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Edward Vranic, CFA
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I am a private investor based out of Toronto, Canada and I have been investing since 2003. After 8 years in Corporate Finance with a Canadian Telecom company I have decided to dedicate myself full-time to the capital markets. I write on Seeking Alpha to demonstrate my financial analysis and... More
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  • Novogen Continues To Impress The Market With Its Prospective Cancer Drugs

    Several weeks ago I wrote an article on Novogen Limited (NASDAQ:NVGN) (NRT.AX) and its pre-clinical family of drugs for various forms of cancer. My thesis on the stock has worked out so far as spikes in the stock price from headline-grabbing news were offset by a much needed financing. While the financing hurts the stock price in the short term, this money will allow the company to go through early stage trials in order to prove that its drugs are effective in live patients.

    The wave of news releases that resulted in a sharp rise in the stock and an ability to finance at favorable prices was at a pace that was beyond even my expectations:

    • On March 29, the company and Yale University released pre-clinical data on Cantrixil, confirming the drug's ability to kill ovarian cancer stem cells. The stock rose from $3.77 to $4.55 that day.
    • On April 9, the company announced that studies at The University of Queensland Diamantina Institute [UQDI] revealed that Novogen's drug Anisina killed melanoma cells regardless of their mutational status. The stock rose from $4.51 to $5.52 that day, and set the tone for bullish trading in the following several days.
    • On April 16, Novogen announced a partnership with the Feinstein Institute for Medical Research with purpose of developing effective treatments for brain cancers using the company's TRXE-009 drug.
    • On April 20, the company disclosed further data along with Yale that shows Cantrixil is highly successful in preventing the growth of chemo-resistant ovarian cancer. That bit of news caused the stock to close at its 52-week high of $9.23 before the financing was announced.
    • Since the first stage of financing has been completed, the company remained in the news with a release on May 7 confirming that TRXE-009 kills resistant paediatric brain cancer cells in vitro.

    With a full subscription to its offering and rights placement, Novogen hopes to have $44 million in cash by mid-year. The offering comes in three different stages which includes:

    • A placement of 51.75 million NRT.AX shares at $0.30 AUD for total gross proceeds of AUD $15.5 million. This offering has already been fully subscribed.
    • A rights offering to existing shareholders at the same terms that will raise up to $15 million and is expected to be completed in June.
    • Both the placement and the rights offering come with 6-month options to purchase more shares at $0.30 and 5-year options to purchase one-half of a share at $0.40 per share. A total of 98 million 6-month options and 49 million 5-year options are expected to be released between the two offerings.
    • The offerings are pending shareholder approval

    $0.30 AUD per NRT.AX share translates to around USD $6.00 per NVGN share considering the 25-to-1 ratio of the ADR and AUD/USD exchange rate. The financing and rights offering would represent about 4 million NVGN shares with an additional 4 million potentially added to the float in six months if those options are in-the-money. Prior to the financing NVGN had 10 million shares. While the dilution is painful, adding this much cash to the till allows for NVGN to bring Cantrixil, Trilexium and Anisina to clinic in order to test their ability to provide a meaningful clinical benefit for patients suffering from various forms of cancer. The CEO anticipates a continued strong news flow for the rest of 2015 as Novogen is ramping up its R&D programs thanks to this cash injection. It is likely because of this that trading in NVGN remains relatively strong despite the high dilution that took place around $6. Usually companies trade at or below the price level of their financing at least until its been fully absorbed into the float.

    Despite my bullishness on the company's prospects, I am no longer currently in NVGN as I have learned that after a news release it is usually a good idea to sell into strength as the looming financing acts as an anchor for the stock. The trading on May 8 immediately following the latest news release as mentioned above illustrates this point perfectly as the stock opened at $7.32, 90 cents higher than the previous day's close, but ended at $6.55, up only 7 cents. I suggest that investors and traders take advantage of this very clear pattern and sell into spikes immediately following news while buying on dips when it has been quiet for a few weeks. NVGN appears to be like an active volcano. If it's been off for a few weeks, you can expect another groundbreaking news release at some point in the near future. Should NVGN slip under $6 after several weeks of a quiet period, I would suggest that to be an opportune time to purchase shares.

    Tags: NVGN, long-ideas
    May 11 9:11 AM | Link | Comment!
  • Taking An Investment Into My Own Hands

    I have been very vocal about my bullishness on Grand Power Logistics Group Inc. (GPW.V), including an article about the company a few days ago commenting on its great future growth prospects as a logistics firm in Hong Kong and mainland China. Despite its strong revenue growth and positive earnings which have resulted in the company building its cash reserves, the stock remains in the 5 to 7 cent range, about where it was when I started purchasing it over a year ago. It trades at very cheap financial ratios - about a 3 P/E, 0.30 P/B and 0.06 P/S. While I can't control what the market thinks of this undervalued gem, GPW's cash balance and ability to internally finance its growth gives me options as an active shareholder to try to maximize returns for myself and other shareholders.

    In October I suggested to the company's CEO Alan Chan that a stock repurchase plan would be a good use of company funds. The idea caught fire and several other investors contacted him about the idea. In December, GPW announced that it would proceed with a share repurchase plan of up to 5% of the float (3,773K shares). By my count, about 900K shares have been repurchased and cancelled since December, reducing the float from 75.5 million shares to 74.6 million shares.

    While I am pleased with the progress the company has made so far, the buying has slowed as those shares were all purchased at 6 cents or less. As the selling pressure at those levels has evaporated, the company has been unable to purchase back more shares in the past month. However, there remains a substantial amount of asks between 7 and 10 cents which is acting as a huge overhang on the stock. Watching the trading carefully over the past several months, I believe that stems from a large fund wishing to exit its position on GPW at that level. Note that a lot of the selling comes from Pershing, an institutional broker with some history with Chinese stocks.

    If GPW was to offer the remaining 2.9 million shares to be repurchased up to 10 cents, I believe it would take out that seller, instill confidence back into the stock and help it to achieve a valuation more in line with a company that's earning 2 cents per share on around 30% in revenue growth. It would be well within the company's tolerance as it has $2.7 million in cash and would cost less than $300K to achieve (assuming enough sellers at 10 cents or less). GPW's latest balance sheet shows the following:

    (click to enlarge)

    One could say that the cash could be used to pay down the debt instead, except that GPW's debt is on favourable terms and the company has demonstrated an ability to pay down debt out of operations anyways. Cash has increased $1.4 million while overall liabilities have decreased $1.2 million and the bank debt portion of that has decreased $4.1 million in 9 months since the end of 2013. There is no better use for the cash than for a share repurchase plan. GPW could afford to buy back more than 5% of the float, but the company can always announce another repurchase plan once this one is complete.

    This is my email to GPW's CFO sent earlier today:

    (click to enlarge)

    Here is Alan Chan's response:

    I was pleased with the prompt response (accounting for time zone difference, it took him just 11 minutes to get back to me) and for the consideration into what I had suggested. Based on conversations I have had with him before, I believe that the company will follow through on this suggestion. Anyone considering a purchase of the stock would need to keep in mind the possibility that the company will try to buy shares up to 10 cents in the near future.

    For additional reference, multiple members of GPW's management team have purchased shares on the open market over the past several years. They have as much incentive as anyone to see the stock price thrive:

    (click to enlarge)

    Apr 09 3:35 PM | Link | Comment!
  • Two Canadian Smallcap Stocks That Will Benefit From Alibaba And Chinese E-Commerce Growth

    Peak Positioning Technologies Inc. (PKK.V)

    Grand Power Logistics Group Inc. (GPW.V)

    Recent articles:

    Peak's $40 billion annual revenue opportunity

    How ICBC will fund Alibaba's growth through LongKey

    Alibaba's growing shipping needs and Grand Power's involvement in China's logistics industry

    Breaking down Grand Power's 4 (now 3) P/E ratio

    Peak Positioning Technologies and Grand Power Logistics have been two TSX Venture listed microcap stocks which I have written about extensively over the past several months. I remain extremely bullish on both companies given the rise of Chinese eCommerce and rise in popularity of stocks like Alibaba Group Holding Limited (NYSE:BABA) and Vipshop Holdings Limited (NYSE:VIPS).

    In some ways, Peak and Grand Power are on opposite ends of the spectrum:

    1. PKK seeks to stimulate growth for Alibaba's Taobao.com retailers through its partner LongKey Software in China, which provides financial data recording and retention solutions for small online merchants wishing to get a loan from the Industrial and Commercial Bank of China Limited (OTCPK:IDCBY) in order to expand their businesses. GPW works at the opposite end of the eCommerce (and other commerce) process as it provides logistics services and warehousing infrastructure in Hong Kong and China.

    2. PKK is seeking financing to provide LongKey with working capital to grow and complete the acquisition of its Chinese partner. GPW has enough cash in order to enact a stock buyback program, a rarity for a TSX Venture listed stock. I hold a good shareholder-to-management relationship to both companies (partially because they are thankful I write about them so much), so I introduced a dialog between members of the two management teams. I believe they can offer a mutually beneficial relationship, but I have distanced myself from those conversations and I don't know if anything will come of it.

    3. PKK's corporate presentation makes it very clear that LongKey's IFS platform will have a direct positive impact and is dependent upon Alibaba's Taobao marketplace. GPW tries to downplay its potential role in Chinese eCommerce even though its business is to ship cargo.

    4. PKK has enjoyed recent popularity in the small cap investing world and is seeking to bring LongKey to the Canadian markets. GPW has languished, undervalued for years on low volume, and has considered moving the opposite direction to the Hong Kong Stock Exchange to try to maximize shareholder value.

    While there are differences between these two companies, the common link between them is that I believe they are extremely well-positioned upstream (Peak) and downstream (Grand Power) of China's growing eCommerce business. Taobao has millions of small merchants who rely on loans from the ICBC in order to fund their growth. Grand Power's business may be focused on shipping industrial and commercial over consumer goods right now, but any differences between those two forms of logistics will erode. Alibaba is pouring billions into the China Smart Logistics Network and that will greatly increase demand and revenue opportunities for any company holding logistics and warehousing networks, infrastructure and projects.

    The Chinese eCommerce market and logistics opportunities driven by that eCommerce are in the billions. Both PKK and GPW trade at market caps of around $5 million (although PKK's float will grow due to the financing). Investors should be able to do the math on both to figure out upside potential is tremendous. Until the financing and acquisition is complete, I quantify PKK as the higher risk, higher reward type of opportunity. That designation can quickly change once the acquisition closes and Peak/LongKey makes good on the immediate "low hanging fruit" revenue opportunity of ~$70 million in the next several quarters. GPW's financials are stable and growing with no need for financing (reiterate the stock buyback - the opposite of dilution), but the business is more mature and GPW doesn't have the largest bank in the world as its partner so I quantify it as the lower risk, lower reward opportunity, though the "lower reward" is still many multiples of the current stock price.

    Apr 06 1:12 PM | Link | 2 Comments
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