Analysts' Ideas of the Week - www.researchfrc.com September 27, 2021 - Baystreet.ca
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Analysts' Ideas of the Week
Weak Manufacturing Data and Slow Vaccination Rates to Delay Economic Recovery
September 27, 2021
www.researchfrc.com
Page 2
Reddit Discussed Stocks
Our pick last week, Lucid Group Inc. (NASDAQ: LCID), went from US$24.07 on
Monday, to a high of US$28.21 on Wednesday (up 17%). The Electric Vehicle sector
remains the most actively discussed among retail investors, followed by cryptos,
cannabis, and betting. This week, we are observing strong retail sentiment around
Devon Energy Corporation (NYSE: DVN). Key parameters used may include – a) total
number of mentions, b) percentage change in the number of mentions, c) stock
sentiment, and d) market capitalization.
Sept 27, 2021
Company Ticker Sector
Devon Energy Corporation DVN Oil & Gas
Source: FRC
Historic Weekly Returns (Mar 1, 2021 – Present)
25 out of 30 picks have generated positive returns
Average return = 23.74%
*Returns were calculated based on the assumption that picks were sold at their peak the same
week.
*Past performance is not indicative of future performance.
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Page 3
FRC Top Picks
The following table shows last week’s top five performers among our Top Picks,
including three cannabis, and two junior resource companies. The top performer,
Southern Silver Exploration (TSXV: SSV), was up 10.3%, as it increased its
ownership in the Cerro Las Minitas silver project to 100%. We were expecting this
development, and have not made any changes to our valuation. Our prior reports can
be viewed here.
Top Five Performers Last Week
Source: FRC
Companies in our Top Picks list were up 40.0% on average since we initiated
coverage vs -1.1% for the benchmark (TSXV).
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Page 4
Performance by Sector
Source: FRC
Our complete list of top picks (updated weekly) can be viewed here.
Weekly Mining Commentary
Global equity indices were up 1.6% last week as North American and European
markets shrugged off fears of a potential spillover of the debt crunch faced by China
Evergrande Group (SEHK: 3333).
Source: FRC / Various
Copper prices gained strength as well.
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Source: FRC / Various
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Page 6
Valuations of gold producers were down 1% WoW; base metal producers were up
2%.
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Last week, two (unchanged) out of the 15 hardest hit nations experienced higher daily
new COVID-19 cases. Only one country (vs two previously) experienced a WoW
increase in deaths.
Globally, 44.5% have received at least one dose, up 2.2 ppt WoW vs 1.2 ppt the
same time last week. 76.4% of Canadians have received at least one dose (up 1.0 ppt
vs 0.8 ppt). 70.3% of Canadians are fully vaccinated (1.0 ppt vs 0.9 ppt) vs 65.6% in the
U.K. (0.5 ppt vs 0.6 ppt), and 54.6% in the U.S. (0.7 ppt vs 0.8 ppt).
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We continue to expect a correction in both equity markets and base metal prices,
amid weakness in manufacturing activities (see charts below), and slow vaccination
rates in developed economies.
China Manufacturing U.S. Manufacturing
Source: Trading Economics
However, we are raising our copper price forecast for H2-2021, as prices in Q3 have
been higher than expected. We are lowering our gold price forecast, as prices have
been lower than expected in Q3.
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In the following section, we review companies that announced key developments in the
past week.
Mining / Exploration
Company Ticker Current Share FRC Fair Value
Name: Symbol Price: Estimate:
UEX TSX: UEX $0.43 N/A
Corporation
PR Title FRC Opinion
Wheeler River JV approves feasibility Positive – UEX has a 5% interest in the JV.
study for the Phoenix deposit Wheeler is a large high-grade project on the
eastern edge of the Athabasca Basin. A
2018 PFS had returned a BT-NPV8% of
US$1.3B, and a BT-IRR of 39%.
Company Ticker Current Share FRC Fair Value
Name: Symbol Price: Estimate:
GoviEx Uranium TSXV: GXU $0.41 $0.60
Inc.
PR Title FRC Opinion
Positive drilling results at the Mutanga Positive – Reported grades (0.33%) are in
uranium project, Zambia line with the project’s existing resource
estimate. We believe that continuous
mineralization reflects the deposit’s
consistency. We believe this program will
allow the company to upgrade some of the
project’s inferred resource. Multiple holes
indicate potential for resource expansion.
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Company Ticker Current Share FRC Fair Value
Name: Symbol Price: Estimate:
Azincourt Energy TSXV: AAZ $0.08 N/A
Corp
PR Title FRC Opinion
Fully subscribed $7.6M private placement Positive – The company is now fully funded
to pursue its previously announced
aggressive drill program (7,000 m/30-35
holes) at the East Preston uranium project
in the Athabasca basin.
Company Ticker Current Share FRC Fair Value
Name: Symbol Price: Estimate:
Blue Lagoon CSE: BLLG $0.51 $1.07
Resources
PR Title FRC Opinion
Encounters multiple high-grade veins in Positive – We were pleased with the
new areas at Dome Mountain following high-grade intercepts: 47.09 g/t
AuEq over 0.65 m, 34.05 g/t over 0.55 m,
7.71 g/t over 3.55 m, and 4.45 g/t over 2.40
m. 18 holes have been completed to date.
Company Ticker Current Share FRC Fair Value Date of PR:
Name: Symbol Price: Estimate:
Chatham Rock TSXV: NZP $0.145 N/A
Phosphate
PR Content FRC Opinion
Closes a $0.79M private placement Positive – The company is evaluating three
phosphate projects (two in Queensland and
one in the Northern Territory) for acquisition.
All three have JORC resources. The
company is also awaiting approval of a
mining application for a project in the
French Polynesian island of Makatea.
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Company Ticker Current Share FRC Fair Value
Name: Symbol Price: Estimate:
Vertical TSXV: VERT $0.14 $0.32
Explorations Inc.
PR Title FRC Opinion
Encouraging initial sales and marketing Positive – Initial orders for VERT’s products
update are highly encouraging. VERT had recently
received a quarry permit for its St-Onge
wollastonite project. The project can be put
back into production relatively quickly and at
a low CAPEX.
Company Ticker Current Share FRC Fair Value
Name: Symbol Price: Estimate:
Colibri TSXV: CBI $0.095 $0.29
Resources
Corporation
PR Title FRC Opinion
Option partner receives second batch of Positive – All 10 holes intersected gold.
assays for drilling completed at the El Key intercepts included 0.54 gpt over 6.10
Mezquite gold and silver project, Sonora, m, and 0.50 gpt over 4.58 m. We were
Mexico pleased to see encouraging values from the
project’s maiden drill program.
Company Ticker Current Share FRC Fair Value
Name: Symbol Price: Estimate:
MGX Minerals CSE: XMG $0.045 $0.75
Inc.
PR Title FRC Opinion
Commences review of small modular Neutral – Although details were not
nuclear reactor technology disclosed, we were pleased to see some
activity within the company. We are looking
forward to updates on its resource projects.
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Company Ticker Current Share FRC Fair Value
Name: Symbol Price: Estimate:
Nexus Gold TSXV: NXS $0.035 N/A
Corp
PR Title FRC Opinion
Acquires district scale gold-nickel project Positive – The project, located close to
in Quebec several well-known past and current gold
producers, has never been drilled. NXS is
issuing 12M shares for the project. The
company remains focused on its Dakouli 2
gold concession in Burkina Faso, and the
McKenzie gold project in Red Lake, Ontario.
Company Ticker Current Share FRC Fair Value
Name: Symbol Price: Estimate:
South Star TSXV: STS $0.125 $0.52
Battery Metals
PR Title FRC Opinion
Announces successful results from Positive - We believe this will support the
ongoing cycle and value-add testing company’s financing discussions with
potential investors/lenders. STS is aiming to
commence production next year, and has all
the required permits.
Update on Coverage:
• We are terminating coverage on Inca One Gold Corp. (TSXV: INCA) upon completing
deliverables. Our rating and fair value estimate for INCA are no longer in effect.
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Financials, Technology, Energy, and Special Situations
Company Ticker Current Share FRC Fair Value
Name: Symbol Price: Estimate:
Apple Inc. NASDAQ: US$145.37 US$163.99
AAPL
PR Title FRC Opinion
Unveils iPhone 13 models Positive – We believe key highlights of
iPhone 13 are improved cameras and
unchanged price points. We expect this to
fuel growth for Q4-FY2021 (ending
September), as well as the Q1-2022 holiday
season, and partially offset some of the
weakness from supply-chain issues caused
by the semiconductor shortage.
Company Ticker Current Share FRC Fair Value
Name: Symbol Price: Estimate:
Trillion Energy CSE: TCF $0.27 $0.48
International Inc.
Sector Development FRC Opinion
Natural gas prices in Europe have surged Positive – Turkey imports 99% of its gas
in the past few weeks, amid supply consumption. Gas prices in Turkey are up
shortages, primarily from Russia. We 10% to US$7.9/mcf in the past two months.
believe the supply crunch will worsen Although gas only accounts for
when demand for natural gas increases approximately 10% of TCF’s revenue, we
during winter. believe TCF should benefit from the recent
developments as it is seeking financing to
develop the large SASB gas project.
Our 2021 revenue forecast will increase by
3.3% if gas prices stay at current levels for
the rest of the year. As there are no
structural changes in supply-demand of gas
in Europe, we expect the recent shortage
and spike in prices to be temporary.
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Company Ticker Current Share FRC Fair Value
Name: Symbol Price: Estimate:
Hello Pal CSE: HP $0.48 $1.81
International Inc.
Sector Development FRC Opinion
China declares crypto mining and crypto Negative – This new development has
transactions illegal. created uncertainties for HP’s crypto mining
division. Although our previous discussions
with management have indicated that HP
will be able to re-locate their mining rigs
outside China, we are removing our
revenue projections for the mining division,
for conservatism. We are revising our fair
value estimate from $1.87 to $1.81 per
share. We are revising our 2021 revenue
forecast from $36.36M to $34.99M, and
EPS forecast from -$0.01 to -$0.02.
Company Ticker Current Share FRC Fair Value
Name: Symbol Price: Estimate:
Banxa Holdings TSXV: BNXA $2.90 $11.76
Inc.
PR Title FRC Opinion
Launches compliant crypto "Sell" Positive – We are pleased to see BNXA
functionality for EURO, GBP, and AUD. enhance its product offerings. Our FY2022
revenue projection is A$30M (unchanged).
Company Ticker Current Share FRC Fair Value
Name: Symbol Price: Estimate:
TAAT Global CSE: TAAT $3.97 $5.37
Alternatives Inc.
PR Title FRC Opinion
Now sold in over 1,000 U.S. stores; more Positive – We are pleased to see TAAT
than 600,000 packs sold to date in the continue to generate demand for its
U.S. products. Retail store presence is up 100%
in a little over one month. The company also
announced the launch of its products in
Puerto Rico.
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Company Ticker Current Share FRC Fair Value
Name: Symbol Price: Estimate:
Kontrol NEO: KNR $2.59 $4.11
Technologies
Corp.
PR Title FRC Opinion
Enters into an MOU with international Positive – The MOU is for KNR’s BioCloud
HVAC company technology, and its distribution and
manufacturing outside of Canada. The
undisclosed partner generates $30B in
annual revenue and has a network of
30,000 distributors internationally. We will
wait for sales figures before revising our
revenue projection for 2022 ($64M).
Cannabis
Company Ticker Current Share FRC Fair Value
Name: Symbol Price: Estimate:
Kiaro Holdings TSXV: KO $0.10 $0.23
Corp.
PR Title FRC Opinion
Closes acquisition Of Hemisphere Positive – Pleased to see the acquisition
Cannabis close per management’s timeline. Kiaro’s
store-count has increased to 16 (across
B.C., Ontario, and Saskatchewan), up from
seven at the start of the year. We are
projecting $29M in revenue in FY2021, and
$46M in FY2022 (unchanged).
Company Ticker Current Share FRC Fair Value
Name: Symbol Price: Estimate:
THC BioMed Intl CSE: THC $0.10 $0.26
Ltd.
PR Titles FRC Opinion
Purchase orders from 30 dispensaries in Positive – We are pleased to see THC
Manitoba; Ontario cannabis stores to sell generate demand for its products across
three new products from THC multiple provinces. We are maintaining our
FY2022 revenue projection at $9.29M.
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Weekly Cannabis Commentary
Cannabis Industry Performance
September 27, 2021
U.S. Companies YTD 1-Week 1-Year
Curaleaf Holdings Inc. -6% 7% 69%
Trulieve Cannabis Corp. -14% 15% 55%
Green Thumb Industries Inc. 12% 8% 116%
Cresco Labs Inc. -10% 14% 56%
Canadian Companies YTD 1-Week 1-Year
Aurora Cannabis Inc. -34% 0% 32%
Canopy Growth Corp. -44% 6% -1%
Cronos Group Inc. -24% 0% 11%
Tilray Inc. -21% 5% -22%
HEXO Corp. -51% 3% -27%
Organigram Holdings Inc. 68% 4% 128%
Canadian Average -18% 3% 20%
U.S. Average -4% 11% 74%
Indices
Canadian YTD 1-Week 1-Year
HMMJ -1% 2% 43%
MCAN 0% 3% 43%
XCAN -15% 4% 33%
U.S. YTD 1-Week 1-Year
MSOS -15% 8% 47%
Source: FRC
Last week, U.S. cannabis stocks outperformed their Canadian peers, amid several
positive developments.
➢ Mississippi lawmakers have reached an agreement to propose a bill to legalize
medical marijuana.
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➢ The U.S. House of Representatives endorsed cannabis banking reform (SAFE
Act) that would let cannabis businesses gain more access to traditional banking
services.
➢ Amazon (NASDAQ: AMZN) announced its continued support for the federal
marijuana reform act, by reinstating employment eligibility for former employees
or applicants who were terminated or not considered because of cannabis
screenings.
➢ Chicago lawmakers voted to lift the cap of seven retail stores per zone.
Valuation
As of September 27, 2021, the Canadian big four LPs were trading at a 48% premium
(down from 69% in the previous week) over their U.S. peers. We note that the
premium was 94% two months ago.
Sept 20, 2021 Sept 27, 2021
Canadian Companies Ticker TEV/Revenue TEV/EBITDA TEV/Revenue TEV/EBITDA
Aurora Cannabis Inc. TSX: ACB 6.3 NM 5.6 NM
Canopy Growth Corp. TSX: WEED 12.4 NM 11.7 NM
Cronos Group Inc. TSX: CRON 20 NM 18.1 NM
Tilray Inc. NASDAQ: TLRY 11.5 NM 11.1 NM
HEXO Corp. NYSE: HEXO 6.3 NM 6 NM
Organigram Holdings Inc. TSX: OGI 9.7 NM 9.7 NM
AVERAGE 11.0 NM 10.4 NM
MEDIAN 12.4 NM 11.7 NM
MINIMUM 5.0 NM 5.0 NM
MAXIMUM 20.0 NM 18.1 NM
U.S. Companies Ticker TEV/Revenue TEV/EBITDA TEV/Revenue TEV/EBITDA
Curaleaf Holdings Inc. OTC: CURLF 8.5 31.6 9.1 33.9
Trulieve Cannabis Corp. OTC TCNNF 4.8 10.5 5.3 11.6
Green Thumb Industries Inc. OTC: GTBIF 8.1 22.0 8.5 23.2
Cresco Labs Inc. OTC: CRLBF 4.7 14.5 5.1 15.6
AVERAGE 6.5 19.7 7.0 21.1
MEDIAN 6.5 18.3 6.9 19.4
MINIMUM 4.7 10.5 5.1 11.6
MAXIMUM 8.5 31.6 9.1 33.9
Implied Premium (Canada vs U.S.) (Average) 69% 48%
Source: S&P Capital IQ, FRC
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The following chart shows the average EV/R of the companies we track in both
countries:
Average EV/R
Source: S&P Capital IQ, FRC
Canadian Retail Cannabis Pricing
Province (As of 2021/09/27) Average Price per Gram Average Price per Gram THC Average Price per Gram CBD # of Products Min. Price Max. Price
B.C. $ 9.45 $ 9.52 $ 8.45 236 $ 3.93 $ 15.71
Ontario $ 9.22 $ 9.35 $ 7.87 390 $ 3.57 $ 19.99
Quebec $ 9.14 $ 9.15 $ 9.05 277 $ 3.60 $ 21.68
Alberta $ 10.55 $ 10.54 $ 10.61 445 $ 3.14 $ 22.00
N.B. $ 9.32 $ 9.42 $ 8.07 228 $ 3.57 $ 15.99
P.E.I. $ 9.64 $ 9.65 $ 9.34 195 $ 4.40 $ 23.30
Newfoundland $ 9.91 $ 9.86 $ 10.24 187 $ 4.08 $ 15.40
Yukon $ 16.33 $ 15.13 $ 13.95 5 $ 13.68 $ 22.28
N.S. $ 9.94 $ 9.98 $ 9.50 206 $ 4.64 $ 42.85
Nunavut $ 13.15 $ 13.35 $ 16.41 32 $ 9.43 $ 17.91
Northwest Territories $ 14.53 $ 12.64 4 $ 12.08 $ 17.28
Manitoba $ 11.31 $ 11.22 $ 11.46 373 $ 4.87 $ 23.57
Saskatchewan $ 11.78 $ 11.70 $ 12.07 274 $ 4.40 $ 38.50
CANADA $ 11.10 $ 10.89
Province (As of 2021/09/20) Average Price per Gram Average Price per Gram THC Average Price per Gram CBD # of Products Min. Price Max. Price Max. Price
B.C. $ 9.49 $ 9.56 $ 8.45 237 $ 3.93 $ 15.71 $ 15.71
Ontario $ 9.22 $ 9.36 $ 7.88 382 $ 3.57 $ 19.99 $ 22.66
Quebec $ 9.16 $ 9.17 $ 9.05 275 $ 3.60 $ 21.68 $ 21.68
Alberta $ 10.57 $ 10.56 $ 10.61 441 $ 3.14 $ 22.00 $ 22.00
N.B. $ 9.37 $ 9.48 $ 7.91 224 $ 3.57 $ 15.99 $ 16.28
P.E.I. $ 9.64 $ 9.65 $ 9.34 194 $ 4.40 $ 23.30 $ 23.30
Newfoundland $ 9.94 $ 9.88 $ 10.24 185 $ 4.08 $ 15.40 $ 15.40
Yukon $ 16.33 $ 15.13 $ 13.95 4 $ 13.68 $ 22.28 $ 22.28
N.S. $ 9.94 $ 9.98 $ 9.50 205 $ 4.64 $ 42.85 $ 42.85
Nunavut $ 13.15 $ 13.35 $ 16.41 32 $ 9.43 $ 17.91 $ 17.91
Northwest Territories $ 14.53 $ 12.64 4 $ 12.08 $ 17.28 $ 17.28
Manitoba $ 11.31 $ 11.21 $ 11.55 376 $ 4.87 $ 23.57 $ 23.57
Saskatchewan $ 11.78 $ 11.74 $ 12.07 278 $ 4.40 $ 38.50 $ 38.50
CANADA $ 11.11 $ 10.90
Source: Online Provincial Cannabis Stores, FRC
The average retail price per gram fell week-over-week from $11.11 to $11.10. The
chart below shows the Canadian retail dried cannabis flower pricing trend:
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Canadian Retail Dried Cannabis Flower Pricing
Source: Online Provincial Cannabis Stores, FRC
Canadian Retail Cannabis Stores
As of September 27, 2021, there are 2,578 retail cannabis stores, a week-over-week
increase of 21 stores across Canada, including 18 in Ontario alone.
Nationwide Store Count
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Aug-23-2021 Aug-30-2021 Sept-7-2021 Sept-13-2021 Sept-20-2021 Sept-27-2021
Geographic Region Store Count Store Count Store Count Store Count Store Count Store Count Population Population / Store
Alberta 671 673 677 677 684 688 4,428,247 6,436
B.C. 368 369 373 373 374 373 5,120,184 13,727
Manitoba 107 107 107 108 108 108 1,379,121 12,770
N.B. 20 20 20 20 20 20 780,890 39,045
N.S. 25 25 25 25 25 25 978,274 39,131
Newfoundland 30 30 30 30 30 30 520,437 17,348
Northwest Territories 6 6 6 6 6 6 44,982 7,497
Nunavut 39,486
Ontario 1,028 1,053 1,077 1,087 1,112 1,130 14,745,040 13,049
P.E.I. 4 4 4 4 4 4 158,717 39,679
Quebec 77 77 77 77 77 77 8,552,362 111,070
Saskatchewan 110 110 112 112 112 112 1,181,987 10,553
Yukon 5 5 5 5 5 5 41,293 8,259
CANADA 2,451 2,479 2,513 2,524 2,557 2,578 37,971,020 14,729
Source: Provincial Websites, FRC
Weekly Psychedelic Commentary
Psychedelic Industry Performance
September 27, 2021
Company YTD 1-Week 1-Year
COMPASS Pathways plc -27% 2% -13%
Atai Life Sciences N.V. -20% -2% -20%
Numinus Wellness Inc. -28% -1% 212%
Mind Medicine Inc. -17% 4% 279%
Braxia Scientific Corp. -75% 10% -75%
Cybin Inc. 59% 2% 220%
Levitee Labs Inc. -12% 5% -32%
Seelos Therapeutics Inc. 65% 28% 143%
AVERAGE -7% 6% 89%
MIN -75% -2% -75%
MAX 65% 28% 279%
Indices YTD 1-Week 1-Year
PSYK -24% 3% -24%
PSIL -4% 0% n/a
Source: TMX Money, FRC
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