Arbutus Biopharma Corp

Arbutus Biopharma Corp (NASDAQ: ABUS) is a biopharmaceutical Company. The Company is focused on the discovery, development and commercialization of cure of chronic HBV (hepatitis B virus) infection.

The Company will release Q4 and FY2020 results on 3 March 2021.

Investment Highlights - Arbutus Biopharma Corp – Speculative Buy at USD 4.29

• Despite the impact of the covid-19 pandemic on business performance, the Company has delivered strong operating performance and have a decent liquidity position.
• In the last nine months, the Company delivered a significant return of ~87.34% and delivered higher returns compared to the benchmark Index.
• As per valuation metrics, the EV/Sales multiple of Arbutus Biopharma Corp is currently lower as compared to the corresponding multiple of the Pharmaceuticals industry. It reflects, shares are undervalued as compared to the industry.
• From the technical standpoint, shares were trading well above the support level of 20-day simple moving average prices (USD 4.17), which reflects an uptrend in the stock and can move up further.

Key Risks

• Failure in cybersecurity and a critical data breach could hamper the operation as well as the reputation of the company.
• The Company’s operations are impacted by risks related to market trends, political change and change in the regulatory authority.

Financial Highlights – Q3 and 9M FY2020 (30 September 2020) (released on 5 November 2020)

(Source: Quarterly Report, Company Website) 

• For the nine months period of the financial year 2020, driven by higher non-cash royalty revenue, the total revenue increased to $4,528 thousand. The revenue in the third quarter FY2020 has declined.
• The Company managed to reduce net loss significantly in the third quarter and nine months period of the financial year 2020, reflecting lower operating expenses incurred.
• The cash balance as on 30 September 2020 increased significantly to $96,918 thousand (31 December 2019: $31,799 thousand).

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: EV/Sales Approach (NTM) (Illustrative) 

Conclusion

In the first nine months of the financial year 2020, the Company has shown an improvement in financial performance. Both the revenue and profitability improved in 9M FY2020, while profitability margins remained in the negative zone. Arbutus Biopharma has a strong liquidity position with a well-positioned balance sheet. The Company’s operations were significantly impacted by the covid-19 pandemic and resulted in a delay in clinical developments. ABUS has taken several steps to improve liquidity and reduce expenses. The Company has a strong product pipeline to drive future growth. The stock made a 52-week low and high of USD 0.88 and USD 9.02, respectively.

Based on the above rationale, we have given a “Speculative Buy” recommendation on Arbutus Biopharma Corp at the closing price of USD 4.29 (as on 22 February 2021), with a lower double-digit upside potential based on 0.64x EV/NTM Sales (approx.) on FY20E sales (approx.).

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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