Stocks’ Details

Byron Energy Limited

Lending Update: Byron Energy Limited (ASX: BYE) is involved in the gas and oil exploration in the shallow waters and transition zone (offshore Louisiana) in the Gulf of Mexico, the US.

• On 18 June 2021, BYE updated on the status of the exclusive agreement entered for the loan refinancing with a potential lender on 11 May 2021. BYE notified that it could not arrive on mutually acceptable terms despite multiple discussions with the potential lender for the hedging strategies offered. Though, they have agreed on the primary terms of the loan. Hence, BYE will continue to maintain the current debt facilities from Crimston Midstream Operating, LLC.
• The company reported net oil and gas sales of 1,236 barrels of oil per day (bopd) and ~9.5 million cubic feet of gas per day (Mmcfgpd) as of 17 June 2021, not significantly different from last reported on 11 May 2021.
• The company is on track to drill the SM69 E2 well in August 2021 as per the plan.

Q3FY21 Highlights:

• Higher Net Revenue: BYE posted a higher net revenue of US$11.8 million in Q3FY21(March 2021 quarter) versus US$9.2 million in Q2FY21. The company reported higher realised net prices for oil and gas for the March 2021 quarter versus December 2020 quarter.
• Increase in Oil Production: BYE reported 132,621 bopd in Q3FY21 versus 111,516 bopd in Q2FY21. However, the natural gas production was lower at 1.30 million mmbtu of gas in Q3FY21 compared to 1.74 million mmbtu of gas in Q2FY21.
• Reduced Notes Balance: The company reported a reduction in the outstanding balance of principal on the Promissory Note from $18.5 million to $16.75 million as of 31 March 2021 from the existing lender - Crimson Midstream Operating, LLC.

Revenue & Net Income Trend from FY16-FY20; (Analysis by Kalkine Group)

Key Risks:

• Funding Risk: The company faces the risk of changes in the interest rate or unfavourable terms for borrowing adequate capital to undertake oil and gas production. Events such as COVID-19, depressed macro-environment, geopolitical instability can cause adverse interest rate movement and lack of financing alternatives for the firm.
• Changes in Commodity Prices: BYE is exposed to the changes in the realised prices of oil and gas and may impair earnings and revenue for the given financial year.

Outlook: BYE expects to drill the SM69 E2 well in August 2021 as per the schedule post receiving inspection approvals from the US authorities for the EOD 351 rig for the exploration. The company continues to pursue a defensive hedging strategy to smoothen the changes in the oil prices.  BYE will finalise the drilling of SM58 G3 and G4 wells based on the SM69 E2 well results.

Stock Recommendation: The stock of BYE gave a negative return of 39.99% in the past six months and a negative return of 38.23% in the past nine months. The stock is currently trading lower than the 52-weeks’ average price level of $0.097 - $0.315. On a TTM basis, the stock of BYE is trading at a price to book value multiple of 1.1x lower than the industry (Energy) median of 2.1x, thus seems undervalued. Considering the current trading levels, increase in the oil production and net revenue of oil and natural gas in Q3FY21, plans to drill SM69 E2 well, valuation, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.105, 12.48 PM, (GMT+10), Sydney, Eastern Australia, as on 28 July 2021.

BYE Daily Technical Chart, Data Source: REFINITIV  

Althea Group Holdings Limited

Key Takeaways from FY21 & Q4FY21: Althea Group Holdings Limited (ASX: AGH) owns licences and permits for the cultivation, import, production, and distribution of medicinal cannabis in Australia.

• Highest Sales for FY21 & June Month: The company reported record sales of $11.55 million, up by 128% YoY in FY21 despite the COVID-19 impact during the year. Even for June 2021, AGH posted record sales of $1.55 million.
• Increase in Revenue: AGH posted revenue of $3.35 million, up by 111% YoY in Q4FY21 (June 2021 quarter).
• Rise in Cash Receipts: AGH recorded an 86% YoY increase to $2.84 million in Q4FY21.
• Record Revenue in Canada: The company’s Canadian business arm, Peak Processing Solutions, delivered $1.52 million of revenue for FY21 and record sales of $610, 126 in June 2021.

  Revenue & Net Loss from FY18-FY20; (Analysis by Kalkine Group)

Key Risks:

• Regulatory Changes: The company seeks approvals for new product launches in new geographies. AGH also needs to incorporate the regulatory reforms in the evolving medicinal cannabis industry.
• Forex Fluctuations: AGH operates in multiple countries, with revenues from Australia, Canada, Europe, Africa. Hence, the company can experience forex headwinds and impact on its earnings.
  

Outlook:

• The business expects to generate incremental growth in its current and new markets, including – Australia, South Africa, the UK, and Germany. AGH focuses on expansion in Europe via the newly placed leadership in the UK.
• The company is undertaking an extensive new product development program and intends to scale up revenue and bottom-line growth.
• Peak Processing Solutions has a robust customer (new) pipeline. The business aims to grow and develop an in-house portfolio of cannabis brands. AGH expects more countries could legalise the use of recreational cannabis, inclusive of the USA.
  

Stock Recommendation: The stock of AGH gave a negative return of 35.05% in the past three months and a negative return of 34.37% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level of $0.300 - $0.670. On a TTM basis, the stock of AGH is trading at a price to book value multiple of 9.3x lower than the industry median of 13.4x (Pharmaceuticals), thus seems undervalued. Considering the current trading levels, record sales for FY21, and increase in revenue for Q4FY21, growth of business in Australia, UK, Canada, the start of shipments to South Africa, expansion plans for Europe and other markets, valuation on a TTM basis, and risks of forex changes, regulatory hurdles, delays in product launch/geography expansion due to COVID-19 restrictions,  we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.315, down by 3.077% on 28 July 2021.

AGH Daily Technical Chart, Data Source: REFINITIV  

PainChek Limited

Milestone Payment Expected: PainChek Limited (ASX: PCK) is a developer of pain assessment technologies. PCK has developed PainChek® as a smartphone-enabled device to measure pain levels and update the medical record on the cloud.

• On 28 June 2021, PCK touched a milestone of 127,000 licensed Australian Residential Aged Care (RAC) beds consisting of 82,982 dementia category beds as part of the Government grant.
• PCK expects to obtain $1.25 million for these 82,982 dementia category beds by the Australian Health Department and recognise the payment as the government-funded revenue in FY22.
• The total number of beds under PCK’s license will generate $5.5 million of normalised Annual Recurring Revenue (ARR) after one year trial of Government funding.
  

New Company Secretary: The company declared Sally McDow as the new Company Secretary on 2 June 2021.

Highlights of Q3FY21 (March 2021 Quarter):

• Increased Contracted ARR: PCK’s Contracted ARR (normalised post-government trial) increased by 14% to $3.5 million in Q3FY21.
• Higher Facilities: The RAC facilities and approved beds under the yearly PainChek® license increased by 69% YoY and 61% YoY, respectively, as of 31 March 2021.
• CE Mark & TGA Approved: PCK obtained CE Mark certification and TGA clearance for its PainChek Universal Solution in March. PCK will release the upgraded App to all the available clients.

Net Loss Trend from FY17-FY20; (Analysis by Kalkine Group)

Key Risks:

• Regulatory Risk: The company faces regulatory changes and delays to launch new products/apps/services in new markets.
• Changes in Customer Preferences: PCK faces the risk of low demand or usage of its new Apps and added features. Changes in customer preferences, income, and spending due to events such as COVID-19 may impact its App utilisation rate.
  

Outlook:

• PCK has completed pilot runs for the Home Care market in Australia in Q2FY21. The company plans to launch in the domestic and overseas (including the UK and Canada) home care market in 2HCY21.
• PCK expects to build market access in Canada via a partnership with AlayaCare domestically.
• PCK is increasing its global footprint via regulatory approvals for Australia, Europe, Singapore, New Zealand, and Canada. The company is now seeking USFDA clearance to cover more than 70% of the global medical device market.
  

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 PCK gave a negative return of 16.67% in the past three months and a negative return of 22.53% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level of $0.053 - $0.145. 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). We believe that the company can trade at a slight premium than its peer median, considering its increased in contracted ARR, licensed RAC facilities and beds, and plans for expanding in the USA. For this purpose, we have taken peers like Adherium Limited (ASX: ADR), Alcidion Group Limited (ASX: ALC), Next Science Limited (ASX: NXS). Considering the current trading levels, increase in contracted ARR in Q3FY21, plans to expand globally and thereby increasing approvals for various geographies, valuation, and associated risks of market authorisations and launch of new Apps, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.055, 12: 42 PM (GMT+10), Sydney, Eastern Australia, 28 July 2021.

PCK 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.

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