Company Overview: An Australian based company, Medical Developments International Limited (ASX: MVP) is engaged in offering emergency medical solutions dedicated to augment patient outcomes. MPV identifies new markets and applications for the flagship brand Penthrox®, which is used for Emergency relief of mild to severe pain in adult patients with trauma and related pain.

MVP Details

MVP Rides on Decent Operational & Financial Fundamentals: Medical Developments International Limited (ASX: MVP) is in the business of pharmaceutical drug, medical and veterinary equipment. The company remains on track to focus more on the Australian Ambulance services, thereby maintaining its strong foothold in the market with its Penthrox® brand. MVP’s business has experienced success in the domestic market as well as in the international markets. The company has reset Europe (EU) distribution strategy and has experienced multiple growth avenues in the United States of America (US), and China. MVP’s transition into international markets is a successful one, given the opportunity for the success of Penthrox® in Australia and Europe. Notably, greater than 170 hospitals have now authorised to use Penthrox® in Europe. Currently, over 700 customers are using the product in the UK and Ireland. With enhanced monetary elasticity, MVP expects to continue new product expansion, grow its customer base globally and pursue strategic deals. The company remains on track to make improvements in its organic and acquisition-driven strategies.

The company intends to advance its intellectual property and commercialisation program for continuous flow of manufacturing and remains well equipped to develop new devices to expand the usage of its core product portfolio. The company’s total revenue and gross profit came in at $12.6 million and $9.81 million, respectively, in 1HFY21. This depicts a rise from $11.12 million of revenues and $7.52 million gross profit reported in 1HFY20. The company remains on track to deliver on its growth strategies through a diversified product portfolio and expanding geographic reach. Growth also boosted as the company expanded its international revenue, on the heels of Penthrox® expansion and acquisitions synergies in international markets.

Revenues & Gross Profit Highlights; Analysis by Kalkine Group

Decent Liquidity Position & Robust Capital Raising Program: Last year, in December, the company completed a successful capital raise of $24.9 million via a placement backed by new and existing institutional investors in Australia and offshore. Further, at the beginning of 2021, the company completed a Share Purchase Plan of $11.8 million. The company plans to use the raised funds to accelerate commercialisation of Penthrox® in the EU, to bolster its team and to complete clinical surveys.  Notably, the capital raising program will improve MVP’s balance sheet. Further, MVP's focus on developing product offerings for its customers augers well for the company in the long-term. The company exited 1HFY21 with cash balance amounting to $33.46 million. Total debt stood at ~$3.25 million, at the end of the period. MVP generated $3.78 million from net cash from operations in 1HFY21.

Cash Highlight; Analysis by Kalkine Group

Key update: On 11 May 2021, the company appointed Mr. Richard Betts as a Non-Executive Director of the Company, with an instant effect.

Top 10 Shareholders: The top 10 shareholders together form around 28.29% of the total shareholdings, while the top 4 constitutes the maximum holding. Williams (David John) is the entity holding maximum shares in the company at 13.35%. M & G Investment Management Ltd. is the second-largest shareholder, with a holding of 5.09%, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group 

Key Metrics: In 1HFY21, gross margin stood at 77.8%, higher than the 1HFY20 figure of 67.6%. In the same time span, the company had a current ratio of 4.03x, higher than 1HFY20 figure of 3.74x, representing a decent liquidity position. Debt to Equity ratio for the same time span stood at 0.05x, lower than the industry median of 0.13x.

Liquidity and Leverage Profile; Analysis by Kalkine Group 

Key Risks: The company might witness lower demand for its respiratory products, subsequent to an early COVID-19 pandemic gush in sales, the mild cold and flu season, as well as enhanced public cleanliness practices. This may pose a concern to the company’s sales of respiratory devices, going forward.  Also, stiff competition from peers, and higher marketing expenses as a result of growth in Penthrox® sales may weigh on bottom line, going forward. Notably, the company has reported net loss in 1HFY21, owing to unfavourable foreign-exchange movements and increase in regulatory and registration expenses. This, in turn, might impact the profits in the near term.

Outlook: The company remains on track to build its preliminary sales and distribution network for its key product, Penthrox®, which will aid the company to safeguard a smooth transition of sales activities in the European markets. Looking forward, the company expects to build the Penthrox® brand and product alertness across the continent and grow the same as the ideal solution for patient suffering from trauma stress. The company is also focusing on the development of Key Account Manager in France and Belgium. MVP targets to launch Penthrox® brand in both Germany and Spain in later 2021. Both markets represent key growth opportunities. Also, it expects a robust 2HFY21 sales performance mainly on the back of recovery of the marketing authorisations in Europe, the signing of new contracts, and introducing MVP field personnel in Australia.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative) 

Source: Analysis by Kalkine Group 

 *% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock of the company has corrected by ~12.9% in the past three months. Currently, the stock is trading close to its 52-week’s low level of $4.57 respectively, proffering an opportunity for share accumulation. To conclude, a healthy balance sheet and capital raising program will help the company attain its long-term objectives of expanding the business by delivering continued growth in shareholders’ returns. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight premium as compared to its peer average, considering decent liquidity position, commercialisation of Penthrox® product, geographical expansion and increase in top-line. For this purpose, we have taken peers Starpharma Holdings Ltd (ASX: SPL), Clinuvel Pharmaceuticals Ltd (ASX: CUV), to name a few. Considering decent top line performance, in 1HFY21, robust performance in the sales of Penthrox® in the EU, partnership synergies, increase in cash balance, capital raising program, valuation, and current trading level, we recommend a “Buy” rating on the stock at the current market price of $4.61, down by ~2.948% as on 9 June 2021.

MVP Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined:-

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Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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