Veru Inc

Veru Inc (NASDAQ: VERU) is an oncology biopharmaceutical Company, having a focus on developing novel medicines for the management of breast cancer and prostate cancer.

Investment Highlights – Veru Inc – Speculative Buy at USD 13.92

• In the financial year 2020, the Company witnessed a significant increase in revenue and liquidity.
• In the last three months, the Company delivered a significant return of ~456.80% and delivered higher returns compared to the benchmark Index.
• As per valuation metrics, EV/Sales multiple of the Veru Inc is currently lower as compared to the corresponding multiple of the Personal & Household Products & Services industry. It reflects, shares are undervalued as compared to the industry.
• From the technical standpoint, shares were trading well above the support level of 20-day simple moving average prices (USD 9.80), which reflects an uptrend in the stock and can move up further.

Key Risks

• Any change in regulations and government policies could affect the overall business of the Company.
• The covid-19 outbreak has resulted in disruptions in clinical trials which will have a negative impact on the Company’s performance.

Recent News

On 8 February 2021, Veru announced safety results and positive efficacy from Phase 2 clinical trial of VERU-111 from the sample of around 40 hospitalized patients at high risk for ARDS (Acute Respiratory Distress Syndrome) from covid-19.

Financial Highlights – FY2020 (30 September 2020) (released on 10 December 2020)

(Source: Annual Report, Company Website) 

• For the financial year 2020, driven by a 31% increase in FC2 net revenue, the total revenue increased to $42,592,060.
• Due to the higher cost of sales and operating expenses for the period, the net loss for the period increased.
• The cash balance as on 30 September 2020 increased to $13,588,778 (30 September 2019: $6,295,152).

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Conclusion

The Company has shown a decline in financial performance in the financial year 2020. Despite the higher revenue, the profitability for the period declined and remained in the negative zone. VERU has a strong liquidity position, with a well-positioned balance sheet. The Company has a strong drug pipeline for prostate cancer and breast cancer, which includes VERU-100, VERU-111, Zuclomiphene citrate and Enobosarm. The use of VERU-111 to prevent ARDS from covid-19 looks encouraging in Phase 2 clinical trial. Veru’s operational performance was not materially impacted by the impact of the covid-19 pandemic, while it resulted in the delay in clinical trials, increased costs and disruption in the supply chain. The stock made a 52-week low and high of USD 2.05 and USD 23.39, respectively.

Based on the above rationale, we have given a “Speculative Buy” recommendation on Veru Inc at the closing price of USD 13.92 (as on 8 February 2021).

Del Taco Restaurants Inc

Del Taco Restaurants Inc (NASDAQ: TACO) is a franchisor and operator of restaurants. The Company presently have around 600 restaurants.

Investment Highlights - Del Taco Restaurants Inc – Speculative Buy at USD 10.15

• In the fourth quarter of the financial year 2020, the Company reported higher system-wide comparable restaurant sales, reflecting growth in Franchised comparable restaurant sales.
• In the last nine months, the Company delivered a significant return of ~76.52% and delivered higher returns compared to the benchmark Index.
• As per valuation metrics, EV/Sales and Price/Earnings multiples of the Del Taco Restaurants Inc are currently lower as compared to the corresponding multiples of the Hotels & Entertainment Services industry. It reflects, shares are undervalued as compared to the industry.
• From the technical standpoint, shares were trading well above the support level of 20-day simple moving average prices (USD 9.91), which reflects an uptrend in the stock and can move up further.

Key Risks

• Any change in the regulations and government policies could affect the overall business of the Company.
• Other risks such as failure to expand portfolio due to the rising health concerns and inventory shortage due to supply chain disruption presented by COVID-19 mayhem, could hamper the operational and financial performance.

Financial Highlights – Q4 and FY2020 (released on 12 January 2021)

• In the fourth quarter of FY2020, the Company’s System-wide comparable restaurant sales surged by 3.8%, while System-wide comparable restaurant sales declined by 0.9% in FY2020.
• The franchised comparable restaurant sales increased in Q4 and FY2020 by 7.5% and 1.4%, respectively.
• Due to lower company-operated restaurants open during FY2020, the Company-operated restaurant sales declined by 2.2% in Q4 FY2020 and 5.7% in FY2020.
• The cash balance in the financial year 2020 declined to $106.7 million as compared to $143.4 million in FY2019.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings (NTM) (Illustrative)

Conclusion

The Company has reported an increase in System-wide comparable restaurant sales in the fourth quarter. However, for the financial year 2020, System-wide comparable restaurant sales declined. The liquidity position for the period declined with reduced outstanding RCF (revolving credit facility). The Company-operated restaurant sales declined in both Q4 and FY2020, due to fewer number of company-operated restaurants open in FY2020. TACO was benefited by franchised comparable restaurant sales in both Q4 and FY2020. The Company’s operations were impacted by covid-19 and are experiencing a recovery in the trading environment after an ease in restrictions. The stock made a 52-week low and high of USD 2.45 and USD 10.45, respectively.

Based on the above rationale, we have given a “Speculative Buy” recommendation on Del Taco Restaurants Inc at the closing price of USD 10.15 (as on 8 February 2021), with lower double-digit upside potential based on 27.22x Price/NTM Earnings (approx.) on FY21E earnings Per Share (approx.).

*All forecasted figures and Peer information have been taken from 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.