Stocks’ Details

Red 5 Limited

Increase in Gold Production:  Red 5 Limited (ASX: RED) is involved in the exploration and mining of gold. The market capitalisation of the company stood at $443.45 million as on 25^th January 2021. During the quarter ended 31^st December 2020, the company recorded gold production of 21,534 ounces as compared to 20,283 ounces of gold in September quarter. During the quarter, Red sold 22,412 ounces of gold against the sale of 22,412 ounces gold in the previous quarter. In addition, the company also received mining approvals for the Great Western satellite open pit near Darlot and is expecting to start mining in February 2021. On 15^th December 2020, the company notified the market that it has taken a significant step towards the development of King of the Hills (KOTH) Gold Project in Western Australia. This follows the approval of the Western Australian Department of Mines, Industry Regulation and Safety (DMIRS) for mining. The company added that it is currently engaged with lenders for debt funding and expects to have the project debt finance in the March 2021 quarter.

Production Summary (Source: Company Reports)

Guidance: For FY21, the company expects gold production in the range of 80,000 to 85,000 ounces at an average AISC of $2,280.

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months 

Stock Recommendation: During the December 2020 quarter, the company generated free cash flow of $10.8 million. The company closed December quarter with cash on hand and bullion of $98.5 million. This follows the repayment of $3.0 million for the working capital facility and expenses of $9.3 million on KOTH construction activities and Final Feasibility Study. In the last one and three months, the stock of RED has corrected 12.49% and 21.55%, respectively. As a result, the stock is trading below its 52-week low-high average of $0.275, offering decent opportunity for accumulation. Considering this, we have valued the stock using the price to cash flow multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in percentage terms). For the purpose, we have taken peers such as Gold Road Resources Ltd (ASX: GOR), Saracen Mineral Holdings Ltd (ASX: SAR) and Calidus Resources Ltd (ASX: CAI). On a technical analysis front, the stock has a support level of ~$0.192 and a resistance level of ~$0.300. Hence, considering the increase in gold production and sale, the progress on KOTH, guidance, current trading level and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.225 per share on 25^th January 2021.

PainChek Ltd

Decent Growth in ARR: PainChek Ltd (ASX: PCK) is involved in the development and commercialisation of mobile medical applications. The market capitalisation of the company stood at ~$83.38 million as on 25^th January 2021. During the quarter ended 31^st December 2020, the company experienced continued aged care and initial entry into the hospital, home care and disability markets. As on 31^st December 2020, the company had 884 Residential Aged Care (RAC) Facilities, representing 133% growth year over year. Further, the company had 71,318 approved beds under annual PainChek® license, indicating a rise of 123% growth over the prior year. For the same quarter, the company recorded a rise of 9% in contracted Annualised Recurring Revenue (ARR) to $3.03 million over the previous quarter. In the month of November 2020, the company has received regulatory clearance from Health Canada and received a licence for manufacturing Class I Devices for Distribution. The clearance from Health Canada allows the company to enter $5 billion in-home health and support services market in the country.

Residential Aged Care Clients and Facilities Contracted (Source: Company Reports)

Outlook: The priorities of the company revolve around the commercialisation of the PainChek® technology in Australia and the UK. With respect to PainChek Infant, the company is on track to achieve Australian (TGA) and European (CE mark) regulatory clearance for the Infants App in Q2 CY21.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation:  The company is optimistic that the worldwide COVID-19 vaccine roll out in early 2021 is likely to support the re-acceleration of its global business opportunities. The company closed the December 2020 quarter with a cash balance of $12.4 million. The stock of PCK has corrected 7.69% and 23.40% in the last one and three months, respectively. As a result, the stock is trading towards its 52-week low level of $0.061, offering decent opportunities for accumulation. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price, which is offering an upside of low double-digit (in percentage terms). For the purpose, we have taken peers such as Resapp Health Ltd (ASX: RAP), Volpara Health Technologies Ltd (ASX: VHT), and Nanosonics Ltd (ASX: NAN), to name a few. On a technical analysis front, the stock has a support level of ~$0.06 and a resistance level of ~$0.105. Thus, considering the decent performance in December 2020 quarter, growth in ARR, clearance from Health Canada, current trading level and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.071 per share, down by 4.055% on 25^th January 2021.

Pharmaust Limited

Funding Received from Government: Pharmaust Limited (ASX: PAA) is engaged in the development of its own drug discovery intellectual property for the treatment of different types of cancers in humans and animals. The market capitalisation of the company stood at $31.67 million as on 25^th January 2021. Recently, the company announced that its wholly owned subsidiary “Epichem Pty Ltd” has been awarded a WasteSorted e-Waste Grant of $200,000 from the Western Australian Government New Industries Fund. Epichem would use the fund for Oxidative Hydrothermal Dissolution technology to convert e-waste into useful end products, recover valuable metals and produce useful high-value chemicals. During the quarter ended 30^th September 2020, the company inked a Service Agreement with researchers in the Netherlands for testing the effects of monepantel and monepantel sulfone on the replication of SARS-CoV-2 in cell lines. During the same quarter, the company also received funding of $881,085 from FightMND for Phase I clinical trial in humans with Motor Neurone Disease. The company recorded net cash outflow from operating and investing activities of $290k and $22k, respectively.

Cash Flow (Source: Company Reports)

Outlook: Looking forward, the company is increasing its focus on COVID-19 with EU and US collaborators expressing interest in preparing the ground for clinical evaluation of MPL in humans. During Q3 2021, the company is planning to finish the manufacturing of 10 kg of MPL for use in Human Clinical Trials. In addition, the company has scheduled to commence FightMND Phase I/II trial in Q4 2021.

Stock Recommendation:  The bank balance of the company stood at around $4 million as on 30 September 2020, which is allowing the pursuit of various preclinical and clinical commitments. In the past three and six months, the stock of PAA has corrected 19.23% and 41.66%, respectively. On a TTM basis, PAA has an EV/Sales multiple of 7.2x, which is lower than the industry median (Pharmaceuticals) of 19.3x. In addition, the stock is trading at a price to book value multiple of 3.7x against the industry median (Pharmaceuticals) of 5.4x on TTM basis. Thus, it seems that the stock is undervalued at the current trading levels. On a technical analysis front, the stock has a support level of ~$0.089 and a resistance level of ~$0.126. Hence, considering the signing of service agreement, planned activities for the upcoming quarter, valuation on TTM basis, current trading level and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.105 per share, up by 4.999% on 25^th January 2021.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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