HLS Therapeutics Inc

HLS Therapeutics Inc (TSX: HLS) is a Canada-based company specialized in the pharmaceutical industry. The Company acquires and distributes commercial stage and branded pharmaceutical drugs for the North American markets. It focuses mainly on treatment products for the central nervous system and cardiovascular specialties in Canada.

Key highlights 

• "Vascepa" carrying blockbuster potential: Through focused business development activities, the company hopes to introduce more medicines in the central nervous system and cardiovascular therapeutic sectors, as well as in other therapeutic areas. The business anticipates a blockbuster potential with the "Vascepa," which may produce sales of USD 275-325 million and Adjusted EBITDA of USD 110-130 million by FY2025, while the total income for the same year is estimated to be about USD 325 million.
  

• Improving adjusted EBITDA: In Q2 2021, the company reported adjusted EBITDA of USD 6.6 million increased by USD 1.7 million or 36.3% from the same period in the prior year as a result of the USD 2.3 million increase in revenues on the back of higher products sales of Vascepa in Canada and higher royalty revenues from royalty interests.
  

• Higher cash from operations: Cash generated from operations in Q2 2021, stood at USD 1.7 million compared to cash used in operations of USD 4.2 million in Q2 2020. For the 2021 year-to-date period, cash from operations are USD 8.9 million compared to USD 1.1 million in the same period last year. The increase was attributable to a reduction in required non-cash working capital and the higher Adjusted EBITDA in fiscal 2021.

• Ample liquidity: As on June 31, 2021, the group had USD 21.3 million of cash and cash equivalents, along with unused revolving facility of USD 35.0 million. Moreover, the Company may also request to be provided with incremental loans, up to a maximum amount of USD 70.0 million, to support acquisitions and other growth opportunities. 

Financial overview of Q2 2021 (in thousands of U.S. dollars)

Source: Company 

• The company generated revenue of USD 14.9 million in Q2 2021, against USD 12.6 million in the previous corresponding period. The rise in revenue was primarily due to higher Vascepa revenue, along with growth in Royalty revenues.
• In Q2 2021, the company posted an operating loss of USD 0.5 million, against a loss of USD 4.3 million in pcp, the lower operating loss was primarily due to higher revenue and lower amortization and depreciation cost.
• Net loss reduced to USD 2.1 million, compared to a USD 6.4 million in the previous corresponding period. Lower finance and related cost helped the company to bring down its net loss.
  

Risks associated with investment

The company is exposed to various risks factors, including risks related to the specialty pharmaceutical industry, economic factors, and many other factors which are beyond the management control. Future growth of the company is highly dependent on the performance of VASCEPA. Any deviation from the forecasted performance may adversely affect the company.

Valuation Methodology (Illustrative): EV to EBITDA 

Stock recommendation

Q2 2021, was another solid quarter financially despite the ongoing challenges posed by the COVID-19 pandemic, which reflects the emerging contribution from Vascepa. Clozaril also continues to deliver strong and reliable performance and the patient count for the product increased in Canada by 3% annually driving the growth of the market in the process. Furthermore, the company has plenty of cash on hand, allowing it to look at expanding the product range through in-licensing or M&A deals in Canada and the United States. Therefore, based on the above rationale and valuation, we recommend a "Speculative Buy" rating on the stock at the closing price of CAD 16.42 as on August 06, 2021. We have considered Hamilton Thorne Ltd, Medexus Pharmaceuticals Inc, Knight Therapeutics 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 August 06, 2021). Analysis by Kalkine Group

Thunderbird Entertainment Group Inc.

Thunderbird Entertainment Group Inc. (TSXV: TBRD) is a multi-platform media production, distribution & rights management company. The company’s programs are broadcasted through conventional linear means and a number of digital platforms across more than 200 territories worldwide.

Key Highlights:

• Growing Subscriber base: The company creates original IP from scratch and also sources & license original IP required for adaptation to film and animation. In the recent past, the industry is witnessing strong demand for content-based entertainment services, supported by increased 5G penetration, increased traction from the company’s clients like Netflix, Amazon Prim, Disney+, HBOMax etc. Meanwhile, due to the restrictions imposed, the industry is also witnessing elevated growth from the OTT platforms, which is impressive and would support the company upcoming revenues.                                

• Strong Cash flow growth: The company reported exuberant growth in its cash flows at CAD 19.450 million for 9MFY21, as compared to CAD 6.364 million in the previous corresponding period. The growth was supported by higher net profit in the current period. Moreover, the company reported free cash flow of CAD 7.474 million in 9MFY21, significantly higher than CAD 4.700 million in pcp.
  

• Macro Drivers: The content & media segment is likely to grow in the coming years, supported by higher mobile penetration across the globe and growing consumer preference towards international programs etc. Moreover, due to the participation of tech giants like Google, Apple, Facebook, etc. would likely to drive increasing demand for content across multiple channels. Moreover, growing DTC (direct to consumer) base and audiences for Factual and Kids & Family programs are likely to boost the subscriber’s rate.
  

Q3FY21 Financial Highlights:

• TBRD announced its quarterly result, wherein the company posted revenue of CAD 37.683 million, jumped from CAD 29.565 million in pcp. The increase was supported by higher revenue from both the production services segment and licensing & distribution segments.
• Total expenses stood higher at CAD 33.014 million, compared to CAD 25.082 million in the previous corresponding period (pcp). The increase was driven by higher direct operating costs, partially offset by lower general and administrative expense, distribution and marketing costs and higher finance costs.
• Net income from continuing operations stood at CAD 3.579 million, as compared to CAD 3.367 million in the previous corresponding period (pcp).

Source: Company Report

Risks: Change in consumer preference for other entertainments would likely dampen the subscriber’s rate. Moreover, change in revenue generation would take a toll on the company’s operations.

Stock Recommendation: 

The company offers content-based media entertainment services to the tier-1 clientele across the OTT platforms, and in the recent past, the performance has shown consistent growth, which is a key positive. Adjusted EBITDA soared to CAD 17.331 million in 9MFY21, from CAD 12.506 million in pcp. We expect the momentum to continue in the coming years, supported by changing consumer’s preferences towards OTT platforms across the globe. On the valuation front, the stock is available at an EV to Sales multiples of 1.4x on an NTM basis, as compared to the industry (media & publishing) average of 3.2x. Hence, considering the above facts, we give a ‘Speculative Buy’ rating on the stock at the closing price of CAD 4.06 on August 06, 2021 with lower double digit (in percentage terms) upside potential.

Technical Analysis Summary

One-Year Technical Price Chart (as on August 06, 2021). Analysis by Kalkine Group

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

Disclaimer

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