Stocks’ detail

BELLUS Health Inc.

Product Pipeline Likely to Cater a Brader Customer Base: BELLUS Health Inc. (TO: BLU) is a clinical-stage biopharmaceutical company developing novel therapeutics for the treatment of chronic cough and other hypersensitization-related disorders. In August 2019, the company appointed Dr. Bonuccelli as the Chief Medical Officer, who has more than 20 years of significant expertise in clinical development of respiratory products.

Products and Business Overview: The company is developing its leading drug named BLU-5937, which is used for chronic cough disease. The company is looking for the phase 2 clinical trial to assess the efficacy, safety and tolerability of BLU-5937 in refractory chronic cough patients is underway, and results are expected in mid-2020. The market of the product is correlated with the large population with significant unmet need an indication of interest by big pharma. The company completed the Phase 1 program, which suggests best-in-class potential.

Key Financial Highlights: For the period ended 31^st December 2019, the business reported its cash equivalents and short-term investments of CAD 116.9 million, surged from CAD 48.9 million recorded in FY18. The company reported a net loss of CAD 34.5 million, increased from CAD 9.1 million in the previous financial year. The company made an expenditure of CAD 25.4 million for research and development, which came higher than CAD 6.53 million spend in the last fiscal period. The company made phase2 development for its BLU-5937 and incurred expenses for manufacturing of the active pharmaceutical ingredient. Further, during FY19 the company’s stock was listed in Nasdaq exchange which resulted in an added listing expenditure, while the business also incurred a higher stock-based compensation expense due to the Company’s deferred share unit plan and its stock option plan. The business reported a net finance income of CAD 0.741 million versus a net finance cost of CAD 0.366 million, due to the translation of the company’s net monetary assets denominated in US dollars.

Key FY19 Income Statement Highlights (Source: Company Reports)

Stock Recommendation:  The company has significantly increased its R&D expenditure to CAD 25.4 million from CAD 6.5 million reported in a year over period, which is typically a decent metrics for pharma companies. Also, the company is developing its leading drug named BLU-5937, which is used for chronic cough disease and looking for the phase 2 clinical trial to assess the efficacy, safety and tolerability of BLU-5937 in refractory chronic cough patients is underway and results are expected in mid-2020. Both increased investment in R&D and BLU-5937 could be a growth catalyst for the company in FY20. However, losses have been expanded for FY19 on account of increased investment in R&D. 

In a month over period, its shares have skidded approximately 30% but significantly outperformed within the pharma arena, as relative performance of the stocks vs industry stood +25.2, which reflects that downside in the stock amid panic market sell-off was relatively limited as compared to its peers. Further, YoY return of its stocks stood at 36.5%.

In a year-over period, its shares have registered a 52-week high of CAD 14.54 (as on February 20, 2020) and a 52-week low of CAD 3.96 (as on May 01, 2019) and at the closing price of CAD 8.11 (as on March 16, 2020), it shares are more tilted towards its 52-week high price level amidst broader sector peers are  heading toward their 52-week low price level.

Key Risks: The group is exposed to clinical trial failure risk and credit availability risk for further expansion and growth.

Therefore, considering the risks and growth catalyst for the company and a decent relative performance of its shares against the industry amid a bearish market cycle, we have given a “Speculative Buy” recommendation at the closing price of CAD 8.11 (March 16, 2020).

BLU Daily Technical Chart (Source: Thomson Reuters)

Husky Energy Inc.

Cost Optimization to Support Bottom-line: Husky Energy Inc. (TO: HSE) is an integrated energy company based in Canada and operates in upstream and downstream activities. Recently, the company informed that it has lowered its capital program for FY20 and reduced its budget by CAD 900 million which indicates a 33% decline in upstream spending.  The group is also planning to save ~CAD100 million by taking additional cost savings measure. The business expects its total upstream production within the range of 275 mboe to 300 mboe per day for FY20.

Key Updates: The company is focusing on the optimization of the existing production and lowering costs while halted its investment in resource plays and conventional heavy oil projects in Western Canada. The business also deferred its development of the Block 15/33 oil field offshore in China and MDA-MBH natural gas field in Indonesia. Going forward, the company is likely to review its capital adjustments as per the market environment.

FY20 Updated Guidance (Source: Company Reports)

Q4FY19 Operational Highlights: HSE came up with its quarterly results, wherein the company reported funds from operations of CAD 469 million, compared to CAD 583 million in Q4FY19. The decrease was due to lower U.S. crack spreads, extended shutdown at the Lima Refinery and lower Infrastructure and Marketing margins and CAD 74 million related to employee severance. The business reported negative operating margin of CAD 129 million in its Lima Refinery, due to the shutdown to complete the crude oil flexibility project. Net loss stood at CAD 2.3 billion, as compared to CAD 216 million in Q4FY18, due to after-tax impairments. Net earnings excluding impairments, write-downs and the asset de-recognition came in at CAD 5 million. During the quarter, the business made capital spending of CAD 894 million, which include Superior Refinery rebuild capital. The business reported overall Upstream production of 311,300 boe/day, as compared to 304,300 boe/day in previous corresponding period, which includes ongoing mandated production quotas in Alberta. Downstream throughput of  stood lower at 203,400 bbls/day, from 286,900 bbls/day in Q4FY18; impacted from shutdown of the Lima Refinery.

Stock Recommendation: Stock Recommendation: The stock of HSE closed at CAD 2.85 with a market capitalization of CAD 2.86 billion. The stock made a 52-week low and high of CAD 2.65 and CAD 14.90 and is currently trading close to the upper band of its 52-week’s trading range. On a macro perspective, the cumulative impact of coronavirus and price war between oil production Russia and Saudi Arabia is likely to impact the demand of the crude oil prices negatively. Prices of Brent Crude dipped to USD 30.91/ bbl from USD57.57/ bbl a month ago. The recent slump in the oil prices indicates a negative outlook for the group. Oil Companies are prioritizing on cost optimization due to lower realization price. As per the recent guidance, the Management halted its capital-intensive projects in order to improve its bottom-line. Hence, we give a ‘Watch’ recommendation on the stock at the closing price of CAD 2.85, down 10.37% as on 16^th March 2020.

HSE Daily Technical Chart (Source: Thomson Reuters)

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