Alpha Lithium Corporation

Alpha Lithium Corporation (TSXV: ALLI) is a Canada based exploration company focused on the acquisition and development of high-grade lithium brine deposits. The company holds interests in the Tolillar Project and the Green Energy Project.

Key Highlights 

• In Argentina's world-class Salar del Hombre Muerto, the company just bought an option to acquire a 100% interest in a crucial, high-value property, which covers an area of 985 Ha., bringing the total landholdings in Hombre Muerto to 5,072 Ha. for ALLI. It also plans to start drilling later this year once all relevant permissions have been received.
• The company is exposed to the risk related to its growth, as they are hardly making any revenues at the present stage.
• During the six months ended June 30, 2021, it used CAD 3.95 million of its cash and cash equivalents to fund its operating activities, compared to CAD 2.18 million in 6 months ended June 30, 2020.
• ALLI shares are available at a TTM Price/Book Value multiple of 3.5x compared to the industry (Metal & Mining) median of 2.0x. This implies that the shares are highly overvalued against the industry.
• At the daily price chart, the stock is trading above the upper range of its 20-days Bollinger band, indicting a possible correction from the recent level.
  

Financial Overview of Q2FY21

Source: Company 

• The company witnessed a massive increase in its consulting fees and salaries at CAD 648,355 compared to CAD 29,024 in pcp.
• General and office expenses and stock-based compensation were also higher, against the previous corresponding period.
• In the reported period, the company's total operating expenses increased to CAD 2.68 million against CAD 1.04 million in Q2FY20.
• On the back of higher operating expenses and no revenue, the group's loss for the period elevated to CAD 2.64 million against CAD 1.04 million in pcp.

Risks Associated with Investment

The management may pursue equity and debt financing to support its operations. However, these plans may be adversely impacted by factors including uncertain market conditions and commodity prices. As a result, there can be no assurance that management's plan will be successful.

Stock Recommendation

The company's business model is capital intensive, with capital expenditures expected to increase further. Due to the absence of income and heavy losses, the group might face liquidity issues, further dampening its overall performance. It is still in the drilling and exploration phase and has not shared any information regarding the revenue realization. Moreover, on the valuation front, the stock is trading at a Trailing Twelve Months (TTM) P/BV multiple of 3.5x, significantly higher than the industry median (Metal & Minning) of 2.0x. Hence, we recommend a 'Watch' rating on the stock at the closing price of CAD 1.33 on November 23, 2021.

One-Year Technical Price Chart (as on November 23, 2021). Analysis by Kalkine Group

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

Green Organic Dutchman Holdings Ltd.

Green Organic Dutchman Holdings Ltd. (CSE: TGOD) produces certified organically grown cannabis. The company markets its products in Canada under two brands: 1) TGOD, which serves the premium segment, and 2) Highly Dutch for its mainstream offering. This dual branding strategy enables the company to reach a large portion of the market.

Key Highlights

• Lower Margin Profile v/s Industry: In Q2FY21, the company failed to maintain its pace and witnessed lower performance under the profitability margin matrix, consisting of gross margin, EBITDA margin, operating margin, and net margin which exhibit the pressure on the company.

Source: REFINITIV, Analysis by Kalkine Group

• Weak Liquidity Profile: In Q2FY21, the company's quick ratio was 0.62x compared to the industry median of 1.58x, while the current ratio stood at 1.28x against the industry median of 3.18x. These lower ratios against the industry indicate that its short-term obligations are growing faster than its resources to cover them, which is not a good indication.

• Long Cash Cycle: The company's cash cycle (days) has increased compared to the previous sequential quarter, which means it takes more days to convert its inventory to cash. In Q2FY21, its cash cycle stood at 403.2 days against 388.9 days in Q1FY21. Even when compared to the industry median (113.3 days), it is very high.

• Acquires Galaxie Brands Corporation: Galaxie Brands Corporation was recently bought by the corporation. With the addition of Galaxie's innovative pre-rolls, vapes, solventless products, and its flagship brand "Cruuzy", TGOD will broaden its brand portfolio with the closing of this transaction.

Financial Overview of Q2FY21 (in thousands of CAD)

Source: Company

• In Q2FY21, the company's revenue increased enormously by 145% to CAD 11.8 million against CAD 4.8 million in the previous corresponding period. The rise in revenue was mainly due to the improvements in its premium flower sales and the launch of its Highly Dutch flower and hash products.
• Its gross profit rose to CAD 3.2 million against CAD 1.3 million in pcp.
• On the back of higher depreciation costs, the company's total operating expenses increased to CAD 12.3 million compared to CAD 11.2 million. As a result, its loss from operations amounted to CAD 9.1 million against CAD 9.9 million in pcp.
• With higher finance costs, higher accretion charges, along with loss on sale of assets, TGOD's net loss expanded to CAD 32.5 million compared to CAD 9.8 million in the previous corresponding period.

Risks Associated with Investment

The group's products might face competition from other brands, which may lead to a decline in market share. Regulation of the markets in which it operates and general business and economic conditions, particularly in the Canadian medicinal and adult-use cannabis markets, are other key risks.

Valuation Methodology (Illustrative): EV to Sales

Stock Recommendation

Recently the company acquired Galaxie Brands, which we believe will diversify the brand portfolio of TGOD. The company would also benefit from improved regional distribution across Canada and gain further exposure to the valuable edible category through Galaxie's exclusive joint venture in Canada with a significant edible brand in the United States. However, the company's performance was weaker in the operating matrix, where it had a negative margin, implying pressure. Moreover, compared to the industry median, the company's liquidity ratios are low, and its cash cycle days are high, indicating an adverse liquidity profile. Hence, we recommend a 'Watch' rating on the stock at the closing price of CAD 0.14 on November 23, 2021. We have considered Cipher Pharmaceuticals Inc, Entourage Health Corp, Valens Company Inc, etc., as its peer group for comparison purposes.

One-Year Technical Price Chart (as on November 23, 2021). Analysis by Kalkine Group

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

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.