Veru Inc

Veru Inc (NASDAQ: VERU) is an oncology biopharmaceutical Company, having a focus on developing novel medicines for the management of breast cancer and prostate cancer.

Investment Highlights – Veru Inc – Speculative Buy at USD 13.92

• In the financial year 2020, the Company witnessed a significant increase in revenue and liquidity.
• In the last three months, the Company delivered a significant return of ~456.80% and delivered higher returns compared to the benchmark Index.
• As per valuation metrics, EV/Sales multiple of the Veru Inc is currently lower as compared to the corresponding multiple of the Personal & Household Products & Services industry. It reflects, shares are undervalued as compared to the industry.
• From the technical standpoint, shares were trading well above the support level of 20-day simple moving average prices (USD 9.80), which reflects an uptrend in the stock and can move up further.

Key Risks

• Any change in regulations and government policies could affect the overall business of the Company.
• The covid-19 outbreak has resulted in disruptions in clinical trials which will have a negative impact on the Company’s performance.

Recent News

On 8 February 2021, Veru announced safety results and positive efficacy from Phase 2 clinical trial of VERU-111 from the sample of around 40 hospitalized patients at high risk for ARDS (Acute Respiratory Distress Syndrome) from covid-19.

Financial Highlights – FY2020 (30 September 2020) (released on 10 December 2020)

(Source: Annual Report, Company Website) 

• For the financial year 2020, driven by a 31% increase in FC2 net revenue, the total revenue increased to $42,592,060.
• Due to the higher cost of sales and operating expenses for the period, the net loss for the period increased.
• The cash balance as on 30 September 2020 increased to $13,588,778 (30 September 2019: $6,295,152).

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Conclusion

The Company has shown a decline in financial performance in the financial year 2020. Despite the higher revenue, the profitability for the period declined and remained in the negative zone. VERU has a strong liquidity position, with a well-positioned balance sheet. The Company has a strong drug pipeline for prostate cancer and breast cancer, which includes VERU-100, VERU-111, Zuclomiphene citrate and Enobosarm. The use of VERU-111 to prevent ARDS from covid-19 looks encouraging in Phase 2 clinical trial. Veru’s operational performance was not materially impacted by the impact of the covid-19 pandemic, while it resulted in the delay in clinical trials, increased costs and disruption in the supply chain. The stock made a 52-week low and high of USD 2.05 and USD 23.39, respectively.

Based on the above rationale, we have given a “Speculative Buy” recommendation on Veru Inc at the closing price of USD 13.92 (as on 8 February 2021).

Del Taco Restaurants Inc

Del Taco Restaurants Inc (NASDAQ: TACO) is a franchisor and operator of restaurants. The Company presently have around 600 restaurants.

Investment Highlights - Del Taco Restaurants Inc – Speculative Buy at USD 10.15

• In the fourth quarter of the financial year 2020, the Company reported higher system-wide comparable restaurant sales, reflecting growth in Franchised comparable restaurant sales.
• In the last nine months, the Company delivered a significant return of ~76.52% and delivered higher returns compared to the benchmark Index.
• As per valuation metrics, EV/Sales and Price/Earnings multiples of the Del Taco Restaurants Inc are currently lower as compared to the corresponding multiples of the Hotels & Entertainment Services industry. It reflects, shares are undervalued as compared to the industry.
• From the technical standpoint, shares were trading well above the support level of 20-day simple moving average prices (USD 9.91), which reflects an uptrend in the stock and can move up further.

Key Risks

• Any change in the regulations and government policies could affect the overall business of the Company.
• Other risks such as failure to expand portfolio due to the rising health concerns and inventory shortage due to supply chain disruption presented by COVID-19 mayhem, could hamper the operational and financial performance.

Financial Highlights – Q4 and FY2020 (released on 12 January 2021)

• In the fourth quarter of FY2020, the Company’s System-wide comparable restaurant sales surged by 3.8%, while System-wide comparable restaurant sales declined by 0.9% in FY2020.
• The franchised comparable restaurant sales increased in Q4 and FY2020 by 7.5% and 1.4%, respectively.
• Due to lower company-operated restaurants open during FY2020, the Company-operated restaurant sales declined by 2.2% in Q4 FY2020 and 5.7% in FY2020.
• The cash balance in the financial year 2020 declined to $106.7 million as compared to $143.4 million in FY2019.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings (NTM) (Illustrative)

Conclusion

The Company has reported an increase in System-wide comparable restaurant sales in the fourth quarter. However, for the financial year 2020, System-wide comparable restaurant sales declined. The liquidity position for the period declined with reduced outstanding RCF (revolving credit facility). The Company-operated restaurant sales declined in both Q4 and FY2020, due to fewer number of company-operated restaurants open in FY2020. TACO was benefited by franchised comparable restaurant sales in both Q4 and FY2020. The Company’s operations were impacted by covid-19 and are experiencing a recovery in the trading environment after an ease in restrictions. The stock made a 52-week low and high of USD 2.45 and USD 10.45, respectively.

Based on the above rationale, we have given a “Speculative Buy” recommendation on Del Taco Restaurants Inc at the closing price of USD 10.15 (as on 8 February 2021), with lower double-digit upside potential based on 27.22x Price/NTM Earnings (approx.) on FY21E earnings Per Share (approx.).

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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