Holista Colltech Limited

HCT Details

Signing of Binding Agreement: Holista Colltech Limited (ASX: HCT) is in the development and commercialisation of food ingredients and ovine collagen for cosmetic and biomedical applications. The market capitalisation of the company stood at ~$18.44 Mn as on 12^th October 2020. Recently, the company and its US subsidiary Holista Foods Inc have inked a three-year binding agreement with Costanzo’s Bakery, Inc for manufacturing the world’s lowest Glycaemic Index (GI) clean label white bread. As per the terms of the agreement, Costanzo’s Bakery, Inc would purchase 165 tons of GI Lite^TM Bread of around US$1.9 million in the first year of the contract and in the next two years, Costanzo’s would purchase 220 tons of bread with the worth of US$2.5 million.

Restructuring of North American Operations: On 14^th September 2020, the company notified about the restructuring of its North American operations, wherein, the company has concluded an exclusive distribution agreement with Health Therapies LLC. In addition, the company reached a new partnership agreement with Eight Mercatus USA, and HCT believes that the financial interests of Eight Mercatus USA are aligned with the company’s interests.

1HFY20 Financial Highlights: For the half-year ended 30^th June 2020, the company reported revenue amounting to $2,760,966, reflecting a fall of 17.9% over pcp. The company recorded a loss after income tax amounting to $5,021,619 as compared to $205,295 in 1H FY19 because of foreign exchange losses, impairment of receivables and goodwill. Disruptions in the supply chain as a result of the COVID-19 pandemic also impact the bottom line.

Key Financials (Source: Company Reports)

Capital Raising for Business Expansion: In the month of March 2020, the company successfully raised $4,327,337 under the Controlled Placement Agreement (CPA) with Acuity Capital. The company also raised an additional $2.2 million through CPA on 21^st April 2020. The company would use these funds for the development of its upcoming nasal sanitising balm, grow existing regional markets as well as break into new European markets without disruption to business operations.

Stock Recommendation: As on 30^th June 2020, the cash and cash equivalents of the company stood at $3.8 million, as compared to $101,400 in 1H FY19.  The stock of HCT is trading towards its 52-week low level of $0.055, offering decent opportunities for accumulation. In addition, the stock is trading at a price to book value multiple of 3.0x as compared to the industry median (Biotechnology & Medical Research) of 5.5x on TTM basis. On the technical analysis front, the stock price of HCT has a support level of ~$0.055 and a resistance level of ~$0.075. Thus, considering the recent agreements, restructuring of North American Operation, capital raising and key risks, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.065 per share, down by 2.986% on 12^th October 2020. 

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

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