Looking for some small cap stocks to spice up your portfolio? Echelon Wealth Partners has just released its Top Picks for Q4 2019, including six names in the healthcare and tech spaces.
So far this year, Echelon’s Top Picks have been very successful, averaging 28.3 per cent year-to-date returns, outperforming by a long shot the S&P/TSX Small Cap Index return of negative 1.4 per cent year-to-date.
The capital markets company says that while its median performing Top Pick stock will typically generate below average returns, it’s the outperformers who really shine, benefiting from a catalyst-rich environment and supported by “proven execution, positioned for high growth and backed by strong economics.”
Here, then, is a rundown of Echelon’s healthcare and tech names, released on Monday, starting with two new additions to their Top Pick list, Acasti Pharma and Green Thumb Industries.
Acasti Pharma (Acasti Pharma Stock Quote, Chart, News TSXV:ACST)
Rating: “Speculative Buy”
Projected Return: 63 per cent
Cardiovascular drug developer Acasti Pharma gets the nod from Echelon analyst Douglas Loe who says that along with new top-line data from a Phase III study of its CaPre omega-3 drug expected by the end of 2019 (results which Loe says should be positive), the longer-term hold picture for ACST also looks good, with multiple clinical and regulatory milestones for CaPre on the horizon beyond Q4 2019.
Loe says that while there are approved competitors to CaPre on the omega-3 market, Acasti’s drug has the potential to have a broader impact on the serum lipid profile along with a “superior” pharmacokinetic profile.
“We believe that Acasti’s uniquely formulated krill oil-derived omega-3 phospholipid ester formulation CaPre can perform well and to approvable standard on its primary endpoint (statistically significant reduction from baseline and in comparison to placebo of serum triglycerides at three months) not just in TRILOGY I but also in the similarly-designed TRILOGY II trial for which timelines to data (expected in FQ420) extend beyond the present quarter but could still be germane to how ACST trades during FQ419,” Loe says.
“ACST shares have performed well in recent quarters, generating T12M return of 45 per cent on steady advance of its aforementioned Phase III hypertriglyceridemia program, but we believe there is substantial upside achievable on TRILOGY I data that if as positive as we expect could substantially de-risk Acasti’s business risk profile and position it well for future partnerships and co-development alliances,” Loe says.
Loe thinks that ACST will generate fiscal 2021 revenue and EBITDA of $5.0 million and negative $3.3 million and fiscal 2022 revenue and EBITDA of $37.1 million and $27.5 million. (All figures in Canadian dollars unless where noted otherwise.)
Green Thumb Industries (Green Thumb Industries Stock Quote, Chart, News CSE:GTII)
Projected Return: 117 per cent
US multi-state operator Green Thumb gets the Top Pick crown for the cannabis industry from analyst Matthew Pallotta, who calls GTI the best positioned and most de-risked of any of the US MSOs he has studied.
The analyst says that the recent selloff in the cannabis space highlights the importance of being fully funded at this time, which is not the case with a number of GTI’s peers.
“At the moment, in the context of a sustained selloff in cannabis issuers, the markets are not conducive to raising additional capital at this time, and many cannabis operators are struggling to find cash to finance their plans. We believe GTI’s fully funded balance sheet puts it in an incredibly advantageous position relative to its peers, where it can ride out equity and capital market weakness without diluting the capital structure, and even possibly take advantage of distressed asset prices via tuck-in acquisitions,” Pallotta says.
“In addition, we also point out that the Company has completed all announced M&A transactions, and is not subject to risks regarding regulatory approval, or questions surrounding the timing or closing of pending. As investors begin to give credit to GTI’s de-risked balance sheet and operations, we believe the stock price will perform accordingly, and possibly de-couple from many of its peers in the cannabis sector,” he says.
Pallotta expects Green Thumb to produce 2019 adjusted EBITDA of US$29.9 million on revenue of US$224.4 million and 2020 adjusted EBITDA of US$112.5 million on a top line of US$498.2 million.
Antibe Therpeutics (Antibe Therpeutics Stock Quote, Chart, News TSXV:ATE)
Rating: Speculative Buy
Projected Return: 259 per cent
Ontario-based drug developer Antibe stays as a Top Pick, according to Loe, who says that the company’s lead hydrogen sulfide-releasing naproxen analog ATB-346 should deliver Phase II data soon and that the drug’s properties will be sufficiently demonstrated to justify advancing into more substantive Phase II/III testing.
“ATE was one of our Top Picks in Q319, generating trailing quarterly return of 22 per cent that we believe reflects favourably on market optimism for ATB-346 clinical performance in the aforementioned trial, optimism we clearly share,” says Loe.
“Our ATE valuation continues to be solely focused on ATB-346 and not yet to other preclinical-stage hydrogen sulfide-releasing analogs that Antibe is developing in the background, including post-surgical pain-targeted ketoprofen analog ATB-352 and stroke prevention-targeted acetylsalicylic acid analog ATB-340, though we expect to revisit our valuation assumptions for these pipeline candidates if/when formal clinical testing commences,” he said.
Currently, Antibe is enrolling patients in the Phase II ATB-346 trial at four Ontario-based pain centres in collaboration with regional CRO Veristat, with data from the trial potentially proving to be a significant inflection point, says Loe.
kneat.com Inc (Kneat Stock Quote, Chart, News TSXV:KSI)
Rating: Speculative Buy
Projected Return: 122 per cent
Software company Kneat performed well over the third quarter, rising 16.4 per cent, but there’s more upside left, says Echelon analyst Gianluca Tucci, who thinks that KSI is “on the verge of hitting its stride” with its SaaS-based Kneat Gx platform, which addresses the challenge of data validation in the life sciences space.
Tucci notes that KSI has signed ten customers to the platform since the start of 2018, with many of the top 15 pharma companies as likely customers.
“These new customers and seats add to Kneat’s potential install base from its existing customers and we believe this existing potential install base is now 350+ manufacturing sites which translates to an at-scale ARR opportunity of over $40M. We expect continued news flow with additional go-live and scaling events which will serve as further validation of KSI’s value proposition,” writes Tucci.
The analyst points to estimates by KPMG which hold that 45 per cent of Life Sciences companies have implemented or plan to implement technologies to automatically generate and analyze production and distribution of data in order to increase efficiency.
Tucci thinks Kneat will generate fiscal 2019 revenue and EBITDA of $2.66 million and negative $4.7 million, respectively, and fiscal 2020 revenue and EBITDA of $9.09 million and negative $0.9 million, respectively.
Score Media and Gaming (Score Media and Gaming Stock Quote, Chart, News TSX:SCR)
Rating: Speculative Buy
Projected Return: 66.7 per cent
Analyst Rob Goff is returning Score Media to Echelon’s Top Pick category thinking that the stock has more in the tank after a Q3 that returned 63.4 per cent.
“Despite the gains, we believe that SCR remains undervalued at its current price considering the significant monetization potential from its betting platform where the New Jersey launch represents a key test-bed. With wagering over the last twelve months put at US$3.4B in the NJ market (source: New Jersey Division of Gaming Enforcement), a modest 2 per cent share would equate to ~$8 million in revenues for Score Media based on a 6 per cent royalty,” Goff writes.
The analyst has revised his fiscal 2020 forecasts upwards, now calling for revenue and EBITDA of $45.9 million (previously $38.4 million) and $5.9 million (previously negative $0.2 million), respectively.
AcuityAds Holdings (AcuityAds Holdings Stock Quote, Chart, News TSX:AT)
Rating: Speculative Buy
Projected Return: 211.5 per cent
After a stellar Q2, digital advertising company AcuityAds underperformed over the third quarter, according to Goff, who thinks that the company’s financial momentum will continue.
“Our price target of $3.80 is supported by strong underlying industry dynamics, AT’s past financial outperformance and its proven ability to win and successfully serve larger and longer contacts. We believe that the recent roll-out of its AI platform and the planned release of new user-friendly UI/UX for self-serve platform in Q419, will catalyze the growth in the coming quarters,” writes Goff.
The analyst contends that within digital advertising, connected TV is emerging as a catalyst supporting an increased advertising budget allocated to digital versus traditional channels. Goff says that AT’s marquee wins are validating its AI technology and platform and are opening doors to further wins, building investor support and putting Acuity under closer watch by competitors and potential acquirers.
“Given the significant financial gains/outperformance over the past year, we believe the shares represent better value today than a year ago. The modest 8% y/y returns since submitting it to our Q418 Portfolio pales to reflect the material forecast upgrades over the past year. One year ago, the consensus revenue/EBITDA for F2019 were $66.3M/$6.1M against the current consensus at $126.7M/$13.0M (forecast upgrades are not impacted by acquisitions),” Goff says.