Destiny Pharma PLC

Destiny Pharma PLC is an FTSE AIM All-Share index listed United Kingdom-based clinical-stage biotechnology company. The Company is focused on the development of medicines for the treatment of infectious diseases.

Investment Rationale – Speculative Buy at GBX 104.00

• Market Opportunities: DEST had identified a commercial opportunity for XF-73 to be approximately USD 1 billion.
• Strong Liquidity: The Company remained well funded to pursue further growth opportunities as DEST had managed to maintain a current ratio of 23.50x during H1 FY21, more than the industry median.
• Favourable Stock Price Movements: The stock price has outperformed against the FTSE All-Share Pharmaceuticals and Biotechnology index and FTSE AIM All-Share index over the last one year.
• Technical Indicator: From a technical standpoint, 14-day RSI (~30.19) is in the oversold territory, while the stock price is hovering close to the lower standard deviation of the Bollinger Bands.

Risk Assessments

• UK GDP: The UK economy witnessed a slowdown as the GDP grew quarter-on-quarter by around 1.1% during Q3 FY21, which remained merely lower-than-expected growth of around 1.30%.
• No Revenue: The Company is still in the clinical stage and has not reported any revenue yet.

H1 FY21 Financial & Operational Highlights (for the six months ended 30 June 2021, as of 09 September 2021)

 (Source: Company Website)

• Significant Reduction in R&D Cost: The R&D expenditure got reduced by more than 50% to £2.0 million for H1 FY21.
• Decent Cash Balance: The Company’s Cash & term deposits stood at £7.1 million as of 30 June 2021.
• Net Assets: The Company posted a decent increase in net assets from £5.4 million as of 30 June 2020 to £10.2 million as of 30 June 2021. 
  

Share Price Chart

(Data Source: REFINITIV, Analysis done by Kalkine Group)

Conclusion 

The Company remained on track to commercialize XF-73 and NTCD-M3. Moreover, the Company had already released encouraging Phase 2 clinical data and going to start Phase 3 clinical trials. However, the stock price may undergo adverse corrections because of the penny nature and ongoing investors’ worries regarding the Omicron variant of coronavirus. Thus, it would depend on the risk appetite of the investors to take a reasonable position on this company having decent operational growth catalysts. The stock made a 52-week High and Low of GBX 250.00 and GBX 65.10, respectively.

Based on the commercialization opportunities, decent liquidity levels, and favourable technical indicators, we have given a “Speculative Buy” recommendation on Destiny Pharma PLC at the closing price of GBX 104.00 (as on 23 December 2021).

GRC International Group PLC

GRC International Group PLC is an FTSE AIM All-Share index listed UK-based holding company engaged in providing services related to information technology governance, risk management and compliance solutions.

Investment Rationale for Valuation – Sell at GBX 32.50

• Profit-Booking Opportunity: The stock price had breached the resistance levels provided in the last coverage. Thus, it would be a decent opportunity to liquidate the position and book profit.
• Penny Stock: Considering the low market capitalization, the stock price can be exposed to market volatilities.
• Loss-Making Entity: GRC has been reporting an operating loss and a net loss for the last three years (FY19 to FY21).
• Weak Top-line Business: The top-line revenue witnessed a decline at a CAGR of negative 9.16% over the period of last four years between FY18 and FY21.
• Technical Indicators: From a technical standpoint, GRC is hovering around the upper Bollinger band, indicating a bearish price pattern. Furthermore, the 14-days RSI of ~61.41 approaches overbought territory and indicates a correction in the stock price.

Key Risks

• Covid-19 Pandemic: The daily COVID cases in the UK had breached 1,00,000 recently, which may result in increased restrictions over the period.
• Federal Reserve Meeting: The Fed would accelerate the tapering of asset purchases to USD 30 billion per month from USD 15 billion per month. Meanwhile, the interest rate hike would likely happen thrice in 2022.

H1 FY22 Financial Highlights (for the six months ended 30 September 2021, as of 14 December 2021)

 (Source: LSE Website)

• Top-Line Business: GRC had shown a significant growth of around 22% in total revenue to £6.60 million during H1 FY22.
• Total Billings: The total billings went up by around 27% to £7.1 million during H1 FY22, while it was £5.6 million during H1 FY21.
• Profitability: GRC had reported a loss after tax of a negative £0.5 million during H1 FY22.

One Year Share Price Chart

 (Source: REFINITIV; Analysis done by Kalkine Group) 

Conclusion

The Company had reported a decline in net cash at the end of H1 FY22. Moreover, the stock price surged after the release of H1 FY22 financial results and breached the resistance levels provided in the last coverage. Furthermore, the surprise rise in interest rates by the Bank of England and record Covid-19 cases in the UK may dent the growth prospects. Thus, it would be prudent for the clients to book profit at the current levels on this Company. The stock made a 52-week low and high of GBX 20.50 and GBX 47.00, respectively.

Based on the decline in net cash during H1 FY22, increase in interest rates, and loss-making nature, we have given a “SELL” recommendation on GRC International Group PLC at the closing market price of GBX 32.50 (as on 23 December 2021).

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

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

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