Two Stocks Under Limelight: HNR & 0UJG

Two Stocks Under Limelight: HNR & 0UJG

Highlands Natural Resources PLC

Highlands Natural Resources Plc (HNR) is a UK based oil and gas company providing technical products and services. The company identifies the portfolio of projects which generate stable revenue of 80 per cent and has the potential for stimulating capital appreciation. The company’s area of operations includes Colorado shale, Highlands Water Resources, Enhanced oil recovery, Kansas nitrogen discovery and Montana Project.

The company, through a private placement raised £1.3 million in March 2019 to establish cannabidiol subsidiary in Colorado, US. The company issued shares at 8.5 pence per share to raise the required funds.

Cannabis (cannabidiol) is a genus of plants with three species: Cannabis sativa; Cannabis Indica; and Cannabis Ruderalis. Hemp commonly refers to strains of Cannabis sativa with low psychoactive components is primarily used for industrial applications like rope and cloth making.

At this current juncture, the developing Cannabis Industry is getting the traction of investors who are hoping to capitalise on the potential growth and high returns based on assumption that it is an untapped market, or the products being developed can enjoy popularity in future. The cannabis sector has emerged into prominence in recent years as several countries, including Canada and some states of the United States have explored new regulations for sale and use of the psychoactive drug. On October 17, 2018, Canada became the second country globally to legalise cannabis products for recreational activities. Earlier only Uruguay did so in 2001.

In Europe, including the United Kingdom, the Cannabis business is making steady inroads. For example, Germany, which legalised medical cannabis in 2017, represents the most significant current market share of the substance with an expected sale of USD 1 billion by 2022. In Germany, cannabis is available by prescription only and distributed through pharmacies. The United Kingdom represents another significant market as it recently expanded its medical program and is home to GW Pharma, maker of FDA-approved EPIDIOLEX® drug. However, the cannabis space here got the green signal from the government only in late 2018.

Trading Update released in July 2019

The company provided an update on Zoetic and East Denver project. Zoetic began sales in the UK market. The initial products rolled out are CBD tinctures which are available in various flavours, namely- blood orange, melon and natural peppermint and two different strengths-500mg and 1,000mg.  The company is operating in online mode and looking for distributors to access physical stores. Zoetic is expected to tap revenue streams from both the US and UK markets.

Financial highlights for FY19 ended 31 March 2019

The company’s revenue stood at £1,016,399 from East Denver Oil & Gas Project in FY19 as against £2.9 million in FY18. At the beginning of the year, two wells were into production and later six more wells were brought into the ambit by January 2019. The company was able to generate cash to the tune of US$5.4 million due to farm out of the project. In addition, the company retained a working interest (7.5 per cent) in drilled wells (both new and existing). In FY20, all eight wells would contribute to revenue growth for the company. The company discovered gases (rare) during the exploration made in Kansas.

Zoetic (company’s cannabidiol business) saw some new developments during the period. Nitrogen and Hydrogen mix was tested at a pilot project for growing cannabis in the United States, which enhanced the cannabis yields by 30 per cent approximately. This was done to reap the benefits of a rapidly growing cannabis market. Zoetic was already in the money in the United States post fundraising of £1.56 million in March 2019. The company has leased more than sixteen acres of cannabis growing facility (both indoor and outdoor). The company’ strategy is to focus on high breed seeds which are produced by hemp seeds, thereby capitalising on high margins. The company will be marketing it by both direct retail and e-commerce platforms in the US & UK.  This will also help the company by gaining access to investors in the US for greater liquidity.

Profitability margins have either remained stagnant or declined. The company operates in a challenging environment which requires continuous investment, sometimes at the cost of profitability, to stay ahead of the competitors. The company’s cash generation from its operations remains a concern for the intervening period. The company is majorly relying on its East Denver Project to generate revenue, but uncertainty due to political or economic factors will hamper the company’s operations. The company might fail to obtain further financing for acquisitions and business development.

Highlands Natural Resources Share price performance

Chart as on 09-August-19, before the market close (Source: Thomson Reuters)

While writing (as on 09 August 2019, at 02:24 PM GMT), Highlands Natural Resources shares were trading at GBX 7.10 per share; prices have remained flat in comparison to the previous day’s closing level. The company’s M-cap (market capitalisation) stood at £10.12 million.

In the last 52-wks, Highlands Natural Resources shares have registered a high of GBX 19.80 (as on 30 August 2018) and a low of GBX 6.20 (as on 01 August 2019). At the current trading level, its shares were trading 64.14 per cent below the 52-week high price level and 14.51 per cent above the 52-week low price level.

At the time of writing, the stock’s volume before the market close stood at 728,314. Stock’s average traded volume for 5 days was 1,352,637.00; 30 days- 1,141,648.07 and 90 days – 1,005,939.67. The beta of the stock (company) as on date was -0.48, which makes it negatively correlated to the benchmark index.

The average traded volume for 5 days surged by 18.48 per cent as against 30 days’ average traded volume.

In the past 1 year, there was a negative return of 62.13 per cent from shares of Highlands Natural Resources. Also, on a YTD (Year-to-Date) time interval, the stock has plunged by approximately 34.86 per cent and was down by 43.09 per cent in the last three months.

AURORA CANNABIS INC (0UJG)

Aurora Cannabis Inc (0UJG) is a medical cannabis company based out of Canada. The company had divided its business into two reportable segments being Medical Cannabis and Horizontally Integrated Businesses and Other being managed via its subsidiaries. The Medical Cannabis division is into production and distribution of medical cannabis in Canadian region and distributes it in the EU via wholesale channels. The company presently have 15 production facilities globally and sells its products in 25 countries.

Financial Highlights for Q3 & Nine Months Financial Year 2019 ($)

The gross revenue for the Q3 FY2019 was at $75,238 as against $16,100 in Q3 FY2018. The gross revenue for Nine months FY2019 was at $166,912 as against $36,049 for Nine months FY2018. The company’s net revenue for Q3 FY2019 stood at $65,145 versus $16,100 in Q3 FY2018. The company’s net revenue for Nine months FY2019 stood at $148,997 versus $36,049 for Nine months FY2018.

The gross profit for the Q3 FY2019 was at $52,622 as against $7,615 in Q3 FY2018. The gross profit for Nine months FY2019 was at $92,814 as against $22,912 for Nine months FY2018.

The company’s total expenses stood at $130,239 in Q3 FY2019 as against $38,492 in Q3 FY2018. The company’s total expenses stood at $362,494 for Nine months FY2019 as against $71,268 for Nine months FY2018.

The company’s General and administration expenses increased significantly to $130,350 for Nine months FY2019 from $20,408 for Nine months FY2018. The General and administration expenses in Q3 FY2019 stood at $50,786 versus $9,847 in Q3 FY2018.

The loss from operations for the Q3 FY2019 was at $77,617 as against a loss of $30,877 in Q3 FY2018. The loss from operations for Nine months FY2019 was at $269,680 as against a loss of $48,356 for Nine months FY2018.

The company’s LBT (Loss before tax) for Q3 FY2019 stood at $169,121 as against loss before tax of $21,968 in Q3 FY2018. The company’s LBT for the nine months of the Financial Year 2019 stood at $340,367 as against loss before tax of $7,316 in the nine months of the Financial Year 2018.

The company’s Net Loss for Q3 FY2019 stood at $160,195 as against the Net loss of $20,795 in Q3 FY2018. The company’s Net Loss for the nine months of the Financial Year 2019 stood at $295,656 as against Net loss of $10,040 in the nine months of the Financial Year 2018.

The company’s basic and diluted loss per share for Q3 FY2019 stood at 0.16 cents as against loss per share of 0.04 cents in Q3 FY2018. The company’s basic and diluted loss per share for the nine months of the Financial Year 2019 stood at 0.31 cents as against loss per share of 0.02 cents in the nine months of the Financial Year 2018.

AURORA CANNABIS INC Share Price Performance

Daily Chart as at 09-August-19, before the market close (Source: Thomson Reuters)

On 9 August 2019, at the time of writing (before the market close, at 03:50 PM GMT), Aurora Cannabis Inc (trading on TSX (Ticker-ACB)) shares were trading at CAD 8.51, down by 3.62 per cent against the previous day’s closing price. Stock’s 52-week High and Low are CAD 16.24/CAD 5.10. At the time of writing, the share was trading 47.59 per cent lower than the 52-week High and 66.86 per cent higher than the 52-week low. Stock’s average traded volume for 5 days was 6,319,678.00; 30 days – 3,622,884.97 and 90 days –5,291,810.06. The company’s stock beta was 1.28 as on date, reflecting higher volatility as compared to the benchmark index. The outstanding market capitalisation was around CAD 8.98 billion.

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