Medipharm Labs Corp

Medipharm Labs Corp. (TSX: LABS), is a Canada-based medicinal cannabis company specializing in the pharmaceutical grade production of cannabis. The Company is focused on distillation and cannabinoid isolation and purification.

Key Highlights

• Established Global Pharmaceutical Strategy: In Q1 2021, the company strengthened its licenses, global regulatory authorizations, and product registrations with health authorities to allow future sales through established pharmaceutical and medical channels across the world. We believe the company is focusing on boosting its sales, which is key positive.
  

• Extends strategic partnership with ADREXpharma: ADREXpharma, a prominent manufacturer and distributor of medical cannabis in Europe, recently renewed the supply arrangement with MediPharm. The company supplies ADREX with high-quality, purity-assured THC and CBD cannabis products for sale and delivery to around 19,000 pharmacies across Germany, helping to satisfy rising patient demand in the burgeoning German Medical Cannabis Market. MediPharm completed its first shipment of cannabis product to ADREX in Q1 2021 and is on track to deliver its subsequent shipments to Germany in Q2 2021.

• Increased Domestic Presence: The Company's initial cannabis cannabinol rich formula, CBD 100 Ultra Formula Oil, THC30 Plus Formula Oil, and CBN1:2 Nighttime Formula, were sold out in Ontario, and it extended its family of branded items. The firm also expanded distribution to more stores and updated the Ontario Cannabis Store with fresh listings and products.
  

• Reduces loans and borrowings: As of March 31, 2021, the company minimized its current liabilities to CAD 3.4 million from CAD 7.6 million, while non-current liabilities stood at CAD 0.14 million against CAD 10.7 million on December 31, 2021. The company would benefit from the reduced finance expenses.

Financial overview of Q1 2021 (In thousands of CAD)

Source: Company

• In Q1 2021, the company posted revenue of CAD 5.4 million, down by 51% compared to CAD 11.0 million in Q1 2020. The lower sale is due to the decrease in bulk concentrate volumes and was also impacted by COVID-19 related lockdowns and channel inventory reductions with provincial distributors.

• A gross loss of CAD 0.68 million was recorded in Q1 2021, against a gross loss of CAD 10.9 million in the previous corresponding period, primarily due to the lower revenue. 

• The company posted lower operating expenses, resulting in minimizing the operating loss at CAD 7.9 million compared to a loss of CAD 21.9 million in the previous corresponding period.

• The company reported a net loss of CAD 13.9 million, compared to a net loss of CAD 17.4 million in Q1 2021. The group witnessed higher interest expense at CAD 9.7 million, partially offset by an unrealized gain in the revaluation of derivative liabilities by CAD 3.7 million.
  

Risks associated with investment

Several risk factors could impact the company’s ability to execute its key strategies successfully and materially affect financial performance. Some of these risks include reliance on licenses and authorization, disruption in the supply chain, inability to sustain pricing and inventory models, lack of long-term client commitments, etc.

Valuation Methodology (Illustrative): EV to Sales

Stock recommendation

In 2021, the firm set out to develop itself as a pharmaceutical firm while ramping up and significantly increasing its overseas sales. It recently extended the supply arrangement with ADREXpharma to meet increased patient demand in Germany's expanding medical cannabis market, which saw sales rise 34% last year. The Company anticipates completed product sales to improve in the future and sales to the worldwide pharmaceutical, medical, and wellness sectors also likely to improve. The management also noted that they would maintain their discipline in managing spending and deploying the balance sheet, citing the recent reduction in liabilities as a critical positive. In addition, they made substantial progress actively managing its cost structure which led to a 30% expense reduction and remains focused on returning to profitability. Therefore, based on the above rationale and valuation, we recommend a "Speculative Buy" rating on the stock at the closing price of CAD 0.46 as of July 13, 2021. We have considered Valens Company Inc, Auxly Cannabis Group Inc, etc. as the peer group for the comparison. 

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

Technical Analysis Summary

One-Year Price Chart (as on July 13, 2021). Source: REFINITIV, Analysis by Kalkine Group 

Premier Health of America Inc

Premier Health of America Inc (TSXV: PHA) is a Canadian Health technology company that provides a comprehensive range of staffing and outsourced services solutions for healthcare needs to governments, corporations, and individuals through its proprietary platform.

Key Highlights 

• Acquired Solutions Nursing: On March 17, 2021, the company acquired Solutions Nursing L.F.C. Inc. and Formation Solutions Nursing Inc. for a total of CAD 2.7 million. Solutions Nursing reported revenues of about CAD 4.5 million, an EBITDA of CAD 0.61 million, and a net income of CAD 0.51 million for the fiscal year ended August 31, 2020. The purchase strengthens the market position of the group's Nordik business in Canada's northern regions. Additionally, as its activities are moved and integrated on its platform, the firm anticipates this business unit to create significant organic growth over the next two years.

• Focused on technology development: The group's growth plan revolves around technology, and it aims to spend a minimum of 2% of its annual revenues on maintaining and developing new technologies. To keep up with the current trend, new features and apps are released on a regular basis. Furthermore, the firm believes that the newly implemented features would help both the nurses and the company to enhance the invoicing function. On an annual basis, the organization estimates that this would result in a revenue increase of around 2%.
  

• Robust performance: In comparison to the previous fiscal year, the first semester of the current fiscal year has demonstrated a spectacular performance. The company's consolidated revenues for the first two quarters ending March 31, 2021, were CAD 30.4 million, up from CAD 8.3 million in the previous similar period, indicating a 266% increase. While EBITDA increased from CAD 0.9 million in pcp to CAD 3.1 million. Organic growth and the acquisition of Code Bleu were the major drivers of revenue and EBITDA growth in the first two quarters of 2021.

Source: Company 

Financial overview of Q2 2021 (in Canadian dollars)

Source: Company 

• In Q2 2021, the company revenue grew heavily to CAD 17.0 million against CAD 4.9 million in pcp, mainly due to the full consolidation of Code Bleu addition and organic growth.
• Gross margin reported by the group stood at CAD 4.3 million against CAD 1.3 million in Q2 2020.
• On the back of higher administrative expenses, the operating income registered by the company stood at CAD 1.4 million.
• On the back of robust revenue, the company made a turnaround from loss to profit and reported a net profit of CAD 0.82 million V/s a loss of CAD 0.78 million in pcp.
  

Risks associated with investment

A shortage of healthcare workers might result in greater recruitment and retention expenses, as well as a loss of clients and income, all of which would be detrimental to the organization. Furthermore, the company is subject to regulatory risk, capital and liquidity constraints, as well as financing concerns. Furthermore, because to the company's tiny market size classification, investors are subject to liquidity risk. 

Stock recommendation

The firm is continuing to develop organically and through acquisitions in order to maintain its growth trajectory. The full-quarter consolidation of Code Bleu had a significant impact on sales, which increased to CAD 17.0 million from CAD 4.9 million in pcp. It also had a strong increase in its bottom line, which is a major plus. Furthermore, the firm recently purchased Solutions Nursing L.F.C. Inc. and Formation Solutions Nursing Inc., and it expects significant organic growth from this business unit over the next two years as its activities are transferred and integrated on its platform. The firm has been busy releasing new features and apps, and it expects a 2% yearly revenue increase as a result of these developments. On the valuation front, the stock trades at a significantly lower EV/EBIDTA multiple of 8.96 on Next Twelve Months (NTM) basis, compared to the industry median of 17.21x. Hence considering the facts mentioned above, we recommend a “Speculative Buy” rating on the stock with a lower double-digit upside (percentage term) potential at the closing price of CAD 1.23 on July 13, 2021.

Technical Analysis Summary

One-Year Technical Price Chart (as on July 13, 2021). Source: REFINITIV, 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.