Australian Primary Hemp Limited

APH Details

A Look at December 2020 Results: Australian Primary Hemp Limited (ASX: APH) is a manufacturer, producer and distributor of premium plant-based wellness and health products. It sells hemp products under Mt. Elephant and APH brands under its umbrella. As on 10^th February 2021, the market capitalisation of the company stood at ~$44.39 million. During December 2020 quarter, the company reported revenue of $411k from sale of bulk wholesale and retail hemp products, up by 24% on QoQ basis. Its underlying cash outflows declined by 24% to $284k QoQ basis. The quarter saw considerable revenue generation leads- RDA with 7-Eleven, exclusive first delivery orders with Annex Foods and with WOW. The company has a robust pipeline of commercial avenues in progress. It has sought organic certification of APH’s hemp seed processing facility in Geelong, Victoria. It received cash receipts of $365k from customers and held cash reserves of $947k as on 31 December 2020.

Cash Flows from Operating Activities, Highlights (Source: Company Reports)

APH Secures Retail Distribution Agreement: On 8 February 2021, the company announced signing another retail distribution agreement (RDA) with Woolworths Group Limited (WOW) to supply Mt. Elephant ‘mylk’ branded oat and hemp milk in over 165 premium Woolworths stores from April 2021. APH estimates sales of around $250k per year starting from April 2021. Recently, the company has stated an equity raising of $5.2 million via a placement and intends to raise ~$1 million via a Share Purchase Plan (SPP) floated currently to investors.

Outlook: As per the new distribution agreement with WOW, APH estimates sales of around $250,000 per year starting April 2021. The company plans to deploy funds raised for purchasing capital equipment, meeting its working capital needs, and strengthening the balance sheet. For FY21, the management wants to increase engagement with its key retailers, enhance consumer engagement and brand marketing.

Stock Recommendation: The stock of APH gave a positive return of 177.77% in the past three months and a positive return of 222.58% in the past six months. The stock is currently trading towards its 52 weeks’ high level of 0.62. The stock of APH has a support level of ~$0.478 and a resistance level of ~$0.528. On TTM basis, the stock of APH is valued using EV/Sales multiple of ~$23.3x as compared to the industry average of ~9.5x and thus seems overvalued. We have also valued stock of APH using Price to Book Value. On TTM basis, APH has a price to book value multiple of ~9.8x as compared to the industry avergae~3.6x. Considering the current trading levels, significant returns in the past 3 months and 6 months, and valuation on TTM basis, we are of the view that most of the key catalysts have been factored in at current juncture. Hence, we suggest investors to wait for better entry levels and give an ‘Expensive’ rating on the stock at the current market price of $0.500, up by 4.166% on 10^th February 2021.

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

Nutritional Growth Solutions Limited 

NGS Details

Announcement of 2QFY21 Results: Nutritional Growth Solutions Limited (ASX: NGS) is a developer, producer, and distributor of nutritional supplement formulae for children under 3 years and adult users. As on 10^th February 2021, the market capitalisation of the company stood at ~$25.57 million. NGS got listed on ASX on 30 October 2020 and raised A$7 million from IPO. The company reported growth in total sales by 35% on QoQ basis during the quarter. NGS reported its FY20 sales were up by 58% on pcp basis. During the quarter, the company signed a vendor agreement with Independent Medical Co-op Inc., to supply Healthy Height® (HH) in the US. NGS rolled out HH on its flagship store via Alibaba Group’s Tmall Global digital platform to Chinese consumers.

The company generated cash receipts of US$417k from customers during December 2020 quarter. For Q2FY21, NGS incurred net operating cash outflows for US$509k and held cash reserves of US$4.63 million as of 31 December 2020.

Cash Flows from Operating Activities, Highlights (Source: Company Reports)

1HY20 Results: Prior to listing on 30 October 2020, the company released its 1HY20 results ending 30 June 2020. For 1HY20, the company had reported a revenue of US$1,002k, up from US$573k reported in the year-ago period.

Outlook: The company aims to strengthen its global distribution, primarily in Asia Pacific, and China. It aims to expand operations in the US through Amazon and Healthy Height website and target South Korea & Europe. 

Stock Recommendation: The stock of NGS gave a positive return of 5.55% in the past one month and negative return of 14.92% in the past three months. The stock is currently trading towards its 52 weeks’ low level of $0.22. The stock of NGS has a support level of ~$0.279 and a resistance level of ~$0.291. Considering the current trading levels, decent growth results in Q2FY21, robust growth plans for distribution expansion in APAC & China, along with associated risks with the business, and COVID-19 led uncertainty, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.285, up by 5.555% on 10^th February 2021.

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

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