Cann Group Limited
CAN Details
Business Update: Cann Group Limited (ASX: CAN) is engaged in breeding, cultivating, manufacturing, and supplying medicinal cannabis for sale and use within Australia and approved overseas export markets. It focuses on developing and supplying cannabis, cannabis resin and medicinal cannabis products into the Australian market. CAN has recently shipped more than 20k units of cannabis extract to its customer and partner, Iuvo Therapeutics. CAN has informed that the order for 20k units has been the single most significant order dispatched from Australia to date for the company. CAN have invested CAD $1mn in Iuvo in January 2021 and signed an agreement to supply cannabis extracts until 31 December 2021 and further two years as a preferred supplier. The construction work at Mildura plant has been restarted from February 2021 and expected to be commissioned by the end of 2021. Mildura plant is likely to add capacity to produce 12,500kg of dry flower per annum at stage 1a. The company expects the first material ready to be released by March 2022. The company has recently acquired Satipharm and likely to contribute $1mn in revenues for six months ending 30 June 2021. Satipharm has distribution arrangements in UK, Ireland and few Eastern European markets.
1HFY21 Financial Highlights: CAN have registered an increase in revenue to $1.08mn in 1HFY21 against $0.56mn in 1HFY20 on the back of increasing shipping orders. Despite an increase in revenue, the company has incurred a loss of $9.39mn in 1HFY21 on the back of higher operating expenses. CAN has seen a significant rise in its cash balance to $27.65mn as on 31 December 2020 against $1.55mn as on 30 June 2020.
Revenue trend (Source: Analysis by Kalkine Group)
Key Risks: The company is exposed to foreign currency. Thus, any adverse price movement in foreign exchange may impact the financials of the company. In addition, the company needs to supply its products continuously to suppliers and distributors. Therefore, any supply chain disruption may impact the financials of the company.
Outlook: The company has revised its guidance on total revenue in a range of $4mn-$5mn for FY21 against its previous guidance in a range of $8mn-$10mn due to the timing of revenue recognition. The company expects balanced revenue to be achieved in FY22. CAN is working towards getting regulatory approvals for international and local markets. Moreover, the company expects to move in a streamlined order, particularly to German markets.
Valuation Methodology: EV/Sales based Relative Valuation Method (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 CAN gave a return of ~-1.24% in the last one month and a return of ~-31.89% in the last three months. The current market capitalisation of CAN stands at ~$111.16mn as of 17 June 2021. The stock is currently trading below the average 52-weeks’ price level range of ~$0.290~$0.995. We have valued the stock using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight discount as compared to its peer median, considering incurring a loss in 1HFY21 and an increase in total expenses during the same period. For this purpose, we have taken peers Medlab Clinical Ltd (ASX: MDC), Pharmaxis Ltd (ASX: PXS), Suda Pharmaceuticals Ltd (ASX: SUD). Considering the company has registered an increase in top line in 1HFY21, an increase in cash balance as on 31 December 2020, adding capacity through Mildura plant, current trading levels, and valuation, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.395, down by 1.251% as on June 17, 2021.
CAN Daily Technical Chart, Data Source: REFINITIV
Medlab Clinical Limited
MDC Details
Addressing Global Requirement for Chronic Disease: Medlab Clinical Limited (ASX: MDC) is engaged in the sale of nutraceutical products and pharmaceutical research. The company operates through two segments: Nutraceutical and Pharmaceutical Research. MDC has witnessed a progress for its synthetic cannabinoid formulation for non-opioid pain. The company is aiming to reduce cancer-induced chronic pain among the patients. The company foresees a huge opportunity for growth in global markets for the treatment of Cancer Bone Pain (CAGR 5.4%), Cancer Pain (CAGR 4.5%) and Chronic Pain (CAGR 6.4%). Almost 64% of bone cancer patients are not supported by existing therapies, hence the company expect a significant growth opportunity.
1HFY21 Financial Highlights: MDC has reported an increase in revenue to $4.47mn in 1HFY21 against $2.52mn in 1HFY20 on the back of increasing SAS sales of NanaBis and NanoCBD. MDC has incurred a loss of $5.33mn in 1HFY21. The company has reported a decline in its cash balance to $6.87mn as on 31 December 2020 against $9.06mn as on 30 June 2020.
Revenue trend (Source: Analysis by Kalkine Group)
Key Risks: The company is exposed to foreign currency. Thus, any adverse price movement in foreign exchange may impact the financials of the company. In addition, the company requires regulatory approvals to operate its business efficiently. Therefore, any delay in regulatory approvals may impact the business of the company.
Outlook: MDC is focused on increasing the number of patents from currently having 36 patents granted to date. MDC is going under discussions for the use of NanoCelle platform to expand delivery productivity for a range of medicines.
Valuation Methodology: EV/Sales based Relative Valuation Method (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 MDC gave a return of ~-42.37% in the last three month and a return of ~-33.33% in the last six months. The current market capitalisation of MDC stands at ~$59.88mn as of 17 June 2021. The stock is currently trading below the average 52-weeks’ price level range of ~$0.135~$0.420. We have valued the stock using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight premium as compared to its peer median, considering an increase in total revenue in 1HFY21 and focusing on increasing number of patents. For this purpose, we have taken peers Cann Group Ltd (ASX: CAN), Pharmaxis Ltd (ASX: PXS), Suda Pharmaceuticals Ltd (ASX: SUD). Considering huge expansion opportunity in global markets for the treatment of chronic disease, decline in non-current liabilities, current trading levels, and valuation, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.17, down by ~2.858%, as on June 17, 2021.
MDC 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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