Knight Therapeutics Inc. (TSX: GUD) is a Canada-based specialty pharmaceutical company that is actively engaged in developing, acquiring, in-licensing, out-licensing, manufacturing, marketing, and distributing pharmaceutical products across Canada and other global markets such as Latin America.

Key highlights

• Higher revenues: For FY21 the group reported a solid growth of 22% in its revenues which stood at CAD 243.47 million as compared to the revenues of CAD 51 million in FY20. The majority of the revenue push came from its Infectious Diseases segment which reported an increase in sales by CAD 13.5 million to CAD 16.3 million in FY21, and around CAD 21.18 million was contributed by the increased revenues from the acquisition of Exelon during FY21.

• Increased Adjusted EBITDA: The company witnessed a rise of almost 126% in its Adjusted EBITDA to CAD 38.0 million during FY21 as compared to CAD 83 million in FY20. For FY21, the company reported an increase in amortization of intangible assets to CAD 41.17 from CAD 25.53 in FY20, which elevated the overall adjusted EBITDA for FY21.  

• Increased liquidity: For FY21 the group recorded positive cash flows from operations of CAD 44.61 million as compared to the cash used from operating activities of CAD 12.20 million in FY20.

• Industry beating Debt metrics: The group has been very careful in terms of its debt management by reporting lower numbers than the industry median during FY21, which is present below.

Source: Refinitiv, Analysis by Kalkine Group 

• Improved profitability margins: Below is the graphical representation of the improved profitability margins in FY21 as compared to FY20.

Source: Refinitiv, Analysis by Kalkine Group 

Risks associated with investment

The industry in which the company is operating is subject to various regulatory changes and any unfavorable changes can bring a dent in its financial health. The other operational risks include but are not limited to liquidity risk, credit risk, and foreign exchange volatility risks. 

Financial overview of FY21 (Expressed in thousands of CAD)

 Source: Company Filing

• The company witnessed an increase of 22% in its total revenue to CAD 243.47 million in FY21 vs CAD 199.51 million in FY20. The majority of revenue growth in FY21 was reported from  Brazil and Colombia region.

• For FY21 the operating losses were narrowed to CAD 12.83 million as compared to the operating losses of CAD 30.65 million in FY20.

• During FY21, the income before income taxes for the company stood at CAD 6.69 million as compared to CAD 32.08 million in FY20. 

• For FY21, the company reported the Net income of CAD 15.67 million against CAD 31.76 million in FY20.
  

Valuation Methodology (Illustrative): EV to Sales based valuation

Stock recommendation 

The company reported higher revenue during FY21 of CAD 243.47 million vs CAD 199.51 million in FY20, with improved performance from its Infectious Diseases segment and strong performance across Latin American regions. Recently the company launched Lenvima® and Rembre® in February 2022, Halaven® in March 2022, in Colombia and various other products are in the pipeline which will further help the company to increase its market presence.  On the valuation front, the stock is measured on the EV to Sales based multiple, and currently trading at 1.9x which is lower than the industry median )pharmaceutical) of 2.6xx, implying the stock is deeply undervalued as compared to its peers. For the valuation, we have considered  ANI Pharmaceuticals Inc., Evolus Inc., etc as the peer group for the comparison.

Therefore, based on the above rationale and valuation, we recommend a “Speculative Buy” rating at the closing market price of CAD 5.30 on April 11, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on April  11, 2022). Source: REFINITIV, Analysis by Kalkine Group 

  Technical Analysis Summary

Disclaimer

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