Ceapro Inc. (TSXV: CZO) is engaged in developing and applying proprietary extraction technology to produce extracts and active ingredients from oats and other renewable plant sources. Its operating segments are the Active ingredient product technology industry and the Cosmeceutical industry. Geographically, the company has business operations in Canada, the US, and other countries.

Key Highlights

• Support to PGX Technology Project: On 29 November 2021, the company informed the market that they are receiving advisory services and up to CAD480,000 in funding from the National Research Council of Canada Industrial Research Assistance Program (NRC IRAP). This funding and assistance support Ceapro’s project “Boosting innovation capacity of Pressurized Gas expanded Technology (PGX) towards pharmaceutical applications.”
  

• Improvement in Total Sales in Q3FY21 and 9MFY21: The company’s total sales in Q3FY21 and 9MFY21 (first nine months of FY21) stood at CAD4.52 million and CAD13.63 million respectively, versus CAD3.47 million and CAD12.41 million in the previous corresponding period (pcp).
  

• Preliminary Results from Clinical Trial Evaluating Oat Beta Glucan in Patients: On 17 November 2021, the company reported preliminary results from the clinical study entitled “A Multicenter, Randomized, Double-Blind,Parallel Group, Placebo-Controlled Study to Compare the Efficacy and Safety of High-Medium Molecular Weight Beta-Glucan as Add-On to Statin Therapy in Subjects with Hyperlipidemia”. The overall compliance to study pill intake was greater than 80%. There was no death, and beta-glucan was generally well-tolerated from a safety perspective.
  

Risks associated with investment 

General business risks include uncertainty in product development and related clinical trials and validation studies. Further, the regulatory environment, for example, delays or denial of approvals to market the products, could impact the company's revenue line. Also, the impact of technological change and competing technologies, the ability to protect and enforce the patent portfolio and intellectual property assets, the availability of capital to finance continued and new product development, and the ability to secure strategic partners for late-stage development, marketing, and distribution of the products are additional. 

Financial Overview of Q3FY21

Source: Company Filing 

• In Q3FY21, the revenue stood at CAD4.52 million, higher from CAD3.48 million in Q3FY20. In 9MFY21, revenue stood at CAD13.63 million, up ~10% YoY, primarily due to a significant rise in sales of avenanthramides in the USA versus the same period in 2020.
• Net profit stood at CAD875k in Q3FY21 versus CAD192k in 3QFY20, mainly due to a better margin of 65.2% versus 47.8% in Q3FY20. Buying excellent source material and thorough work of skilled personnel operating in only one site versus two sites in 2020 resulted in better margins.
• R&D investments stood at CAD1.40 million for Q3FY21 versus CAD479k in Q3FY20. The phenomenal rise was led by the payments made to Montreal Heart Institute for a clinical trial to assess oat beta-glucan as a potential cholesterol reducer by almost CAD1.0 million during Q3FY21.
• Operating cash flows stood at CAD2.84 million for 9MFY21 vs CAD4.78 million in pcp. Further, it reported a positive working capital balance of CAD10.37 million as of September 30, 2021.
  

Stock recommendation 

The stock has delivered a 6-month and one-year return of ~-17.91% and ~-14.06%, respectively. The stock is trading lower than the average price of the 52-week low-high range for the stock at CAD0.50 - CAD0.92.

The company is well-positioned to deliver strong growth in sales well in line with the positive trend achieved over the last years. It has well considered the ongoing potential economic impact of COVID-19, evolving consumer trends and escalating inflationary levels. Moreover, the company experienced a “bump in the road” with the beta glucan trial, however, its solid business fundamentals and the expanded pipeline is expected to enable it to pursue the expansion of its business model to the nutraceutical sector with avenanthramides and yeast beta glucan for which it is going to conduct more preclinical assays before investing at significant scale levels.

Considering the factors above, we give a “Speculative Buy” recommendation on the stock at the closing market price of CAD0.55 per share, up by 7.843% as of 29^th December 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Summary Analysis

One-Year Technical Price Chart (as on December 29, 2021). Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV

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