Futura Medical Plc

Futura Medical Plc (LON: FUM) is an AIM-listed innovative R&D Company in the pharmaceutical sector, which develops a portfolio of products based on the proprietary, transdermal DermaSys® technology.

Rationale for Valuation – Expensive at GBX 20.00

• The Company has not reported the revenue in the period, which raises uncertainty regarding its earning potential.
• The Company’s profitability margins and Return on equity remained in the negative zone from the last four years.
• The operating landscape remains highly volatile with the continuing uncertainty due to the Covid-19 pandemic.
• The Company is presently trading near the 52-week high, and Price/Earnings, EV/EBITDA and Price/Cash Flow metrics are in the negative zone as compared to the industry multiples.
• From the technical standpoint, 14-day RSI stood at ~61.64, which means the stock price could decline in the short term.

Key Risks

• The Company operates in a highly regulated landscape, and failure to comply could lead to a significant financial or reputational loss.
• Also, the overdependence on technology can lead to loss of data and significant service interruptions.
• The Company may face a loss of output due to disaster or disruptive event at the logistics facility or manufacturing facility.

Recent News

On 4 March 2021, the Company has entered into certain financing transactions with HT Riverwood Multi-Growth Fund and will receive cash of up £2 million (£1.5 million cash received). In addition, it has entered into a joint collaboration with Pride Century Ventures (owned by Co-High Investment Management), which will expand MED3000's market reach to China and South East Asia. Moreover, the Board remain confident that it will achieve EU and US approval for MED3000.

Financial Highlights (for the six months ended 30 June 2020 (H1 FY20), as on 16 September 2020)

(Source: Company Website)

• In H1 FY20, the Company is not generating any revenue and has a loss of £1.06 million, but it has shown an improvement from the corresponding period of the last year.
• On 30 June 2020, the cash resources stood at £2.62 million, a decrease from the same period last year (30 June 2019: £5.63 million). However, it has sufficient cash resources under current plans.
• In May 2020, FUM received R&D tax credits of £2.22 million from HMRC with respect to the year ending 2019.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Conclusion

Recently, it received cash of £1.5 million from HT Riverwood Multi-Growth Fund and made joint collaboration with Co-High Investment Management Limited to commercialise MED3000 in China and South East Asia. However, the Company is in the development stage and do not generate any revenue for the period. Further, the near-term economic outlook stays unclear.  Moreover, the Covid-19 pandemic continued to create operational challenges while the global uncertainty remained over the supply chain distribution. In the future, the Company may face emerging headwinds and cost pressures. Furthermore, the prolonged impact of the COVID-19 outbreak continued to affect its financial results, plans, operations, outlook, goals, reputation, liquidity and stock price. The stock made a 52-week low and high of GBX 7.16 and GBX 24.49, respectively.

Based on the factors as highlighted above, we believe the stock of Futura Medical Plc is looking “Expensive” at the closing price of GBX 20.00 (as on 11 March 2021), with support from few catalysts needs to be evaluated at a later stage such as decent prospects of London market and improved investors sentiments.

Origo Partners Plc

Origo Partners Plc (LON: OPP) is an AIM-listed closed-end investment Company, which holds a portfolio of unquoted interests, and illiquid, equity interests, publicly-traded, in companies based or mainly active in China and Mongolia.

Rationale for Valuation – Avoid at GBX 0.160

• P/E, P/CF and EV/Sales metrics are in a negative zone against the Investment Banking and Investment Services industry multiples.
• The Company’s profitability margins and Return on equity remained in the negative zone from the last two years.
• In the short-term, the UK Asset management industry is likely to remain under pressure due to increased market volatility in both equity and fixed-income securities.
• The clients' expectations in a volatile environment change quickly and place even greater pressure on the industry to respond to their evolving needs.
• From the technical standpoint, shares were trading below the short-term support level of 20-day (GBX 0.1755) simple moving average prices, which reflects a downtrend in the stock and can decline further.

Key Risks

• Due to uncertainties regarding Brexit and Covid-19, consumer confidence dampened and affected the business operations.
• In the recent past, the Company faced challenges due to currency fluctuations in sterling.

Financial Highlights (for the six months ended 30 June 2020 (H1 FY20), as on 28 September 2020)

(Source: Company Website)

• Despite the impact of Covid-19 on valuation metrics, the Company reported decent first-half performance.
• It maintained its investments in Celadon Mining Limited and Gobi Coal & Energy Ltd., with a nil valuation.
• In June 2020, it agreed with a third party to sell the Company's assets and expected to receive net proceeds of around £3.3 million.
• The Company has a loss after tax of USD 447 thousand, but it has improved from the previous year.
• On 30 June 2020, the cash and cash equivalents were USD 1,890 thousand, decreasing from the previous year.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Conclusion

The Company has delivered a decent performance in H1 FY20, with a loss per share of 0.03 US cents. For FY20, it expects several sectors to continue their sideways trajectory. The UK's political instability has reduced the transaction activities, while the London market prospects still seem to be bright in the long-term. In the short-term, the portfolio remains challenging due to the covid-19 crisis, while the Company is optimistic about the underlying and aggregate progress of the portfolio. Moreover, the profitability margins have remained stagnant or declined. However, it relied on the cash balances and fundraised from the stock market for all the operational tasks. Although, it remains difficult to provide forward-looking guidance, due to the ongoing uncertainty. The stock made a 52-week low and high of GBX 0.015 and GBX 0.45, respectively.

Based on the headwinds faced by the Company, we have given an “Avoid” recommendation on Origo Partners Plc at the closing price of GBX 0.160 (as on 11 March 2021), and we will watch for results of new investments.

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