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 selected international markets.

Key highlights 

• Expanding product portfolio: The company expects to expand its product portfolio within existing therapeutic fields in Canada and Latin America (LATAM); and intends to leverage its expertise in specialty sales and marketing, branded generic development, product acquisition and in-licensing to gain a competitive advantage in delivering pharmaceutical products to the marketplace, thereby it would further decrease scientific risks, long development timelines and high development costs. 

• 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. 

• Rich pipeline of new products: The Company has many products in the process of being submitted for regulatory approval, in pre-commercialization and the early stages of commercialization. Such activities require substantial financial investment; therefore, it is expected that the Company’s selling and marketing, and research and development expenses could increase in future. 

Financial overview of FY 2020 (In thousands of CAD)

Source: Company 

• In FY 2020, the company’s revenues increased by CAD 152.0 million or 320% to CAD 199.5 million, against CAD 47.4 million in the previous corresponding period. The consolidation of GBT’s results aided the higher revenue.
• Primarily on the back of higher revenues, the company clocked gross income of CAD 81.6 million against CAD 26.9 million in pcp.
• The company witnessed higher SG&A and R&D expenses, higher amortization of intangibles, which resulted in higher operating expenses and thereby, an operating loss of CAD 30.6 million against CAD 16.8 million in pcp.
• The company reported a gain on financial instruments amounting to CAD 48.0 million in the reported period, resulting in a net profit of CAD 31.7 million V/s CAD 18.0 million in pcp. 

Risks associated with investment

The Company's products are subjected to regulatory approvals, which might be time-consuming, and 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

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

FY2020 was a transformative year for the Company with the completion of the acquisition of GBT. Despite the challenges due to COVID-19, the Company is progressing on integration while advancing its product portfolio in Canada and Latin America. It received regulatory approvals from Health Canada for many of its products, which is positive. Furthermore, 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. Therefore, based on the above rationale and valuation, we recommend a "Speculative Buy" rating on the stock at the closing price of CAD 5.34 on April 14, 2021. We have considered Greenbrook TMS Inc, Jamieson Wellness Inc, Medexus Pharmaceuticals Inc, etc. as the peer group for the comparison.

1-Year Price Chart (as on April 14, 2021). Source: Refinitiv (Thomson Reuters)

Spark Power Group Inc.

Spark Power Group Inc. (TSX: SPG) is an independent supplier of end-to-end electrical contracting, operations, and maintenance services. The company also offers energy sustainability solutions to the industrial, commercial, utility, and renewable asset markets across North America.

Key Highlights:

• Solid Growth from Renewables segment: In FY20, the company witnessed a major surge in income from the renewable segment, aided by recent acquisitions of 3-Phase and One Wind. Moreover, the company’s renewable segment caters to the growing segments like Battery Energy Storage Systems (BESS) and Electric Vehicle (EV) segments, which is a key positive. We expect the above momentum to continue in the coming days, which would support the cash flows of the company.

• Signs of Revival: The company’s operations remained fully operational during FY20, as the service and products comes under essentials and is immune to the economic cycles. Moreover, the company received support from the Canadian government via subsidies and from US government, which assisted company to remain afloat during tepid times. Notably, the group is witnessing positive momentum in FY21 in new bookings aided by improved market conditions. Management believes that revenues, new bookings and customer activity are likely to remain high in FY21, and also anticipates improvements in margins due to a decline in the costs related to COVID-19 protocols. 

• Utilizing Customer database for Organic Growth: Recently, the company announced that they would offer solar solutions to new and existing customers in California. The company is focusing on leveraging its local presence and customer relationships, as well as its technical and sustainability expertise, to meet the growing demands of the solar segment. 

Q4FY20 Financial Highlights:

• SPG announced its full-year result, wherein the company has posted its Revenue of CAD 228.153 million, significantly higher than CAD 188.591 million in FY19. The group reported higher revenues from Technical Services and Renewables segments, partially offset by a lower Sustainability income.                 

Revenue Bifurcation (Source: Company Reports)

• Gross profit stood higher at CAD 65.736 million, v/s CAD 60.525 million in FY19, supported by a higher income, while a significant surge in cost of sales (CAD 162.417 million v/s CAD 128.066 million in FY19) remained a drag.
• Income from operations stood at CAD 7.131 million, declined from CAD 9.719 million in FY19, primarily attributable to an increase in selling, general and administrative costs (CAD 53.969 million versus CAD 47.714 million in the previous year).
• The company reported a net loss of CAD 1.679 million, as compared to a net income of CAD 1.176 million in FY19. The decline was due to a lower income from operations coupled with an increase in finance expense (CAD 6.762 million v/s CAD 5.271 million in FY19) and a higher tax expense (CAD 3.047 million v/s CAD 1.190 million in FY19).

FY20 Income Statement Highlights (Source: Company Report)

Risks: The company reported a surge in its total debt due to working capital requirements, capital expenditures and debt service requirements. Continuation of the above trend would lead to higher finance costs, which would further dampen the company’s profitability.

Stock Recommendation:

Recent growth from the renewables segment is likely to continue in the coming days due to the growing adoption of renewable energy. Moreover, the company’s new policy to utilize its existing local presence and customer relationships across California is likely to support organic growth for the firm. On the valuation front, the stock is available at forward EV to Sales multiple of 0.8x, which is significantly lower compared to the industry (Industrials) median of 1.9x. Hence, considering the aforesaid facts, we give a ‘Speculative Buy’ Rating on the stock of SPG at the closing price of CAD 1.68 on April 14, 2021.

One-Year Price Chart (as on April 14, 2021). Source: Refinitiv (Thomson Reuters)

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.