Aurora Cannabis Inc

Aurora Cannabis Inc (TSX: ACB), is a Canadian company which cultivates and sells medicinal and recreational cannabis through a portfolio of brands. Although the company primarily operates in Canada, it has expanded internationally in more than 20 countries.

Key highlights 

• Delivers a largest single shipment of cannabis to Israel: Recently, the company delivered a cannabis shipment worth nearly CAD 8 million, in one of the largest single shipments of cannabis that Israel has received. We believe, the sale is a significant step in advancing its international medical business, a key strategic priority for the company as a global cannabis company.
  

• Growing cannabis market opportunity: In the Canadian consumer market, the firm is a leading player. In the long run, it thinks that the rising success of medical cannabis regimes across the world would lead to the legalization of more adult-use consumer markets. According to the company, consumer demand for items containing CBD derived from hemp plants is projected to increase in the coming years. In the next three years, the company anticipates consolidated Canadian retail revenues to be about CAD 8,000 million.

Source: Company 

• Completes Balance Sheet Restructuring: The business has completed the process of restructuring its balance sheet by repaying the whole amount of roughly CAD 89 million on its restated credit facility, including accrued interest. The Company's pro forma cash position as of May 31, 2021, after giving effect to the repayment, was approximately CAD 430 million.
  

• Expanding its brand’s San Rafael '71 portfolio: Recently the company launched three new proprietary cultivars under its premium adult-use cannabis brand San Rafael '71. The business is delighted to satisfy the demands of its customers with the new San Rafael '71 strains. Starting in July, these new product options would be available for purchase across Canada. We think that releasing new items to the market is beneficial to the firm since it would generate more revenue flows and attract new consumers.
  

Financial overview of Q3 2021 (In Thousands of CAD)

Source: Company 

• The company posted lower revenue at CAD 1 million against CAD 73.5 million in the previous corresponding period. The drop in total revenue was mainly due to lower performance from consumer cannabis net revenue and lower average net selling price of dried cannabis, which fell 23%.
• On the back of higher cost of goods sold due to fair value inventory impairment charges, the company registered gross loss of CAD 85.4 million against a profit of CAD 19.6 million in pcp.
• Although the company curtailed its operating expenses to CAD 57.4 million against CAD 103 million in pcp, still it recorded operating loss of CAD 142.9 million against a loss of CAD 83.4 million in pcp.
• Net loss for the reported period stood at CAD 164.56 million against CAD 139.3 million in pcp.
  

Risks associated with investment

The company operates in a highly regulated business and any failure or significant delay in obtaining applicable regulatory approvals could adversely affect the ability to conduct its business. Additionally, change in the laws, regulations, and guidelines that impacts the business may cause adverse effects on its operations. 

Valuation Methodology (Illustrative): EV to Sales 

Stock recommendation

The Canadian adult-use category faced challenges throughout the quarter. Aurora's extensively diversified business model, which balances local medical, foreign medical, and adult-use platforms, is becoming increasingly important. Despite this, it had the greatest domestic medical cannabis outcomes and the best foreign medical cannabis results of any Canadian LP throughout the era. The firm sees a significant potential to cater to the Canadian retail sales of cannabis, which is expected to increase significantly over the next three years. Furthermore, we feel that expanding the brand's portfolio by launching new items is beneficial to the firm since it would generate more revenue flows and attract more new consumers. Therefore, based on the rationales discussed above and valuation, we recommend a "Speculative Buy" rating on the stock at the closing price of CAD 8.89 on July 23, 2021. We have considered Canopy Growth Corp, Tilray Inc, OrganiGram Holdings 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 Technical Price Chart (as on July 23, 2021). Source: REFINTIV, Analysis by Kalkine Group

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

Kidoz Inc

Kidoz Inc (TSXV: KIDZ) is mainly 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. 

Key Highlights 

• Tradplus selects Kidoz for Kid Safe Advertising: Tradplus have integrated the Kidoz SDK into its mediation solution for mobile apps, which will seamlessly serve Kidoz Ads within kids mobile apps using the TradPlus solution. TradPlus is a trusted and popular mediation platform that provides professional monetization services for top publishers in China, serving more than 50 Billion ad request requests daily.

• Ties up with Proactive Investor Portal: The company announced that it has engaged Proactive, one of the world's fastest growing financial media platforms, to help with investor outreach and market awareness. It hopes to get a lot of additional exposure as a result of its position on Proactive's website, which allows companies and investors to interact sensibly right now. The agreement with Proactive is for a 12-month period, with Kidoz Inc. receiving unlimited editorial and video interview coverage.
  

• Kidoz Launches on AGORACOM Platform:  The company started a 12-month online marketing campaign on the AGORACOM platform to engage new and existing investors in its business strategy. It also aims to benefit from its presence on the AGORACOM Digital Network, which recently surpassed 600 million page views and has exceeded industry engagement metrics by more than 400% in its work with over 350 public companies.

• Focused on development and expansion: The company is working on technologies that would allow it to access a larger range of inventory app kinds, allowing it to expand its capabilities and market share. While the Company's primary emphasis is on the creation and extension of the KIDOZ Safe Ad Network, it is also looking at ways to leverage its technology to grow into other areas, either through new links to the larger mobile advertising industry or through synergistic M&A.

• Uprising demand: The firm had record demand from its advertisers in its operating regions in Q1 2021. There is no sign that this growth would diminish in the near future, which is a major positive. In the past, the firm has only generated 12% of its annual revenues in the first quarter, so if this pattern continues, the firm would have an amazing year.
  

Financial overview of Q1 2021 (Expressed in United States Dollars)

Source: Company 

• In Q1 2021, the company reported higher revenue, which increased 58% to USD 1.55 million, against USD 0.98 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 0.68 million, against USD 0.44 million in pcp.
• Higher G&A expenses, selling and marketing expenses, and software development cost increased the company’s total operating cost, which stood at USD 0.99 million in Q1 2021 V/s USD 0.83 million in pcp.
• The company reported a lower net loss in Q1 2021, at USD 0.34 million, compared to a loss of USD 0.40 million in pcp.
  

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. However, the business model is also exposed to regulatory risk such as licenses. 

Stock recommendation

The company's overall revenue increased by 58% in the most recent quarter, owing mostly to the huge demand for kid-safe advertising generated by rigorous regulations throughout the world, and it sees no signs of this trend slowing down anytime soon. Kidoz's mobile product strategy of pure contextual targeting, free of any invasive data tracking, is supported by a number of strong macroeconomic, consumer and industry trends. The company's rapid system expansion and strong financial performance are aided by the solutions it has implemented. On the valuation front, the stock is available at a forward EV/sales multiple of 4.33x against the industry median of 6.2x. Hence, considering the aforesaid rationale, we recommend a "Speculative Buy" rating on the stock at the closing price of CAD 0.62 on July 23, 2021, with lower double digit (in percentage terms) upside potential.

Technical Analysis Summary

One-Year Technical Price Chart (as on July 23, 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.