Stocks’ Details
 

Medlab Clinical Limited

Strong Growth in NanaBis™ Sales:  Medlab Clinical Limited (ASX: MDC) is a nutritional pharmaceutical research and development company with a market capitalisation of $53.64 Mn as on 5^th May 2020. During March 2020 quarter, the company reported record revenue in NanaBis™ sales, with a rise of around 217% over pcp. MDC reported a rise in invoiced sales for nutraceutical business, with an increase of 42% on QoQ basis. The company has transferred contract manufacturing and Australian chemical analysis for NanaBis to Tasmanian Alkaloids during the quarter.


NanaBis™ Quarterly Sales (Source: Company Reports)

Future Growth Opportunities: MDC stated that the next short-term period is likely to be very exciting for the company with the release of the Depression trial results, which continued the preparation of the NanaBis Phase 3 trial protocols for the US, Australia and FDA IND application. The company would continue to pursue growth opportunities in the commercial aspects of the business, pharmaceutical and nutraceutical.

Stock Recommendation:As at 31^st March 2020, the cash balance of the company stood at $6.397 million. MDC has EV/Sales multiple of 6.5x as compared to the industry median (Healthcare) of 9.2x on TTM basis. The stock of MDC is trading below its 52-week low-high average which implies that the stock is offering decent opportunities to entry. Therefore, in light of decent outlook and performance in Q3FY20 (March 2020), we give a “Speculative Buy” recommendation on the stock at the current market price of $0.235 per share, up by 2.174% on 5^th May 2020.

Elixinol Global Limited

Equity Raising to Support Business: Elixinol Global Limited (ASX: EXL) is engaged in the manufacturing and distribution of industrial hemp products. The market capitalisation of the company stood at $53.09 Mn as on 5^th May 2020. The company is undertaking an equity raising of up to $11.0 million through 1 for 2.51 accelerated pro-rata renounceable entitlement offer. The company would utilise these proceeds to support operating cash flow, consumer brand building and distribution build. During Q1 FY20, the total revenue of the company stood at $3.3 million, reflecting a decline of 25% as compared to Q4 FY19. It experienced an increased contribution in total revenue from branded and co-branded products.


Key Dates (Source: Company Reports)

Focus for Future Growth: The company is focused on becoming a global leader in hemp-derived CBD nutraceuticals by building an Elixinol branded consumer goods businesses with a strong foothold in the Americas and Europe. EXL is prioritising e–commerce and pharmacy channels to drive consumer education and sales in order to achieve its global distribution strategy.

Stock Recommendation: The company has a more focused branded business model, which is geared towards margin accretion. The stock of EXL has corrected 62.62% and 75.79% during the span of three months and six months, respectively. Hence, considering the corrections in the past months, we have a watch stance on the stock at the current market price of $0.385 per share on 29th April 2020. The stock was placed in a trading halt on 30th April 2020 owing to release of announcement in relation to capital raising. With the release of the announcement, trading halt is expected to be lifted on 6th May 2020. The stock last traded at the market price of $0.385 per share.

Cann Group Limited

Issue of Convertible Notes: Cann Group Limited (ASX: CAN) is involved in the cultivation of cannabis for medicinal and research purposes. It is also involved in the manufacturing of medicinal cannabis products. The market capitalisation of the company stood at $125.46 Mn as on 5^th May 2020.  During the quarter ended 31^st March 2020, the company initiated GMP extraction activities or the first batches of medicinal cannabis resin with its manufacturing partner IDT Australia. CAN outlined a strategic reset following demand-supply disruptions in the global medicinal cannabis market in late January 2020. The company also successfully completed the offer and issue of convertible notes to raise $8 million. It will use these proceeds for working capital purposes. 


Net Cash Used in Operating Activities (Source: Company Reports)

Future Aspects: With respect to current economic uncertainty and market volatility relating to the COVID-19 impact, the company’s priority revolves around thorough assessment of all available options for the funding of the planned Mildura capacity expansion.

Stock Recommendation:The company is well placed to meet the growing demand for GMP products in Australia with the help of its focus on the cultivation & manufacture of bio-pharmaceutical grade products. Current ratio of the company stood at 2.32x in 1H FY20 as compared to the industry median of 1.69x. This reflects that CAN is in a decent position to address its short-term obligations against the peer group. The stock of CAN is trading at a price to book multiple of 1.8x as compared to industry median (Healthcare) of 2.3x on TTM basis. Therefore, considering the decent liquidity position, recent fund raising, and growing demand for GMP products, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.890 per share, up by 1.136% on 5^th May 2020.

THC Global Group Limited

A Quick Look at Q1 FY20: THC Global Group Limited (ASX: THC) is farm to pharma diversified vertically integrated cannabis company with a market capitalisation of $42.93 Mn as on 5^th May 2020. Recently, the company provided an update on Q1 FY20, wherein, it stated that 100% Australian produced TGA GMP medicines are available for a prescription from May 2020. THC’s Australian and Canadian business activities are continuing without any significant interruption from COVID-19. The Southport manufacturing facility of the company has been expanded with long term lease of adjacent property, which is to be used for in-house commercial-scale medicines packaging and distribution. The company reported a rise of 44% to over $1.2 million in cash receipts for Q1 FY20.


Cash Receipts (Source: Company Reports)

Well-Positioned to Reach Target: For FY20, the company is well placed to reach its targeted 6,000 Australian patients on the back of prescriptions of its 100% Australian produced medicinal cannabis medicines, and the expansion of Southport Facility to support additional production.

Stock Recommendation: During the span of one year, the company reported decent improvement in its key margins. Debt to equity of the company stood at 0.03x in FY19, which is in line with the industry median. THC has EV/Sales multiple of 8.5x as compared to the industry median (Healthcare) of 9.2x on TTM basis. The stock has provided a return of 22.00% within the time frame of one month. Hence, in light of the expansion of Southport facility and improvement in key margins, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.305 per share on 5^th May 2020.

AusCann Group Holdings Limited

Minimal Impact from Coronavirus: AusCann Group Holdings Limited (ASX: AC8) is involved in the cultivation, manufacturing and supply of medical cannabis products. The market capitalisation of the company stood at $58.65 Mn as on 5^th May 2020. The company recently announced that it has completed recruitment and commencement of its first clinical evaluation at an independent clinical site Nucleus Network. AC8 is conducting a randomised, open-label, cross-over Phase I study in order to assess the pharmacokinetics of a single dose of two formulations of orally administered THC/CBD combination in a healthy volunteer. This study is anticipated to be completed within this calendar year. During Q1 FY20, the company experienced minimal day-to-day disruption from COVID-19 and executed appropriate measures to keep staff safe and healthy and right-size operations.


Cash Flows (Source: Company Reports)

Signing of Agreement: The company has inked an agreement with distribution partner Clifford Hallam Healthcare (CH2) to store and distribute its cannabinoid medicines in Australia in order to further strengthen the channels to market.

Stock Recommendation: The company managed to close the first quarter with a strong capital position with the cash balance of $24.7 million and zero debt. This strong capital position underpins the continued progress of its growth strategy. The stock of AC8 is trading at a price to book multiple of 1.5x as compared to the industry median (Healthcare) of 2.3x on TTM basis. The stock of AusCann is trading towards its 52-week lower level of $0.140. Thus, it can be said that the stock is proffering decent opportunity to entry. Hence, considering the strong capital position, signing of an agreement and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.185 per share with no change on 5^th May 2020.

 
Comparative Price Chart(Source: Refinitiv, Thomson Reuters)

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