Global Cord Blood Corp

Global Cord Blood Corporation (NYSE: CO) is a Hong Kong-based life sciences enterprise. The Company is mainly involved in providing cord blood collection, laboratory testing, hematopoietic stem cell processing, and stem cell storage services. It was formerly known as China Cord Blood Corporation.

Investment Highlights  – Expensive at USD 5.03

• Trading near a 52-week high, while on a trailing 12 months, the Company’s Price/Earnings multiple is significantly higher than the Healthcare industry multiple, reflecting overstretched valuations.
• In Q3 FY21, ROE was lower than the industry median.
• From the technical standpoint, 14-day RSI is near to the over-bought territory, which means that the stock price could decline in the short term.

Key Risks

• The certain potential risks can impact the business, such as emerging risk associated with Covid-19 pandemic as it can lead to unavailability of required staff and restricted access to key sites; changing healthcare structure of NHS; delays in regulatory approvals; rapid change in technology; and uncertainties regarding the creditworthiness of customers amid recessionary market conditions.
• The Growth of business is also dependent on external funding, which is difficult to get amid the weak internal cash generation.

Trading Update (for the third quarter and first nine months of fiscal 2021 (ended 31 December 2020), as on 24 February 2021)

(Source: Company Website)

• As per the third quarter of 2021, the revenues declined by 13.1% YoY, gross profit reduced by 13.1% YoY, operating margin decreased from 45.7% to 42.6%, and net income attributable to the Company’s shareholders was down by 19.6% YoY.
• During the first nine months of 2021, the revenues reduced by 7.0% YoY, gross profit declined by 6.7% YoY and Non-GAAP operating income decreased by 3.0% YoY.
• However, in 9M FY21, the net income attributable to the Company’s shareholders increased by 1.8% YoY, primarily driven by the increase in the fair value of equity securities.
• New subscribers and accumulated subscriber base for Q3 FY21 were 17,802 and 882,982, respectively, while in 9M FY21, the new subscribers and accumulated subscriber base were 52,678 and 882,982, respectively.

One Year Share Price Chart

 (Source: Refinitiv, Thomson Reuters)

Conclusion

During the period, the Company had faced several ongoing challenges such as lower newborn numbers, cautious consumer sentiment and Covid-19 mayhem. However, it managed to recruit 17,802 new subscribers in Q3 and was in line with the annual target. The National Health Commission stated that no cord blood banking license applications would be accepted in the current year. Moreover, the new developments in industry regulations stay largely uncertain. Meanwhile, the Company witnessed a lower financial performance in Q3 FY21 and 9M FY21, with lower revenue and operating margins. Currently, the stock is trading near its 52-week high, suggesting that the upside potential might be limited. The stock made a 52-week low and high of USD 2.54 and USD 5.19, respectively.

Based on the factors highlighted above, we believe the stock of Global Cord Blood Corp is “Expensive” at the closing price of USD 5.03 (as on 4 May 2021), with support from recovery in the trading environment needs to be evaluated at a later stage.

OrganiGram Holdings Inc

OrganiGram Holdings Inc (NASDAQ: OGI) is a Canadian licensed producer of high-quality medical and recreational cannabis. It is listed on NASDAQ and TSX (Toronto Stock Exchange).

Investment Highlights – Expensive at USD 2.56

• In Q2 FY21, the profitability margins and ROE were in the negative zone.
• The Company is dependent upon funding through external sources to run its business operations.
• Q2 FY21 results were challenged by industry dynamics, Covid-19 outbreak and staffing limitations at the facility.
• From the technical standpoint, shares were trading below the short-term support level of 50-day (USD 3.15) simple moving average price, which reflects a downtrend in the stock and can decline further.

Key Risks

• OGI is exposed to regulatory norms and higher taxes related to tobacco sales.
• It is cognizant that combustible products pose a significant health risk, and thus, from a social aspect, it states that the only way to avoid these risks is not to start or quit.
• The Company is exposed to health-related risks, and it is putting strenuous efforts through its strategy to reduce the health impact on the business.

Recent News

On 3 May 2021, the Company announced that Greg Engel is stepping down from his role as CEO. Greg will continue to act as a special advisor to the Group’s Board through a transition period. Further, the Board has appointed Peter Amirault to serve as executive chair on an interim basis and also serve as a CEO until a new permanent CEO is appointed.

On 22 April 2021, the Company announced the launch of two new Edison dried flower strains, including the legendary citrus diesel MAC-1 and the potent GMO Cookies. This will expand the Group’s portfolio.

Q2 FY21 Trading Update (as on 13 April 2021)

• The net revenue decreased by 37% YoY, mainly due to significantly lower wholesale revenue and a lower average selling price in the second quarter.
• Q2 adjusted gross margin and adjusted EBITDA were negative as compared to the positive performance in Q2 FY20.
• Since July 2020, it has launched 62 new stock-keeping units as part of the Company’s product portfolio revitalization.
• In March 2021, it announced a collaboration with BAT.
• Moreover, Q2 FY21 net cash from operating activities remained stable as compared to the Q2 FY20.

One Year Share Price Chart

 (Source: Refinitiv, Thomson Reuters)

Conclusion

In Q3 FY21, the Company expects revenue to be higher than Q2 FY21 and SG&A to be higher than Q2 FY21.  Moreover, in Q3 FY21, the net revenue is expected to be higher than Q2 FY21, driven by greater fulfilment rates with increased cultivation and packaging staff. Recently, it made an acquisition with The Edibles and Infusions Corporation and a collaboration with BAT. The revenue outlook could be negatively impacted again if there positive cases are identified in the future and increase the COVID-19 restrictions for cannabis retail stores. The Company has a strong business model, while the market is highly uncertain. The stock made a 52-week low and high of USD 1.01 and USD 6.45, respectively.

Based on the factors highlighted above, we believe the stock of OrganiGram Holdings Inc is “Expensive” at the closing price of USD 2.56 (as on 4 May 2021), with support from recovery in the trading environment needs to be evaluated at a later stage.

Disclaimer

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