Creso Pharma Limited

Subsidiary Mernova Secures New Orders: Creso Pharma Limited (ASX: CPH) is a developer and marketer of cannabis and hemp-derived nutraceutical, therapeutic, and     lifestyle products for human and animal health. Mernova Medicinal Inc. (MMI), a wholly-owned subsidiary, of CPH, distributes dried cannabis plant retail products in Canada and overseas. As of 8 April 2021, the market capitalisation of the company stood at ~$214.89 million. On 8 April 2021, CPH announced attainment of new purchase orders worth CAD$145k by its Canadian subsidiary, MMI, from Yukon Liquor Corporation (YLC) and Ontario Cannabis Store (OCS). The repeat orders from YLC and OCS are signalling a change towards a recurring revenue model for MMI’s products.

Launch of New CBD Tea Products: On 1 April 2021, CPH updated the market regarding the roll-out of its own CBD-based tea products in European markets including Switzerland. It has rolled-out new products naming cannaQIX® tea, cannaQIX® NITE tea and cannaQIX® Immunity tea under the cannaQIX® brand.

Raise of $18 Million Via Share Placement: The company received firm commitments from the corporate investors for raising $18 million by the issue of 94.7 million new shares at $0.19 per share. It will use these funds for psychedelic clinical trials, nutraceutical sales and marketing spend.

FY20 Result Highlights: CPH generated a revenue of ~$2.44 million, down by 32.5% on pcp in FY20. This downfall was due to the pandemic’s impact on the nutraceutical revenue leading to deferral of re-orders. After-tax, the loss from ordinary activities was reported to be $32.03 million, up 133% on a pcp basis. MMI, in its maiden full year of production, increased its revenues by $354k. It has a robust purchase order (PO) book worth $502k for Ritual Green Brand across Canada. For FY20, its cash receipts from customers increased to $3.60 million. CPH held a cash and cash equivalents balance of $6.04 million as of 31 December 2020.

Financial Highlights, 1HFY21 (Source: Company Reports)

Key Risks: The company faces the risk of developing a scalable facility for cannabis production, complying various tests and regulations varying from state to state, impact of the pandemic uncertainties, and the risk of marketing from seed-to-sale process.

Outlook: CPH anticipates growth in purchase orders (POs) from all Canadian provinces. After the launch of new tea products in Germany and Switzerland, CPH will explore to expand the distribution into other European countries. CPH is expecting to list on the US OTC market in Q2FY21 for more global exposure.   

Stock Recommendation: Over the last three months, the stock has corrected by 13.14%. The stock is currently trading below its average of 52-weeks’ level of $0.024-$0.47. The stock of CPH has a support level of ~$0.173 and a resistance level of ~$0.258. Considering the current trading levels, signing of new POs for its new offerings, expansion of product portfolio and repeat orders and associated risks of supply chain disruption and pandemic driven uncertainty, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.205, up by 5.128% on 8 April 2021, owing to the update regarding the new purchase orders. 

Althea Group Holdings Limited

Launch of New Cannabis Oil Products: Althea Group Holdings Limited (ASX: AGH) is a licenced importer, cultivator, producer, and supplier of medicinal cannabis. It markets five Althea branded medicinal cannabis products. As of 8 April 2021, the market capitalisation of the company stood at ~$131.18 million. On 29 March 2021, AGH announced the launch of a new range of cannabis-oil products sized 20ml. The launch is to enhance the medication trial flexibility in patients (with initial and intermittent sickness) and enable an entry point for price-conscious patients.

A Look at the 1HFY21 Results: The company reported a revenue of $5.09 million in 1HFY21, up by 175.3% on 1HFY20, due to the milestones achieved in all its markets. During the period, AGH expanded its footprint in South Africa and inked a contract. It made its maiden shipment of products to Germany.

As of 31 December 2020, AGH had 12,273 patients in Australia versus 4,018 in CY19. The healthcare professionals (HCPs) prescribing to AGH’s products increased to 834 on a pcp basis. In December 2020, AGH completed an institutional placement of $6 million to corporate investors. In January 2020, it completed a Share Purchase Placement of ~$3.78 million. The company recorded a net loss after tax of $8.27 million, down by 0.9% YoY for 1HFY21. It held a cash balance of $8.64 million as of 31 December 2020.

Highlights (Source: Company Reports)

Key Risks: The company runs the risk of evolving regulatory landscape for medical cannabis products, seeking approvals for different jurisdictions, stiff competition from industry peers and the threat of supply chain disruption due to the pandemic crisis.   

Outlook: The company plans to scale up operations and its sales team in the UK. In Germany, it has rolled out its products and ramping up training to the HPCs for its products. It has engaged with the ANSM (Agency for Medicines and Health Products Safety), France, to supply of second-source cannabis products. With an estimated European addressable market at C$46 billion-plus till FY27 and a forecasted CAGR of 29.6% from FY27, AGH plans to expand its European presence.  

Stock Recommendation: Over the last three months, the stock has provided a return of 14.86%. The stock is currently trading slightly higher than the 52-weeks’ average price level of $0.31-$0.67. The stock of AGH has a support level of ~$0.454 and a resistance level of ~$0.539. On a TTM basis, the stock of AGH is trading at a price to book value multiple of 2.9x lower than the industry (Healthcare) median 4.1x. Considering the current trading levels, increase in the top line, growth in HCPs and patients in 1HFY21, expansion plans and outlook for European market, and valuation on a TTM basis, we give a ‘Hold’ rating on the stock at the current market price of $0.510, up by 2.00% on 8 April 2021.

Auscann Group Holdings Limited

Scheme of Arrangement Implemented: Auscann Group Holdings Limited (ASX: AC8) develops, produces, and distributes cannabinoid-based medicines in Australia and overseas. As of 8 April 2021, the market capitalisation of the company stood at ~$61.67 million. On 18 March 2021, AC8 announced the implementation of the scheme of arrangement (Scheme) and completed the acquisition of CannPal Animal Therapeutics Limited (CP1) as its wholly-owned subsidiary. As per the Scheme, CP1 shareholders obtained 1.3 new fully paid ordinary shares in AC8 for everyone share held in CP1 on 15 March 2021. Post-acquisition completion, Mr Layton Mills is the new CEO of AC8.

Sale of Joint Venture: On 22 March 2021, AC8 announced the completion of the sale of its 50% interest in DayaCann SpA (DCS), Chile and finalised a loan transfer. It has received the first EMI for loan transfer and sale consideration of shares for US$500k. It awaits two more receipts totalling US$1,000k for the next two years.

A Look at the 1HFY21 Results: The company reported sales revenue of $39,364 from the roll-out of its indigenous hard-shell (HS) capsules in the combination of 1:1 (THC: CBD) using its Neuvisâ platform for Australian patients. The company has completed a significant restructuring through cost and capex control during the period. AC8 finished its maiden clinical study and Phase-I trial involving HS capsules based on its Neuvisâ platform. The company incurred a net loss of $4.59 million during 1HFY21. It earned cash receipts of $18k during the period. It held a cash and cash equivalents balance of $15.23 million as of 31 December 2020.

1HFY21 Financial Highlights (Source: Company Reports)

Key Risks: The company is exposed to the risk of regulatory approvals from authorities, risk of technological disruption, synergies from the companies’ acquisition, and expansion of its footprint globally. 

Outlook: The company is progressing on its second product – CBD-formulation based on its Neuvisâ platform as a candidate for pharmacy only. The company aims to increase its exposure and size in the medical cannabis -human and animal health space with the acquisition of CP1. It plans to expand its addressable market and marketed its product range in mid-FY21. It has four products under its development in the medium term.

Stock Recommendation: Over the last three months, the stock has corrected by 31.12%. The stock is currently trading lower than the average 52-weeks’ price level of $0.125-$0.300. The stock of AC8 has a support level of ~$0.120 and a resistance level of ~$0.165. On a TTM basis, the stock of AC8 is trading at price to book value multiple of 2x lower than the industry (Healthcare) median 4.1x, thus seems undervalued. Considering the current trading levels, early revenue from the product roll-out, progress on its second product (CBD formulations) based on Neuvisa® 2.0 platform as a pharmacy-only medicine, and valuation on a TTM basis and associated risks of the approvals, and clinical trial results, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.135, down by 3.572% on 8 April 2021.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters) 

Note: 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.

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