Profound Medical Corp.

Profound Medical Corp. (TSX: PRN) is a commercial-stage medical device company dedicated to the advancement and selling of customizable, incision-free therapeutic systems, primarily used for the ablation of diseased tissue. The primary products of the Company include TULSA-PRO and Sonalleve.

Q2FY20 Financial Highlights: PRN declared its quarterly results, wherein the Company posted strong momentum in top-line. Revenue stood at CAD 1.421 million as compared CAD 0.574 million in the previous corresponding period (pcp) driven by the tremendous growth in the products segment and higher income from service segment. The Company reported an additional income from pay per procedure segment in the current quarter. Gross profit came in higher at CAD 0.575 million as compared CAD 0.330 million in the previous corresponding quarter. Total operating expenses stood higher at CAD 6.034 million as compared to CAD 5.927 million in Q2FY19. The Company reported lower research and development costs, while general and administrative cost and Selling and distribution costs increased on y-o-y basis. The quarter reported an increase in Consulting fees, share-based compensation, insurance and software expenses due to increased insurance costs associated with being Nasdaq listed and increased software costs for cybersecurity. Operating loss stood marginally lower at CAD 5.458 million, as compared to CAD 5.597 million in pcp. The Company posted a net loss for the period at CAD 7.347 million as compared to CAD 5.844 million in pcp. The Company posted cash balance of CAD 55.964 million while total assets stood at CAD 76.801 million.

Q2FY20 Income Statement Highlights (Source: Company Reports)

Risk:  The company is relying on its proprietary product for growth. The company is exposed to risks related to the regulation of products, including in connection with obtaining regulatory approvals as well as post-marketing regulation.

Stock Recommendation: The stock appreciated ~30% so far this year. The stock has closed above its 200-days simple moving average of CAD 16.75, indicating a bullish trend. The Business witnessed tremendous response for its TULSA-PRO product from both surgeons and patients across the United States. TULSA-PRO has the potential to be a flexible technology in customizable prostate ablation, including intermediate stage cancer, localized radio-recurrent cancer. Going forward, the company is focusing on building additional awareness of the above technology, which is expected to improve business prospects in the coming days. Further, the Group has repaid its long-term debt and does not have any debt component in the balance sheet, which is a key positive. The Group is also commercializing Sonalleve, an innovative therapeutic platform that is CE marked for the treatment of uterine fibroids and palliative pain treatment of bone metastases. The product has been approved by the China National Medical Products Administration for the non-invasive treatment of uterine fibroids. The company is in the early stages of exploring additional potential treatment markets for Sonalleve where the technology has been shown to have clinical application, such as non-invasive ablation of abdominal cancers and hyperthermia for cancer therapy. We believe, the company has a unique product line and hence if the product gets a healthy response, then we believe the market scope is huge for the company. The company is trading at a forward Price to Book multiple of 4.7x against the industry (Healthcare Equipment and Supply) average of 17.7x. Hence considering the aforesaid facts, current price movements, we recommend ‘Speculative Buy’ on the stock at CAD 19.20 on August 11, 2020.

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

Information Services Corp

Information Services Corp (TSX: ISV) is a support services company based out of Canada. It is providing information and registry solutions and services to companies from the private and public sector.

Recent News

On 5 August 2020, Information Services announced the expansion of secured credit facility to CAD$150 million after agreement with lenders.

Financial Highlights – Q2 and H1 Financial Year 2020 (30 June 2020)

(Source: Quarterly Report, Company Website)

In the first half of the financial year 2020, due to a decline in revenue from services business and registry operations, the revenue declined to CAD 60,589 thousand (H1 FY2019: CAD 62,851 thousand). The revenue in Q2 FY2020 declined by 9.5% to CAD 30,993 thousand (Q2 FY2019: CAD 34,244 thousand). The adjusted EBITDA stood at CAD 18,082 thousand in H1 FY2020 (H1 FY2019: CAD 18,677 thousand), and the adjusted EBITDA margin stood at 29.8 per cent for the period. The adjusted EBITDA in Q2 FY2020 declined by 6% to CAD 10,183 thousand, while EBITDA declined by 15% to CAD 9,153 thousand in the second quarter of FY2020. The Group’s Profit for the period stood at CAD 7,975 thousand in the first half of the financial year 2020 (H1 FY2019: CAD 8,795 thousand), and Net income in Q2 FY2020 stood at CAD 4,505 thousand (Q2 FY2019: CAD 5,784 thousand). The basic and diluted earnings per share stood at $0.46 in the first half of the financial year 2020 (H1 FY2019: $0.50). The free cash flow surged to CAD 14,146 thousand in H1 FY2020 (H1 FY2019: CAD 13,850 thousand). The cash balance stood at CAD 24,572 thousand as on 30 June 2020 versus cash balance of CAD 23,731 thousand as on 31 December 2019.

Share Price Performance

ISV One Year Daily Technical Chart. Source: Refinitiv, Thomson Reuters

Information Services Corp shares closed at CAD 17.71 at the time of writing after the market close on 11 August 2020. Stock's 52 weeks High and Low are CAD 18.10 and CAD 12.02, respectively.

Key Risks

The market conditions in which the Company operates is full of challenges and might impact the operational performance and reduce financial performance as well. Any change in regulations and government policies could affect the overall business of the Company.

Conclusion

The Company has shown a decline in financial performance for the first half of the financial year 2020 and Q2 FY2020. Both the top-line and the bottom-line performance have declined for the period. The Group needs to manage operating expenses effectively as it will result in declined financial performance and negatively impact operational performance in the coming future. The Group operations are significantly impacted by the outbreak of coronavirus, and the revenue from core operations had declined for the period. The Company continues to monitor the situation and expect covid-19 to impact adversely on short-term revenue, EBITDA and transaction volume. In long-run, the Group is well-positioned to manage the uncertain challenges. 

Based on the factors as highlighted above, we recommend investors to keep a “Watch” on the stock at the closing price of CAD 17.71 (as on 11 August 2020), with support from few catalysts needs to be evaluated at a later stage.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.