Prometheus Biosciences, Inc.

Prometheus Biosciences, Inc. (NASDAQ: RXDX) is a biotechnology company which is engaged in the discovery, progress, and marketing of novel therapeutic and companion diagnostic products used for the treatment and diagnosis of IBD.

Key Updates:

• On March 16, 2021, the company announced the closing of its initial public offering of 11,500,000 shares of common stock, including an option to purchase 1,500,000 additional shares by the underwriters at a price consideration of USD 19 per share. The aggregate gross proceeds were valued at USD 218.5 million before deducting underwriting discounts and commissions.
• On March 04, 2021, the company announced the appointment of commercial veteran Mark Stenhouse as Chief Operating Officer.
• Earlier, the group announced the company’s candidate PRA023 had been trialed in normal healthy volunteers. The above candidate is a humanized IgG1 monoclonal antibody (mAb) which block tumor necrosis factor (TNF)-like ligand 1A (TL1A). The above medicine (PRA023) is being developed for the treatment of the two most common forms of IBD, ulcerative colitis (UC) and Crohn's disease (CD).

FY20 Financial Highlights:

• RXDX announced its full-year result, wherein the company posted collaboration revenue of USD 1.229 million, higher than USD 1.118 million in FY19.
• Total operating expense soared to USD 30.236 million v/s USD 17.086 million in FY19. The increase was due to higher research and development expense and a surge in general and administrative expense.
• Loss from operations stood higher at USD 29.007 million, v/s a loss of USD 15.986 million in pcp.
• Net loss widened to USD 37.138 million, from USD 29.723 million in FY19.

FY20 Income Statement Highlights (Source: Company Reports)

Risks: The company is conducting initial stage trials and is yet to receive approval from the regulatory bodies. The exact date and timing of approvals cannot be predicted. Further, any negative outcome of the trials would affect the business prospect.

Stock Recommendation:

The company does not have a stable revenue base and reported net cash used in operating activities of USD 28.018 million, higher than USD 20.197 million in FY19. The group is in the initial stage of its novel therapeutic and companion diagnostic products. Moreover, higher input costs would likely dampen the bottom line and would lead to a higher accumulated deficit. Currently, the group has a pipeline of three products, namely PRA023, PR600 and PR300, which are expected to be a part of clinical trials in the coming days.

Source: Company Reports

The stock of RXDX is newly listed and trading from March 12, 2021. The stock correctd from its high of USD 28.33 and currently trading  at USD 18.85. Moreover, on the valuation front, the stock of RXDX is trading at an EV to Sales of 757.8x on TTM basis v/s the industry (Biotechnology & Medical Research) median of 25.8x. Hence consideing the aforesaid facts, we give an ‘Avoid’ rating on the stock of RXDX at the closing price of USD 18.85 on April 06, 2021.

Price Chart (as on April 06, 2021). Source: Refinitiv (Thomson Reuters)

Orion Group Holdings Inc

Orion Group Holdings Inc (NYSE: ORN) is a specialty construction company serving the infrastructure, industrial, and building sectors, providing services both on and off the water in the continental United States, Alaska, Canada and the Caribbean Basin through its marine segment and its concrete segment.

Key highlights 

• Diversification playing a crucial role: To mitigate the risks inherent in the construction business, the company pursue projects in both the public and private sectors for a wide range of customers within each sector (from the federal government to small municipalities and from large corporations to small property owners and developers and in diverse geographic markets).

Source: Company 

• Stable backlog: As on December 31, 2020, the company reported backlog of work under contract at USD 439.5 million, comprised of USD 202.6 million for the marine segment, and USD 236.9 million for the concrete segment. The group remains optimistic in its end-markets and the opportunities emerging across its various marketplaces, as evidenced by the slight increase in backlog during the reported quarter and by the USD 1.6 billion of quoted bids outstanding at year-end.

Source: company 

Financial overview of FY2020

Source: Company

• In 2020, the company recorded revenues of USD 709.9 million, against USD 708.3 million in the previous corresponding period. USD 388.2 million was attributable to the marine segment and the remaining USD 321.7 million to the concrete segment.
• Gross profit increased to USD 84.7 million, against USD 64.0 million in pcp. The gross profit increase was primarily driven by margin improvement on projects and efficiencies in labor and equipment utilization.
• Operating income stood at USD 26.5 million, against USD 2.1 million in pcp. The higher operating income was mainly due to healthy gross profit and gain on disposal of assets.
• On the back of margin improvement on projects and efficiencies in labor and equipment utilization, the company transformed itself from a net loss of USD 5.3 million in 2019 to a net profit of USD 20.2 million in 2020.  

Risks associated with investment

Fluctuations in commodity prices may affect the group’s customer’s investment decisions and, therefore, operations are subject to cancellation risks, delays in existing work, or changes in the timing and funding of new awards. Additionally, fluctuations in commodity prices can negatively affect project costs. Other vital risks are government regulations, weather conditions, natural disasters, drop in order backlog, health epidemics, and competition. 

Valuation Methodology (Illustrative): EV to Sales 

Note: All forecasted figures and peers have been taken from Thomson Reuters. 

Stock recommendation

The company is confident with its ability to profitably execute projects in backlog and growing backlog level by targeting and winning new bid opportunities. With the new, improved infrastructure bill, the group would further catalyst for continued strength in its end-market opportunities. It focuses on the liquidity position, which remains strong and provides sufficient financial flexibility to continue pursuing new awards and executing existing projects in backlog. The group’s diverse end markets, a broad range of construction capabilities and assets, and highly experienced personnel boost confidence in its ability to deliver increasing profitability and free cash flow, particularly in a post-pandemic environment. We have valued the stock using EV to Sales based valuation metrics and arrived at a high single digit downside (in % terms). We have considered Bird Construction Inc,  R C M Technologies Inc and Tutor Perini Corp as a peer group for the comparison purpose. Hence, considering the valuation and recent price movement, we prefer to remain on the sidelines and suggest an ‘Avoid’ recommendation on the stock at the closing price of USD 6.29 on April 06, 2021.

1-Year Price Chart (as on April 6, 2021). Source: Refinitiv (Thomson Reuters)

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine do not hold interests in any of the securities or other financial products covered on the Kalkine website.