Knight Therapeutics Inc

Knight Therapeutics Inc (TSX: GUD) is a specialty pharmaceutical company. The company focused on in-licensing, acquisition, marketing and distribution of pharmaceuticals, consumer health products and medical devices across the markets of Canada and Latin America.

Recently, the Group announced the launch of the tender offer and the release of the notice or the acquisition and delisting of all outstanding Brazilian Depositary Receipts of Biotoscana Investments S.A.

Q1FY20 Income Statement highlights: GUD declared its quarterly results, wherein the company reported stellar growth in revenue of CAD 45.839 million, as compared to CAD 2.956 million in the previous corresponding period (pcp). The growth was aided by higher revenues from Argentina, Colombia and from the rest of the Latin American and increased contribution from Movantik® and Probuphine™ sales. Gross margin stood at CAD 19.860 million against CAD 2.271 million in pcp. Operating loss widened to CAD 7.460 million as compared to CAD 3.323 million in pcp. The decline was primarily attributable to higher general and marketing expense, a significant rise in general and administrative expense, research and development costs and higher amortization of intangibles. The company reported a loss before income taxes of CAD 10.52 million, as compared to a profit of CAD 6.736 million in pcp. The decrease was driven by a net loss on financial instruments measured at fair value through profit or loss and Realized loss on the sale of the asset along with a higher foreign exchange loss.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Risk: Post the acquisition of GBT, the group is exposed to FX risk as GBT has its operations in emerging markets in Latin America. Fluctuation in currency might impact financial performance.

Stock Recommendation: The stock of GUD corrected ~8% so far this year amidst a free-fall in the stock market on account of COVID 19 pandemic. The company recently announced the partnership with Debiopharm and received the exclusive rights to commercialize Trelstar® (triptorelin), an agonist analogue of the natural gonadotropin-releasing hormone (GnRH) across the Canada region. Furthermore, the company has a strong product pipeline like Ibsrela™, which is expected to launch in early 2021. During Q1FY20, the company launched Cresemba® (isavuconazonium sulfate) used for the treatment of invasive aspergillosis and invasive mucormycosis among adults in Brazil. We believe the company has an impressive product portfolio and is well versed to take the benefit from growing demand. Further, the company has a stable balance sheet with a debt to capital ratio of 6.87%. The company has a net cash position of CAD 465 million, which is a key positive. On the valuation front, the stock is trading at an EV/Sales multiple of 4x, which is lower than the industry (pharmaceuticals) average of 5x. Hence, considering the aforesaid facts and risk, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 7.0 on July 16, 2020.

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

K-Bro Linen Inc.

K-Bro Linen Inc. (TSX: KBL) is a Canada based owner and operator of laundry and linen processing facilities and provides a comprehensive range of general linen and operating room linen processing, management and distribution services to healthcare institutions, hotels and other commercial players. 

The company announced a monthly dividend of CAD 0.10 per shareholder, payable on August 14, 2020.

Q1FY20 Financial Highlights: K-Bro Linen Inc. announced its quarterly results, wherein the company reported revenue of CAD 57.27 million as compared to CAD 57.78 million. This decrease was primarily attributed to a significant reduction in hospitality revenue related to the COVID-19 pandemic which was partially offset by the positive impact from the acquisition of an Aberdeen laundry coupled with organic growth at existing customers and new customers secured in existing markets. EBITDA plunged to CAD 3.74 million as compared to CAD 9.1 million in the previous corresponding period (pcp) due to lower revenue and inclusion of impairment of assets amounting CAD 5.52 million. The company reported a net loss of CAD 3.41 million, as compared to a net profit of CAD 0.49 million in pcp due to a lower EBITDA and higher amortization, partially offset by lower finance costs and lower depreciation. Cash and cash equivalents stood at CAD 1.32 million, while total assets stood at CAD 336.13 million.

Q1FY20 Income Statement highlight (Source: Company Reports)

Risks: The company’s performance is likely to remain subdued owing the closure of hotels and changing consumer behavior owing to COVID-19 pandemic.

Stock Recommendation: The KBL stock corrected ~11% and ~36% in the last one month and six months, respectively and currently trading near the lower band of its 52- weeks trading range of CAD 46.44 and CAD 23.73. The Company is one of the leading names across the owner and operator of laundry and linen processing facilities and the business is categorized as ‘essentials services.’ The group’s operations have been impacted by COVID-19. The group mentioned, that the consolidated revenue for April 2020 decreased by ~45%, driven by ~90% decline in hospitality revenue along with ~10% reduction in healthcare revenue compared to the same period last year with both the Canadian and UK divisions seeing hospitality revenues drop by the same percentages. Going forward, the Company expects improved business prospects from the healthcare segment in the medium term to long term. To navigate through the current challenging environment, the Company has access to a credit facility amounting to CAD 44.2 million, which seems to be sufficient to mee the near-term requirement. The Company has deleveraged it balances sheet by reducing debt from CAD 62.49 million in FY19 to CAD 54.69 million in Q1FY20. Lower debt will result in lower finance cost, which is a key positive in the current challenging environment. On the valuation front, the stock is trading the stock is trading at a forward EV/Sales multiple of 1.7x, which is slightly higher than the industry (professional & commercial services) median of 1.7x. Hence, considering the aforementioned facts, we prefer to remain on sideline and recommend a ‘watch’ stance on the stock at the closing market price of CAD 27 on July 16, 2020.

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

Disclaimer

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