Author: William Mack

In agreement with Seeking Alpha Quant, I rate Akebia Therapeutics, Inc. (NASDAQ:AKBA) a Strong Buy on the basis of its overly discounted revenue, which has strong prospects in a very large Chronic Kidney Disease, or CDK, Total Addressable Market, or TAM. AKBA is a pure play on a market that affects up to 10% of the global population and is therefore a great candidate for acquisition by a larger pharmaceutical company, in my opinion. I review the current financials before discussing the forward revenue potential to arrive at a valuation, and finally discuss the risks in investing in AKBA.

Company Financials

The chart below visualizes AKBA’s R&D expenses and Sales and Marketing expenses against its revenue. Revenue is volatile, ranging from nothing in 2016 to over $120 Million in Q2 2022, the span of approximately six years. R&D expenses and Sales and Marketing expenses are highly correlated with revenue, suggesting that the company wants to be financed by its own cash flow, and is not aggressively borrowing or issuing shares.

The chart below confirms that cash has been used to decrease liabilities since 2021. The company did leverage itself through 2021, yet since this time cash and total liabilities have decreased. The spike in assets in the chart above is explained by an accumulation of inventory, and intangible assets that have since been sold off and reinvested in marketing and R&D.

To summarize the financial picture, we are looking at a company with a current ratio of about 1.46, indicating that it is healthy in the near term, with enough assets to cover near term liabilities. The company has furthermore been able to cut expenses and pay off long term debt without meaningfully diluting shareholders.

The past revenue and future prospects now need analysis with the aim of determining the viability of future dividends and share buybacks.

Revenue

As of Q4, 2022, the most recent earnings presentation available to investors, the image below from the earnings call presentation summarizes the product line and stage of development, although new movements have occurred.

Auryxia

This drug is used to treat iron deficiency anemia and hyperphosphatemia, an excess of phosphorous in the blood, in the United States, Japan and Taiwan. It has passed all clinical trials and competes on the market. In the Q1 2023 earnings call, management has guided revenue of at least $175 Million, and this drug is not yet on the market in the EU.

Vafseo (vadadustat)

Not yet on the market in the United States or the EU for any treatment, Vafseo is currently prescribed to patients in Japan, and management explains on the most recent earnings call that it will be bringing this drug to market in the EU, where 325,000 patients are treated due to anemia from CKD, through a carefully selected partnership, now that the European Commission has granted marketing authorization for Vafseo. The company announced on May 25 their partner company, MEDICE Arzneimittel Pütter GmbH & Co.KG, who will market the drug in the EU and pay up to 30% royalties to Akebia. Akebia is pushing for approval in the U.S. and said in the recent earnings call,

In the U.S., our work towards a potential approval for vadadustat continues, as we remain engaged with the Office of New Drugs, or OND, on our appeal to the vadadustat complete response letter, or CRL. Last quarter, we met with Dr. Peter Stein, Director of the Office of New Drugs and the deciding authority on our appeal. Since that time, Dr. Stein indicated he has completed his internal discussions with experts within the OND, and we anticipate a response within the next 30 days.

Praliciguat and HIF-Based Research

Praliciguat will potentially be used to treat obesity and has been successfully used to treated mice with diet-induced obesity by lowering their metabolism according to a recent article in The NIH National Library of Medicine. HIF stands for Hypoxia-Inducible Factor and essentially deals with cellular responses to deprived levels of oxygen, which are important in stopping the spread of cancer and the role kidneys play in this process.

Valuation

Taking just Akebia’s revenue from Auryxia and applying the Healthcare Price/Revenue sector ratio of 4.09, the valuation of this company should be at least around $716 Million, or more than 3x its current valuation.

That estimate does not consider many important factors which would increase the valuation even further. Specifically, the approval of Vafseo in the EU should increase revenue significantly. Assuming just 10% market penetration of 325,000 patients, and a per patient annual revenue of just $5,000 adds another $48 Million dollars in market capitalization to the stock, per the model I use above, and assuming just 30% of the revenue generated in the EU goes back to Akebia.

Based on total shares outstanding at the last filing of 185.9 Million, I therefore calculate a conservative price target of approximately $4.10 per share. This valuation assumes that Vafseo won’t be approved in the United States and that the phase 1 and discovery stage drugs in R&D will have no impact on future revenue.

Risks

This investment does not come without risks. Any time a company has more total liabilities than total assets, I usually stay away. The company is and is expected to be cash flow negative for some time. The cash burn rate is a bit frightening. There is little promise of share buybacks and dividends in the next ten years. There is also stiff competition in the CKD drug market, with some big names advertised on television like Farxiga. There is furthermore the risk that insurance companies will not cover this drug, and that it won’t be accessible to patients. The biggest risk to share prices is that the FDA fails to approve vadadustat, and that the prospect of approval is already priced in to some extent.

Conclusions

At just 77% of past revenue, I think that this stock is a Strong Buy given its future revenue prospects. Shareholders must continue to demand that debt be paid down and new shares not be issued. R&D expenses must be kept in line with revenue so that growth can take place organically. Akebia has not only demonstrated the ability to develop drugs, but has also brought them to market and generated revenue.

For any investor that does not recognize the importance of vadadustat’s acceptance into the EU, I urge you to read this article, which shows that the EMA and FDA agree 90% of the time. This bodes well for Auryxia to come to the European market, as well. I therefore estimate a 90% chance that vadadustat is approved in the U.S. in the near term, and that share prices react accordingly, as approval does not seem to be fully priced in just yet but may explain the recent momentum in this name.

Buy the trend, and sell the news, here.

Tingo Group (NASDAQ:TIO) may be the best investment opportunity available to retail investors for some time to come. Seeking Alpha Quant has ranked it #1. When taking into consideration Tingo’s balance sheet and cash flow, I find the current valuation at just over $622 Million low. I offer a brief background of Tingo’s recent capital restructuring before analyzing segments of the top line from the most recent earnings call presentation and later use these numbers to determine a segment-weighted valuation model based on sector ratios. I issue a Strong Buy call on Tingo Group stock.

Ticker Background

Before discussing the sources of revenue, let’s review Tingo Group’s capital structure, as The Company recently restructured itself in a manner that may be confusing to some investors.

1. An entity MICT, Inc. traded on the Nasdaq as MICT and bought the entity Tingo Mobile Limited from the entity Tingo, Inc (TNMA).

2. MICT, Inc. changed its name to Tingo Group and its ticker symbol to TIO

3. Before its purchase of Tingo Mobile Limited, MICT was not a blank check company, although its subsequent rebranding resembles a SPAC deal.

4. Tingo Group owns Tingo Mobile Limited and also the MICT, Inc. assets including an insurance brokerage and fintech business that operate in Asia.

5. Tingo, Inc will be issued 19.99% of Tingo Group, formerly known as MICT, INC, in addition to convertible stock. In a 10-Q issued on May 19, 2023, Tingo, Inc. states that it expects to own 75% of Tingo Group when the deal is done.

Tingo Group Operations and Top Line

The main value proposition of Tingo Group’s products and services is to technologize African and Asian farm operations. This is primarily in the form of mobile devices that are configured to work through existing telecommunications infrastructure and offer robust insurance and financing marketplaces to economize the production and sale of agricultural products. The Q1 2023 earnings call presentation breaks down their revenue into five synergistic categories: Mobile handset leasing, mobile call and data, Tingo Foods, Nwassa and MICT revenue.

Mobile Handset Leasing

This is the backbone of the product line and consists of smartphones configured with various applications. With approximately 9.3 million active farmers, this segment generated $113.7 Million in Q1 2023. This implies a leasing rate of merely $12.23/quarter. The Company’s new partnership with All Farmers Association of Nigeria is expected to triple the number of users, so there is room for demand to pull the leasing price up higher in addition to the increasing the total units.

Mobile Call and Data

$14.4 Million Q1 revenue is attributed to the resale of voice and data products from local carriers. Connectivity providers have an incentive to partner with Tingo Group in order to expand their market and make use of the African telecommunications infrastructure. In turn, this could lead to the adoption of technology use for personal use as well as the dissemination of The Internet into corners of developing nations that it doesn’t currently reach. I am very bullish on this segment, as the wholesaling of telecommunications solutions has proven quite viable in Western nations. Look at the likes of Granite Telecommunications.

Tingo Foods

This is the most poorly communicated yet largest revenue stream at $577.2 Million in Q1. It serves as a domestic marketplace for farm products to be processed into consumer products. There seems to be no single plant that generates this revenue, although a $1.6 billion processing facility is under construction and slotted to complete by mid 2024. The existing revenues likely come from a plethora of subcontracts with third party facilities, although that is speculation on my part.

Nwassa

Comprising $125.3 Million of Q1 revenue, this is the digital marketplace for farmers to sell their produce to buyers, foreign and domestic. The former is important, as Tingo has made deals with commodities exchanges abroad for farmers to arrange for the export of their crops. They have secured deals with All Farmers Association of Nigeria and Prime Commodity exchange to market this solution.

MICT

The assets from MICT, Inc. play an integral role in financing and insuring farmer operations. These operations brought in $20.6 Million in Q1 and have caught the attention of Visa, who is partnering with Tingo to offer credit to farmers. Micro finance has shown mixed results, yet I am bullish on it here in the context of wraparound support for a viable, although easily marginalized segment of agriculture. Insurance often makes financing possible, and the former is often neglected in the context of microfinance.

Valuation

This is where the numbers really shine. Quant picks up on a market price that is just 40% of book value. The price to sales ratio is merely .13. As a rough and ready valuation model, we can apply the IT sector Price/Revenue ratio of 2.66, and assume no quarterly change in revenue of $851.2 and that it ends 2023 with approximately $3.4 Billion in annual revenue. I thus calculate a market cap of approximately $9 Billion, more than 10x the current valuation.

However, the analysis is complicated by the fact that while the core of Tingo’s growth potential may lie in its technology, the majority of its revenue and earnings come from sectors other than IT. My ultimate valuation and price target comes from weighting the revenue by segment. Of $851.2 Million of Q1 2023 revenue, approximately 68% is Consumer Staples revenue, roughly 2% is Financials, and 30% is IT. Taking these respective percentages and multiplying them by the appropriate sector ratios, I arrive at a custom Price/Revenue ratio of 1.56. Multiplying revenue by this figure, I calculate a market capitalization of $5.3 Billion.

Once the float is fully diluted from the capital restructuring, there will be 526,642,328 shares outstanding, according to the most recent 10 Q.

I therefore calculate a price target of approximately $10/share.

Risks

There are substantial risks to a long position in Tingo. The pro forma 2023 numbers show enormous growth over 2022. If such growth continues, then then the price target should be even higher based on forward revenue estimates. However, the current 10-Q is unaudited, and there is only year-over-year growth to calculate any realistic growth rate. This is why I interpolate carefully in estimating 2023 revenue in the prior section. The acceleration is just so extreme. Moreover, while the company is doing exciting things in a developing nation, the political and legal atmosphere is not conducive to commerce, as the continent is caught in an economic Catch-22 in my opinion.

Conclusions

The risk to reward ratio warrants a Strong Buy call in my opinion. While there are concerns regarding management, I give the benefit of the doubt to a developing continent and question my inherent, implicit biases against African culture. For those looking for more risk, there is no clear arbitrage opportunity in the OTC markets currently. TNMA trades at approximately 79% the value of TIO at the time of writing, yet it is worth only 75% of TIO’s diluted shares outstanding. I thus recommend avoiding the OTC risks and buying any and all dips in TIO.