Checking in on BrainChip and Weebit Nano: Investor Webinar 12 July 2023

 

Checking in on BrainChip and Weebit Nano

This week in our Investor Webinar:

• Uranium is not a curse word anymore!
• What’s going on with BrainChip and Weebit Nano?
• Is it time to jump back into the Lifesciences sector?

Full transcription below.

 

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Transcription

 

Marc: Hello, and welcome to “Stocks Down Under’s” weekly webinar, although weekly, we’ve been away for a couple of weeks, Stuart.

Stuart: Marc, where have you been? I’ve missed you.

Marc: Yeah, I’ve been away for about two weeks to Bali and Flores. I remember you’ve been there as well, right? Flores in the Komodo dragons. But yeah, we were away for two weeks enjoying…escaping the Sydney cold, really, and a bit of rain. So yeah, that was pretty good. I saw a bunch of those Komodo dragons, about six in all, which apparently is a lot, and read a few books and enjoyed some sunshine.

Stuart: That’s good to hear, Marc. What ideas have you got for our subscribers?

Marc: Well, that’s what I wanted to tell everyone. People that watch this webinar know that Stocks Down Under Concierge provides you with trading ideas. And the people that are new to this webinar, we urge you to have a look at, go to stocksdownunder.com, and click Concierge, and just check out the Stocks Down Under Concierge, you know, the trading ideas we have, the price targets, it’s a pretty sort of broad offering in terms of what it offers investors as in good trading ideas, good investment ideas.

So, by all means, check out stocksdownunder.com, have a look at Concierge, and just get a free trial and see if you like it or not. And there’s no strings attached. You can just try it out. But we think if you don’t try it, it’s a missed opportunity for all the active investors in there. That’s what I wanted to tell people, Stu, but we’ve got a lot of fundamental stuff that’s happened in the last couple of weeks as well. Well, we’ll look at uranium, we’ll look at what’s happening to BrainChip, and Weebit Nano. And we’ve got one other topic life sciences, is it time yet to jump back into life sciences stocks? So, there’s a lot to talk about. Let’s jump in, Stuart, with the uranium first of all.

Stuart: Yeah, you’ve heard it before, and you’ll hear it again from me uranium, now is a good time to be looking at uranium. I just heard some astounding Intel from a contact of mine who is active in the uranium industry. What he tells me is that if you do polls of the adult population, you find that a majority are in favor of nuclear power. I wouldn’t check that. And if you see on the next slide, I’ve got two polls taken roughly around the same time. Now well, first of all, let’s talk about the price, there’s the price of uranium has had a great 2023. No surprises there. Uranium supply and demand are well and truly tilted in favor of the demand side. Whereas mine supply isn’t stepping up nearly as fast as a lot of people in the industry want.

So, you’re seeing improvement in prices, and in particular, the contracts prices for uranium going off to nuclear reactors, that’s firming up at very economic prices at the moment. So, this industry, after a long period and the doldrums that followed the Fukushima disaster in 2011 is starting to look pretty good. And the spot price there is proving it. But this is what I want to share with folks. My contact was saying, you know, the majority of Australian adults are in favor of nuclear power. And growing up as, Marc, you and I did in the ’80s, nuclear power was a dirty word. Apart from France, most European countries tried to avoid getting a lot of their power from nuclear sources. And we certainly had big debates down here.

Turns out fast forward in time because nuclear power is 100% carbon neutral. The sense of it is most people want it now. 53% of adults want nuclear power. 55% of U.S. adults, and I learned this from a recent interview with Wayne Heili of Peninsular Energy, are in favor. He’s seen more like 70% in some polls. So, it varies. But whatever you do, the majority of people now are in favor of nuclear power. The one group of people that aren’t in favor probably is politicians, but we’ll come to that in a moment.

There’s the supply versus demand dynamics for nuclear power at the moment. Basically, there’s not much capacity out there in the foreseeable future to accommodate the amount of uranium that’s gonna be required. So, anyone who gets the chance to start a uranium mine now, with any decent mine life, is gonna make out like the proverbial bandit is what I’m arguing from multiple forecasts. And that’s only gonna get better now that in the Western world, we’re starting to favor nuclear power more.

Stocks to look at. You’ve heard me talk about some of these Bannerman with their projects in Namibia. Boss Energy developing the honeymoon mine in South Australia. Deep Yellow is another Namibian play. Lotus Malawi. Paladin energy, that’s one that’s got me excited, which we’ll talk about in a moment. And then Peninsula Energy. Paladin obviously, they have a major mine that will probably restart shortly in Namibia, but at not too much cost, but as a restart, they’re working now on a pretty low capex reboot. Then there’s Peninsula Energy, and that’s the subject of an interview we did recently on “Stocks Down Under.”

If you fast forward to the next slide, Marc, will talk about Peninsular Energy in particular three projects collectively called the Lance projects in the U.S. state of Wyoming, about 54 million pounds of JORC resource with the chance to build it out some more with a bit more exploration, and a definitive feasibility study putting a decent valuation around that with some conservative pricing. That project is about to start producing uranium any day now.

No sovereign risk, obviously, this is the U.S. in particular, the very red state and pro-mining state of Wyoming. Project isn’t completely hedged. So, you get the upside from the currently favorable uranium price cycle. And as Wayne tells me in the interview that we conducted on June 7th, there’s upside from resources that are not included in the original mine plan that they’re launching with now. So, very much worth taking a look at that stock. I’ve got the chart on the next slide. It’s rerouted quite nicely in the last few weeks. Been a bit volatile, obviously, over time, the stock, but the general trend is up. So, I’m encouraging the viewers watch this one carefully. It could be pretty interesting as an early beneficiary of this return to favor of uranium.

Marc: Right. So, what’s the catalyst for this stock specifically? Because it’s been in this range sort of 11 to 20 cents. Ideally, of course, you wanna see a breakthrough there. But what’s gonna trigger that?

Stuart: I think the next break to uranium at $60 a pound will help. You’re gonna see, yes, it’s started production in the next few weeks, I believe. And the third thing is when they start talking about an expansion of the original mine that will allow a lot of people to get excited about the upside of this one.

Marc: All right, good stuff. So, keep an eye on uranium. If you didn’t already know that, Stuart, you’ve been a uranium bull for a while now. So, it seems that the market is finally catching up to that as well.

Stuart: Right.

Marc: As always, you’re way ahead of the market here, Stu, clever thinking. All right, so something else that we get a lot of questions about, Weebit Nano and BrainChip. So, these are two stocks that we own. Full disclosure, we own both stocks, BrainChip at slightly higher levels than we are today, unfortunately. But we’ll have a look at what’s going on there. So, we’re checking up on BrainChip, and Weebit Nano. So, let’s kick it off with BrainChip, a quick recap. So, on the left there, you can see a screenshot from our webinar in April the 12th of April. And the stock at that time was at 46 cents. Now we talked about the failed breakouts that we saw and the potential for the stock to go down further. We saw support at 41 cents, 37 that should read, by the way, not 27 and 32.5.

And well, we said if those support levels are broken, there’s a downside to 20 cents, actually. So, what happened in that period? Well, we’ve gone down further. Stock closed at 33.5 cents yesterday. So, that’s 27% lower than where we were the last time we talked about this in April. And if you look at the chart, that 30.5 cent level, the horizontal line there with the green circle that is crucial. These are two bottoms that were formed in 2020. So, it’s a bit a while ago, but that really should hold. If that doesn’t hold, then we can see downside all the way to 20 cents. There’s a gap there around just above 20 cents that will likely get filled then if we break through this level of 30.5. And it’s not that far away, unfortunately.

So, that’s what we’re looking at, technically. So, it’s not looking good. But what’s causing this? And we spoke about this before, what’s going wrong for BrainChip at the moment? Well, in our view, it’s a lack of communication. The company hasn’t really spoken about a lot in the last sort of year or so. We do see, you know, occasional stuff on social media that they’re working with some chip companies, with Iron for instance.

Stuart: I’m willing to bet, Marc, that the CEO will not come down to Australia before Christmas. That’s how uncommunicative this stock is.

Marc: Yeah, so that’s what I [inaudible 00:09:22.998] there at the bottom. CEOs of overseas companies should be in Australia at least three times a year. So, the question about the communication side, so why are they not communicating? That’s really the big question. Is it on purpose, so maintain silence and let the results i.e. revenue speak for themselves when they come in? So, they have had some revenues, but it’s not…so these were one-offs. So, these were license payments. But these were not recurring royalty, right? So, maybe they’re like, we’ll just keep doing what we’re doing, keep our heads down, and when the revenues come in, you know, the market will see that and will value us for that.

That’s one option. I’m not sure if that’s what’s happening, actually, it could be that there’s no good news to report. So, they’re not making enough headway with customers. That’s another option. And the third one, and there could be more actually, but the third one that we’ve written down here is they’re not allowed to talk about customers and prospects. And of course, that’s a very common problem for technology companies, especially on ASX because ASX officials don’t always understand that, especially in semiconductors for sure. You can’t really talk about customers, you risk losing their business. And there’s been companies, not in the semiconductor space, but previously in other tech sectors on ASX, where they were forced to disclose names, and they lost their business.

So, ASX unfortunately, it doesn’t always get that the tech companies can’t talk about bad customers. So, that’s another option. But the bottom line is they need to communicate better about what’s going on, and what’s not going on, really. Because that is putting a hold on, or it’s pushing the share price down. And like you said, Stuart, CEOs of overseas companies need to be in Australia. And I think at least three times a year if not four times, you know, after the quarterly results.

Stuart: And look, I mean, my message to BrainChip, “Hey, we’re nice people and the climate is warm. Sure it’s winter down under at the moment, but it’s gonna warm up pretty soon. So yeah, what’s keeping you?”

Marc: Exactly, it’s still 20 degrees in Sydney, right? During the day, so, it’s not that bad. So, then moving to Weebit Nano, we own shares in this one as well, we have for a long time. And there’s a big fundamental difference between Weebit and BrainChp. And that is Weebit Nano management is very good at communicating and coming down to Australia keeping investors informed. So, it’s a very, very big difference. And you can see it in the share price, right? Weebit has done really well, phenomenally well.

Weebit is doing what it said it would do. So, right now it’s commercially available at SkyWater, the U.S. foundry. So, it’s available for customers of SkyWater to incorporate the technology into their products. So, that will turn into revenues. And it might take a while because you don’t do that overnight. You design the technology into your product, and you need to test it, and before you know it, it’s a year has gone by. So, it will take a bit of time to generate revenues from that, but it’s available now. And all the hurdles have been taken away for Weebit to generate revenues from that.

It’s also ticking along on the development front, not just for embedded memory, which is the first commercially available product, but also for discrete. So, these are standalone memory modules in small and high capacity. So, they’re working on that as well. And they’re ticking along nicely. And of course, the big thing that everyone is waiting for, which is expected to happen around the middle of this year. So, right about now, is the announcement of an additional customer, it could be a foundry or an integrated device manufacturer. So, the company like…I’m not saying it is Intel, but a company like Intel that designs and manufactures their chips themselves.

So, we’re waiting for that. And that will be a major boost for the stock. It could be a bit delayed because as dynamic as the semiconductor industry may seem, it’s notoriously hard to do deals in this space because all these companies are actually really conservative. Once they’ve got their production processes up and running, they don’t want to change anything, they just wanna keep it that way and print money basically. Any change to that production process is a big hassle because they have to retest the production, the output, qualify their new product. So, it’s actually something they don’t really wanna do. But they have to, obviously, but it means that sometimes these deals take longer than expected. So, keep that in mind when you look at Weebit.

So, what’s happened to the share price? Well, it’s done really well, but every time it goes above 7.50. And we’ve seen three occasions there, there’s a big sell-off, we see shorters come in. And the share price gets pushed down throughout around 5 or 4.50. We’ve seen that a couple of times now if you look at that left chart there, and it’s bounced back every time so far. And we expect it will again this time around, especially if you’ve got some good news coming.

Right now the short interest is close to 5%, and I think that makes Weebit about the 80th most shorted stock on the ASX. So, it’s nothing too spectacular 4.8%. Of course, that could go up a little later on. But if you look at that left chart, you see the development of the short interest over the last couple of months. But what’s the best way to squeeze out shorts? Well, really it is to keep up the work that you’re doing. Keep hitting your technical milestones, sign up new customers, I think that will be a big one. And most of all, of course, is generate that maiden revenue. And as I said earlier, it will take a bit of time to get into products of SkyWater’s customers because again, you know, you have the design process, you need to test it, qualify it, etc. So, it will take a bit of time. But that’s really the best way to squeeze out the shorters.

Longer term, though remember that Weebit Nano, in my humble opinion, as far as tech companies go, it’s got one of the best boards around it. These are all semiconductor rockstars, as I like to call them, the former number two at Intel, one of the guys has worked with the actual inventor of a non-volatile memory. So yeah, do yourself a favor, check out their board. And that gives me a lot of confidence that Weebit will, at some point, overcome the shorters because they will sign up these new customers in my opinion, and they will start to generate that revenue.

So, just be patient with this one, it’s doing all the right things, and it just will take a little bit of time for that to be reflected further in the share price. Because don’t forget, we’ve seen share prices over $8, right? For Weebit Nano already. So, and it’s just volatile because of the shorters coming in. But we’re sticking with it for sure.

Stuart: The memory is non-volatile, but the share price is volatile.

Marc: Definitely. And that brings us to another volatile sector, Stuart, Life Sciences, or biotech is probably a better way to label this one.

Stuart: Right. We get a lot of calls from folks, “When’s the time to get back into biotech?” It’s fair to say that 2022 was a terrible year for the life sciences sector. There’s the chart for the Nasdaq Biotech index. And as you can see there, it was a long way down from the peak in 2021, to about mid-2022. And the recovery has been tepid since then, not bad. But it’s not like everyone’s talking biotech at the moment. So, modest recovery, at least on the international scene. But this is the bellwether for me Imaging. It’s a company I used to work for back in 2016. As you can see, it was a market darling. Stock went all the way up to the ’60s, in 2021. It’s now back at a level, which I think it can stabilize at. But we wanna see this support level where it is now confirmed for a little bit. And that to me will tell me it’s safe to come back in the water for biotech generally.

Marc: Remind me, Stu, what does Imaging do?

Stuart: Imaging is a cancer immunotherapy company. They’re looking to replicate the success of Viralytics, which is a company that got bought by Merck in 2018 for a reasonable sum. And their foundation product is a cancer vaccine-type project. The belief that this company can do it again with the technology, they’ve laid their hands on that helped to make Viralytics such as success, has got everyone excited. But that long slide since 2021, has also left a lot of people with some heavy losses. So, that’s why I think one needs to wait for a while with most life sciences companies.

Marc: Right. So, just on this slide, Stuart, is that triggered by just a lack of interest, an increase in interest rates, or a lack of progress by the company? Is it very company-specific, or is it sector specific?

Stuart: It’s sector-specific. Like I said, this is my bellwether to know where the sentiments coming back towards life sciences, because everyone was talking about this company in 2020 and 2021. And then at the peak, obviously, people moved on and went looking for other stuff. So, once I see a director buying in this company, and once I see the stock stabilizing around the current level, that will be my indicator that the sector as a whole is back as an investment-grade proposition here in our particular part of the global biotech community.

One that I would encourage people to watch right now is PolyNovo, I talked to David Williams, who’s their chairman back about a month ago. And he was pretty excited about the growth that the Novo [inaudible 00:18:57.216] products we’re doing. This is a particular polymer, which has great wound care as well as burns care products. They just had their first $7 million a month a while ago. So, the users of this product, keep on finding new uses for it. They keep on hiring new salespeople to go out and sell the product, and there’s particularly a lot of growth outside the United States.

So again, a bit of volatility, if you look at the share price, but the general trend in terms of the underlying business is up, and David himself has been a recent buyer of the stock. So, that’s what I’d draw people’s attention to right now that I’m a little bit excited about.

[inaudible 00:19:36.204] and I are going down to Hobart a couple of weeks’ time to attend the buy shares meeting. It used to happen over in New Zealand. It happened last year in Aubrey, and now it’s found a new home in Hobart. So, multiple companies presenting. Larger than usual attendance this year. So, this will be a great chance for me to gauge sentiment towards the sector as well as potentially get to know some stories I hadn’t done quite well. If you’re going down to Hobart, come and say hello, and I’ll be able to report back some of my findings when we do the next webinar after I get back from Hobart.

Marc: All right, so New Zealand, Aubrey, Hobart. Why don’t they just do that in Sydney? It’s close to home, everyone can attend?

Stuart: That wouldn’t be half as fun. Tasmania, as you know, is paradise, and it will be a bit cold this time of year. I’m very much looking forward to seeing what it looks like.

Marc: Yeah, don’t go hiking up Mount Wellington in the snow, right? So, last year, there was some footage of tourists getting lost there. So yeah, I’m not too jealous, Stuart, because Hobart in the winter it’s pretty cold, right?

Stuart: Right.

Marc: All right. Well, that’s all we have time for. So, we’ll sign off here. Thank you very much for watching. Send us your questions. Keep them coming, and we’ll catch you next time.

Stuart: See you soon.