs by ~$652k versus Q3 FY20. During Q4FY20, THC raised $2.75 million through a placement from a key investment partner at an issue price of $0.25 per share. THC has used these funds to expand its manufacturing capabilities and advancement of the Medimar platform. The company reported cash receipts of $1,632k in Q4FY20. It held $6.96 million of cash and cash equivalents as on 31 December 2020. At the end of Q3FY20 (on a YTD), THC unaudited Canadian operations revenue stood at C$4.54 million, surpassing total FY2019 revenue.

Cash Flows from Operating Activities, Q2FY21 (Source: Company Reports)

Outlook: With the grant of TGA GMP licence, THC now awaits approval to produce ‘inhalation products’ to expand its finished dosage forms capability. THC is also nearing the launch of Medimar platform (a healthcare and nutraceutical products e-commerce platform) to avail medicinal cannabis medicines with its new sales team onboard.

Stock Recommendation: The stock of THC gave a positive return of 2.12% in the past three months and a positive return of 4.34% in the past six months. The stock is currently trading towards 52-weeks’ low level of $0.18. The stock of THC has a support level of ~$0.21 and a resistance level of ~$0.279. On TTM basis, the stock is trading at the EV/Sales multiple of ~7x as compared to industry median (Pharmaceuticals) of ~23.1x and thus seems undervalued. Considering the current trading levels, decent outlook, growth in cash receipts for Q4FY20, and valuation on TTM basis, along with key risks associated with the business, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.240 on 19^th February 2021.

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

Zelira Therapeutics Limited

ZLD Details

 Transfer of Leadership to the US: Zelira Therapeutics Limited (ASX: ZLD) is a developer of proprietary formulations (HOPE™) for treating autism spectrum disorder, launched in the US and Australia. As on 19th February 2021, the market capitalisation of the company stood at ~$92.45 million. On 15 February 2021, ZLD announced transfer of leadership to Dr. Oludare Odumosu, based in the US to consolidate company’s operations. He will be the new global MD of ZLD, and Dr. Richard Hopkins will step down as the MD and CEO of the company, effective from 15 May 2021. On 11 February 2021, ZLD was included to the BOD of the National Cannabis Roundtable (NCR) in Washington DC and will now participate in cannabis policy reform in the US at the federal level. 

Q2FY21 Results Declared: During December 2020 quarter, ZLD transitioned to the ‘Launch, Learn and Develop’ model for speedy commercialisation. It achieved certain milestones – launch of HOPE™ in Australia, and an observational trial for HOPE™ for patients diagnosed with autism. The company announced a new licensing deal for HOPE™ and has partnered with SprinJene® to roll out its proprietary OTC (over the counter) CBD toothpaste in the US. ZLD focused on the launch and sale of its multiple products during 2H20. Its sales are reported to be in-sync with forecasts of new product launches despite impact of COVID-19 lockdowns. ZLD received $3k of receipts from the customers and used $0.9 million of cash in operations in Q2FY21. The company held cash of $8.6 million at the end of Q2FY21.

Cash Flows from Operations, Q2FY21 (Source: Company Reports)

Outlook: ZLD aims to leverage the competitive strength of its products commercially in the US and Australia and plans to launch new product lines. It plans to expand distribution of HOPE™ and Zenivol™ products to Germany and the UK.

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 ZLD gave a positive return of 25.86% in the past six months and a positive return of 58.69% in the past nine months. The stock is currently trading below than average 52-weeks’ price level of $0.022-$0.14. The stock of ZLD has a support level of ~$0.068 and a resistance level of ~$0.079. We have valued the stock using an 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 Antisense Therapeutics Limited (ASX: ANP), Suda Pharmaceuticals Limited (ASX: SUD), Immutep Limited (ASX: IMM) to name a few. We believe that the company can trade at a slight discount as compared to its peer average, considering the prevailing risk of the pandemic and shutdowns, delays in the launch of products, and evolving regulatory regime for medical cannabis products. Considering the current trading levels, launch of HOPE™ and Zenivol™ in the markets and sales reported as forecasted and valuation, and key risk associated with the business, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.073, down by ~6.441% on 19^th February 2021.

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

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