Knight Therapeutics Inc

Knight Therapeutics Inc (TSX: GUD) is a specialty and generic drug manufacturing company. Its principal business activity is focused on developing, acquiring, in-licensing, out-licensing, marketing, and distributing innovative pharmaceutical products, consumer health products, and medical devices in Canada and select international markets. 

Key highlights

• Developing branded generic products: Through the GBT acquisition, the Company is concentrating on developing branded generics for Argentina and other LATAM markets. The Company is focusing on expanding the geographic reach of currently developed branded generics. Besides, it is working on optimizing development efforts and capabilities to access more enormous opportunities for LATAM.

• Robust jump in Adjusted EBITDA: In the reported quarter, the company's adjusted EBITDA rose by CAD 1.7 million, or 23% and by CAD 3.0 million, or 47%, on a constant currency basis, compared to Q2 2020. The increase in adjusted EBITDA was driven by a CAD 5.6 million increase in gross profit due to higher revenues, offset by a CAD 1.3 million increase in operating expenses.
• Rising cash inflow from operations: The company's cash flow from operations was CAD 12.4 million, up CAD 4.3 million, or 54%, over the previous year. This rise was fueled by a CAD 1.5 million drop in non-cash working capital and other factors as a consequence of controls implemented in 2020 on inventory management and receivables collection, as well as CAD 10.8 million in net income generated adjusted for several reconciling factors.
• Reduced debts burden: The company was able to reduce its debt load, which is commendable. Bank loans amounted at CAD 35.1 million on March 31, 2021, down CAD 16.6 million or 32% from the previous period, owing mostly to CAD 14.9 million in loan repayments and a further CAD 2.3 million due to foreign exchange revaluation.

Financial overview of Q2 2021 (In thousands of CAD)

Source: Company

• In Q2 2021, the company’s revenues increased to CAD 65.7 million, against CAD 53.2 million in the previous corresponding period.  The increase was mainly due to higher sales from new product launches.
• Primarily on the back of higher revenues and lower cost of goods sold, the company clocked gross profit of CAD 28.8 million against CAD 22.2 million in pcp.
• The company witnessed lower operating expenses, which helped the company to maximize its income before income tax that stood at CAD 26.5 million against CAD 14.6 million in pcp.
• Net income for the reported period stood at CAD 29.0 million against CAD 15.5 million in the previous corresponding period.
  

Risks associated with investment

The Company's products are subjected to regulatory approvals that might be time-consuming, which might impact the product pipeline. Furthermore, after the GBT transaction, the Company is exposed to additional risks related to investing and operating in international locations, including emerging markets. Operating in such markets carry substantial inherent financial, legal and political risks. 

Valuation Methodology (Illustrative): EV to Sales

Stock recommendation

Despite the continued problems created by the epidemic, the business generated record quarterly earnings in Q2 2021. The company has performed well on several fronts in the last six months, with its business development team closing the Exelon® transaction and already working on its integration, which is a significant positive. In addition, the company is focusing on creating branded generics for Argentina and other LATAM countries. In addition, the company is concentrating on increasing the regional reach of branded generics that have already been produced. Furthermore, the firm maintained a high rate of cash flow generation while reducing debt, which is commendable. Therefore, based on the above rationale and valuation, we recommend a "Speculative Buy" rating at the closing price of CAD 5.29 on October 01, 2021. We have considered Greenbrook TMS Inc, Medexus Pharmaceuticals Inc, Hamilton Thorne Ltd, 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 October 01, 2021). Source: REFINITIV, Analysis by Kalkine Group

Ag Growth International Inc

Ag Growth International Inc (TSX: AFN) is a leading provider of equipment solutions for agriculture bulk commodities including portable and stationary grain handling, storage and conditioning equipment, belt conveyors, grain storage bins, grain handling accessories, grain aeration equipment and grain drying systems. 

Key highlights

• Delivering sustainable growth: In Q2 2021, the Company continued its momentum, with sales increasing by 15.4% to CAD 301.6 million on a year-over-year basis, and Adjusted EBITDA increasing by 4.8% to CAD 46.2 million from CAD 44.1 million in the previous corresponding quarter. The Company’s continuous growth in revenue and Adjusted EBITDA is supported by healthy demand and a substantial backlog.

Source: Company

• Improving macros would support future growth: Crop yields, prices, and trade flow are all increasing, indicating that global macroeconomic conditions are strengthening. While the company's demand drivers are more closely linked to crop numbers, trade procedures, and consumption levels, the current agricultural pricing scenario provides a good tailwind for its markets. Favorable farm-level conditions in North America would continue to drive demand for its products.

• Resilient performance from each segment and geography: The company's business has showed some resiliency across all segments and geographies, with revenues increasing at a solid rate. On a year-to-date basis, its agricultural business grew by 16% to CAD 303.1 million, while other divisions also performed well. Although, sales in the Canadian area fell by 1%, the US and foreign markets grew at a respectable rate.

Source: Company

• Firm order backlog: Order intake continues to be high, with excellent backlogs indicating that sales are on pace. This demonstrates the company's newfound resilience in terms of its business strategy. The company's agricultural backlog has risen by 90% year over year. Customers' emphasis has resulted in a surge in demand for farm equipment. As on June 30, 2021, the total commercial segment's backlog was up 59% year over year, resulting in a 69% increase in overall backlog.

Source: Company

Financial overview of Q2 2021 (Expressed in 000 of CAD)

Source: Company

• The Company posted an increase in net sales by 15% to CAD 302.6 million, compared to CAD 257.9 million in Q2 2020.
• The Company posted a higher gross profit at CAD 75.2 million in Q2 2021, compared to CAD 67.3 million in pcp, on the back of higher revenue.
• Profit before income tax stood at CAD 16.1 million, against CAD 18.3 million in pcp.
• The Company recorded a net income of CAD 14.2 million in Q2 2021, compared to CAD 14.4 million in the previous corresponding period.
  

Risks associated with investment

In the near-term, the rise of steel, component, packaging, and freight costs may pressure the gross margin of the segment. While cost increases can be passed onto customers in many instances, the meteoric rise in steel costs would impact the company’s Q3 2021 margins.

Valuation Methodology (Illustrative): EV/ EBITDA

Stock recommendation

The company's outstanding second-quarter results continue to demonstrate the benefits of its recent expansion and diversification. We believe the company is well positioned for a good end to 2021 and moving beyond, with record backlogs throughout the industry, up 69% over last year. Furthermore, despite the challenges of rising steel price, component, packaging, and freight costs, the company expects strong full-year trade sales and adjusted EBITDA above the FY 2020 levels. Therefore, based on the above rationale and valuation, we recommend a "Speculative Buy" rating on the stock at the closing price of CAD 28.15 on October 01, 2021. We have considered Superior Plus Corp, Savaria Corp, Shawcor Ltd, etc., as the comparison's peer group.

*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 October 01, 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.