Kidoz Inc

Kidoz Inc (TSXV: KIDZ) is engaged in creating consumer mobile software products and games. The firm is a kid-tech software developer and owner of the KIDOZ content discovery network. It emphasizes the development and marketing of a platform of interactive games for families and children. 

Investment Highlights 

• Robust growth in revenue: In Q2 2021, the company's total revenue, excluding platform fees and withholding taxes, climbed by 196% to USD 2.18 million, compared to USD 0.74 million in the previous equivalent quarter. Revenue also increased by 40% sequentially, which is a significant positive. This increase was mostly due to a high demand for contextual advertising, which was fueled by the adoption of stringent laws throughout the world.
• Increasing pace of growth: The Company's rapid development may be ascribed to powerful market and consumer dynamics in the broader digital economy as well as to its niche of private, safe, and targeted advertising. The growing domination of mobile usage and mobile entertainment among all age groups is one of the major factors driving development.
• Ventured in China: Many previously untapped locations are becoming accessible to global industry as AdTech markets continue to expand gradually on a worldwide basis. With recent collaboration announcements with TopOn and TradPlus, two reputable and popular mediation platforms in China, Kidoz has strengthened its footprint in the lucrative Chinese market. Through these partnerships, we believe the firm would be able to expand its worldwide ability to market and provide secure media.
• Increase in cash from operations: For the first six months, the company’s cash provided by operations increased to USD 313,830, compared to cash provided by operations of USD 144,085 in the same period in the prior year.
  

Financial overview of Q 2 2021 (Expressed in USD)

Source: Company

• In Q2 2021, the company reported higher revenue, which increased 196% to USD 2.18 million, against USD 0.74 million in the previous corresponding period. The company witnessed a healthy performance from Ad tech advertising, partially offset by content revenue.
• On the back of higher revenue, the group posted an increased gross profit of USD 1.0 million, against USD 0.32 million in pcp.
• Higher G&A expenses, selling and marketing expenses, and salaries along with stock awareness expenses increased the company’s total operating expenses, which stood at USD 1.6 million in Q2 2021 V/s USD 0.69 million in pcp.
• The company reported a net loss of USD 0.54 million in Q2 2021, compared to a loss of USD 0.36 million in pcp, partially offset by gain on derivative liability.
  

Risks associated with investment

The company operates worldwide, which generates a risk that the exchange rate fluctuations may adversely impact cash flows. Continued reduction in OEM sales of Kid’s tablets could also weigh on the group’s content segment revenue. The business model is also exposed to regulatory risk such as licenses.

Stock recommendation

The company’s total revenue grew at a rapid pace in Q2 2021 compared to the second quarter of fiscal 2020 and the first quarter of fiscal 2021 by 196% and 40% respectively, primarily due to the strong demand for contextual advertising generated by the introduction of strong regulations worldwide. The company is increasing its presence in the lucrative Chinese market, as it partnered with TopOn and TradPlus two popular mediation platforms in China. We believe the company would increase its capacity to sell and serve safe media globally through these relationships. On the valuation front, the stock is available at a forward EV/sales multiple of 3.79x against the industry median of 5.4x. Hence, considering the aforesaid rationale, we recommend a "Speculative Buy" rating on the stock at the closing price of CAD 0.65 on September 9, 2021, with lower double digit (in percentage terms) upside potential.

Technical Analysis Summary

One-Year Technical Price Chart (as on September 9, 2021). Source: REFINITIV, Analysis by Kalkine Group

Ceapro Inc

Ceapro Inc (TSXV: CZO) is engaged in the development and application of 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. 

Key highlights 

• Collaborated with Angiogenesis Foundation: Angiogenesis Foundation, an independent scientific organization focusing on pushing breakthroughs in health promotion, illness prevention, and disease treatment, recently partnered with the firm. Pre-clinical studies would be conducted using methods developed by the Angiogenesis Foundation to characterize the in vivo bioactivity of Ceapro's oat-derived bioactive products, beta glucan and avenanthramides, on angiogenesis, blood vessel repair, wound healing, and tissue regeneration in a variety of inflammation-based diseases and conditions, such as COVID-19 presenting damages.
• Positive outlook for cosmeceutical base business: We expect the company’s cosmeceuticals-based business to continue to grow and provide positive cash flows to support the expansion to a new business model. It is repositioning itself from a contract manufacturer/commodity company to a high-value life science/biopharmaceutical company involved in nutraceuticals and pharmaceuticals. Moreover, it has all the key components for success, including a solid foundation, a highly competent team, a healthy balance sheet, and a strong technology and product portfolio with the potential of getting into very large markets.
• Value driving lead products: The company has established base business with multiple growth opportunities and leveraging two value-driving products and enabling technologies, which supports near-term and future growth.

Source: Company

• Rising cash balance: The Company has cash and cash equivalents of CAD 7.26 million on June 30, 2021, compared to CAD 5.36 million on December 31, 2020.

Financial overview of Q2 2021 (Expressed in CAD)

Source: Company

• Total revenue in Q2 2021 decreased by 6% to CAD 4.4 million compared to CAD 4.6 million in the previous corresponding period. The Company benefited from higher sales of avenanthramides in the current quarter despite sales revenue being negatively impacted by forex exchange.
• Gross profit increased slightly to CAD 2.63 million in the reported period against CAD 2.58 million, mainly due to lower cost of goods sold.
• Income from operations stood at CAD 0.8 million against CAD 1.3 million in Q2 2020, primarily due to increased R&D and G&A expense.
• Net income in Q2 2021, reported by the company stood at 0.68 million against CAD 1.08 million in pcp.
  

Risks associated with investment

The company is exposed to a varied range of risks ranging from regulatory risks, uncertainty in product development and related clinical trials and validation studies. Furthermore, the company is exposed to forex risks, and investor are exposed to liquidity risk given the penny-cap market categorization of the company. 

Stock recommendation

The company has a business model with a highly competent team, a healthy balance sheet, and a strong technology and product portfolio with the potential of getting into very large markets. Further looking at the recent quarter upsurge in the R&D expenses, we believe the product portfolio is likely to bolster in the near term as higher R&D cost shows that the company is diligently working on new product development and enhancement of the efficacy of the existing product portfolio. On the valuation front, the stock is trading at an EV/SALES multiple of 3.1x on an TTM basis as compared to the industry median of 9.0x. Hence, considering the facts mentioned above, we recommend a “Speculative Buy” rating on the stock with a lower double-digit upside (in percentage term) at the closing price of CAD 0.67 on September 9, 2021.

Technical Analysis Summary

One-Year Technical Price Chart (as on September 9, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

Disclaimer

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