Cann Group Limited

CAN Details

Business Update: Cann Group Limited (ASX: CAN) is engaged in the cultivation of medicinal cannabis for medicinal and research purposes, the development and manufacture of finished product formulations. The market capitalisation of the company as on 09 December 2020, stood at ~$183.59 million. As per a recent update, the company has received license to enable its operations at its new Mildura facility. It has also received approval for a $50 million secured debt facility that will facilitate the recommencement of construction at the Mildura site.

Financial Update: During 1QFY21, CAN was able to complete a capital raising of $40.2 million, which included Institutional Placement of $14.3 million and Share Purchase Plan of $25.9 million. Due to high operating costs, it reported a cash outflow of $5.9 million from operating activities, in 1QFY21.

The company reported a revenue of $0.65 million in FY20, as compared to $2.35 million in FY19. Loss during the period increased to $16.94 million as compared to a loss of $10.93 million in FY19. There was a decrease in trade receivables to $91,642 in FY20, as compared to $1,115,436 in FY19.

FY20 Income Statement (Source: Company Reports)       

Outlook: CAN plans to work with new customers to finalise their specific product and volume requirements and complete required approvals. Despite the impact of COVID-19, CAN was able to continue with their research work. The company is expecting revenues of ~$15 million in FY21, and it seems the company is on track to achieve it.

Stock Recommendation: The company seems positive on the prospects of Mildura site and believes it will add comfort in top-line projections once it starts operating. As per ASX, the stock of CAN gave a return of 56.18% in the past three months and a return of 101.44% in the past one month. As per ASX, the stock of CAN is trading below its average 52 weeks’ trading range of $0.29-$1.835. On a technical front, the stock of CAN has a support level of $0.458 and a resistance level of $0.913. On a TTM basis, the stock of CAN is trading at a price to book value multiple of 3.0x, lower than the industry median (Healthcare) of 4.4x, and thus seems undervalued. Considering the current trading levels, comfortable liquidity position and optimistic view on Mildura site, along with key risks, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.710, up by 4.411% as on December 09, 2020.

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

Creso Pharma Limited

CPH Details

Business Update: Creso Pharma Limited (ASX: CPH) develops, registers, and commercialises pharmaceutical- grade cannabis and hemp-based nutraceutical products and treatments. The market capitalisation of the company as on 09 December 2020, stood at ~$161.77 million. As per a latest update, the company’s Canadian subsidiary Mernova, secured three purchase orders for a total value of $288,159 and further expanded its operations into Canada’s recreational market.

30 September 2020, Quarterly Update: During the quarter, the company expanded its global footprint. Mernova Medicinal Inc. (100% CPH) reported sales revenue of $596k for the quarter. It received two purchase orders from Nova Scotia Liquor Corporation (NSLC), reflecting product demand in Canadian recreational market. CPH’s nutraceutical product line received second purchase order from Pharma Dynamics valued at ~$295,000, secured for cannaQIX product. It had a cash outflow of $1.9 million from operating activities during the quarter. The company had cash reserves of $2.56 million as of 30 September 2020. It had also raised $7.99 million through a share placement, after the end of the quarter. As such it has strengthened its balance sheet and sits on a comfortable cash position.

30 September 2020 Quarter Cash Flow from Operations (Source: Company Reports)

Outlook: CPH had completed a strategic review and management reshuffle, and believes it is now well-structured to pursue several short-term opportunities. The easing of regulations and approvals around the world, will put the company in an advantageous position to pursue its growth.

Stock Recommendation: The company has strengthened its balance sheet and is well placed to capture opportunities. The stock of CPH gave a return of 811.76% in the past three months and a return of 933.33% in the past one month. As per ASX, the stock of CPH is trading above its average 52 weeks’ trading range of $0.024-$0.470. On a technical front, the stock of CPH has a support level of $0.11 and a resistance level of $0.497. On a TTM basis, the stock of CPH is trading at an EV/Sales multiple of 26.5x, higher than the industry median (Healthcare) of 14.2x, and thus seems overvalued. On the stock performance front, the stock of CPH made a new high of $0.47 on 9th December 2020 and low of $0.029 on 24th November 2020, generating returns of around ~1,521% from low to high point. Relative Strength Index (RSI-14) is hovering at 99 level on daily chart, indicating stock prices are trading in an extreme overbought region. On 9 December 2020, prices have witnessed profit booking from higher levels after testing 50 period moving average at $0.41 on a monthly chart.

Considering the returns on stocks, RSI levels, valuation on TTM basis, and current levels, we are of the view of that most of the positives have been priced-in at the current levels and suggest investors to book profits. Hence, we recommend a ‘Sell’ rating on the stock at the current market price of $0.300, up by 27.659% as on December 09, 2020. Its Canadian subsidiary Mernova, secured three purchase orders for a total value of $288,159 and CPH also received notice to purchase from the province of Ontario, thus explaining the recent rise in price levels.

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

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