15 Health Care and Pharma Stocks

CSL Limited

Reaffirmed FY 17 guidance: CSL Limited (ASX: CSL) has reaffirmed the FY 17 guidance and now forecasts NPAT growth of 11% at CC (constant currency), while EBITDA growth is forecasted to be 14% at CC. EPS growth is expected to exceed NPAT growth and the revenue is expected to grow at approximately 9% at CC. Additionally, CSL is taking Enterprise Process Management initiative and planning for CSL112 (apoA-I) Phase III is continuing. CSL would be raising fund through new offer of A$500m share buyback and another new offer of US$500m US private placement. On the other hand, CSL has reported a 10% fall in the net profit after tax (NPAT) to US$1,242 million in FY 16 while the earnings per share fell 8% to US$2.69. After excluding the Novartis influenza vaccines business financials, acquired in FY 16, the underlying NPAT grew only 5.2% and earnings per share grew 7.4% on a constant currency basis. Meanwhile, CSL stock rose 6.5% in the last four weeks (as of October 12, 2016), but trading at a high P/E. We give an “Expensive” recommendation on the stock at the current price of $ 104.97 

Cochlear Limited

High revenue growth: Cochlear Limited (ASX: COH) has reported the sales revenue growth of 23% to $1,158.1 million on year on year (yoy) basis in its FY 16 results. This is the first time the company has reported more than $1billion of the revenue. COH has also reported 30% growth in net profit to $188.9 million, which is at the top end of the guidance range and EPS growth of 29% to $3.31 per share in FY 16 compared to FY 15. Additionally, in FY 17 the net profit is expected to be in the range of $210-225 million, which is an increase of around 10-20% on FY16. However, COH stock might be impacted from the potential for uncertainty to curtail economic growth as well as pressure on health budgets. COH expects FY17 R&D expenditure to be broadly in line with that for FY16, which represents a lower percentage of sales revenue. COH stock rise of 34.98% in the last six months (as of October 12, 2016) placed them at unreasonable P/E.  Accordingly, we give an “Expensive” recommendation on the stock at the current price of  $ 137.18 

Australian Pharmaceutical Industries Limited

Upgraded the underlying NPAT guidance of FY 16: Australian Pharmaceutical Industries Ltd (ASX: API) has announced that the current CEO and Managing Director Stephen Roche would step down in February 2017 and will be replaced by Richard Vincent. However, API has upgraded the underlying NPAT guidance of FY 16 to $51m, which is 17% growth on the prior year. The reported net debt at year end is expected to be less than $30m and there are 442 stores in Priceline Pharmacy network as at August 2016. Meanwhile, API stock rose 10.86% in the last four weeks (as of October 12, 2016), and we give a “Speculative buy” recommendation on the stock at the current price of  $ 1.92 

Healthscope Limited

Three major brownfield projects completed in FY 16: Healthscope Ltd (ASX: HSO) reported 18.9% growth in statutory NPAT to $182.8 million in FY 16 and 6.2% growth in the revenue to $2,291 million as compared to the corresponding period of 2015. This is due to the robust performance of the Hospitals and New Zealand Pathology divisions and a reduction in interest expense as a result of the post-IPO capital structure. Moreover, the hospital expansion program has been said to be on track and the three major brownfield projects were finished in the second half of FY16. The hospitals division is the major contributor to HSO earnings in FY 16, representing an 82% of group operating EBITDA. Meanwhile, HSO stock rose 7.17% in the last three months (as of October 12, 2016) and we believe the momentum to continue.  Accordingly, we give a “Hold” recommendation on the stock at the current price of $ 2.96 

Mayne Pharma Group Limited

Strong financial performance in FY 16: Mayne Pharma Group Ltd (ASX: MYX) reported 89% increase in the revenue to $267.3 million in FY 16 and 379% growth in the reported profit after tax to $37.4m. The Doryx franchise, which was acquired in February 2015, achieved the earnings guidance set at that time. In addition, MYX successfully launched the dofetilide capsules, first generic to Pfizer’s Tikosyn and got FDA approval of next generation Doryx MPC tablets. Moreover, MYX is expecting a significant growth for FY 17 due to the recent US generic product acquisition, new product launches and continued growth of Metrics Contract Services. Meanwhile, MYX stock rose 44.97% in six months (as of October 12, 2016) due to the strong result. Hence the stock is trading at a high P/E. We give an “Expensive” recommendation on the stock at the current price of $ 1.91 

Estia Health Ltd

FY 17 underlying EBITDA guidance revised: Estia Health Ltd (ASX: EHE) has downgraded the guidance for FY 17 with underlying EBITDA now expected to be in the range of $86 million to $90 million. This review is been done by the acting CEO Norah Barlow due to lower projected occupancy growth rate leading to a reduced contribution of about $5.5 million for FY2017 and a reappraisal of the EHE’s anticipated non-labor operating expenses in FY17. We give an “Expensive” recommendation on the stock at the current price of $ 2.67 

Japara Healthcare Limited

Forecasting a low single-digit ACFI growth in FY17: Japara Healthcare Ltd (ASX: JHC) has reported a 16.4% growth in the revenue to $327.3 million in FY 16 and 5.6% growth in the net profit after tax to $30.4 million. In addition, JHC’s underlying occupancy is at 94.4%, excluding the impact of brownfields and the total operating places is up 15.9% to 3,717. JHC had acquired Profke which is integrated in the FY 16 results. JHC is on track to delivser over 900 additional places by the end of FY19. Profke acquisition has led the company to enter into the Queensland market and expansion into New South Wales. JHC has finished 2 brownfield projects in FY16, adding 54 places, has secured 4 new Greenfield sites and 5 projects are currently under construction for completion in FY17. Additionally, FY17 EBITDA is expected to grow at a similar rate to FY16. JHC is going through a transition phase from post-reform income (e.g. Daily Accommodation Payments, Additional Services, Significant Refurbishment) from pre-reform income (e.g. bond retention and accommodation charges). However, JHC is expecting a low single-digit ACFI growth in FY17. Moreover, JHC stock fell about 30.96% in last six months (as of October 12, 2016) due to regulatory changes by the government which will reduce the revenue of the company. We maintain an “Expensive” recommendation on the stock at the current price of $ 1.89 

ResMed Inc

Patent infringement proceedings: ResMed Inc (ASX: RMD) is set to release its first quarter FY17 results on October 25, 2016. The group has made the allegations of patent infringement and declaratory judgment claims to Fisher & Paykel Healthcare (FPH) while FPH intends to vigorously defend. Trading at high P/E coupled with the patent battle, we give an “Expensive” recommendation on the stock at the current price of $ 8.47 

Capitol Health Limited

Collaboration agreement with Enlitic Inc: Capitol Health Limited (ASX: CAJ) has announced that Mr John Conidi has resigned as Managing Director and from the Board of Directors. On the other hand, CAJ has entered into a five-year Collaboration Agreement with Enlitic Inc regarding a revenue share from the sale of Enlitic Deep Learning Services in the radiology field in China. This is part of the strategy of employing data driven medicine to increase of efficiencies in the Australian business while participate in the fast growing Chinese diagnostic imaging market. We give a “Hold” recommendation on the stock at the current price of $ 0.14 

Sonic Healthcare Limited

Debt increase in FY 16: Sonic Healthcare Limited (ASX: SHL) reported a net profit growth of 30% to A$451 million in FY 16, on revenue growth of 20% to A$5,052 million. SHL has achieved the FY2016 guidance of Constant Currency Underlying EBITDA of A$831 vs A$815-840 million. There has been a debt increase due to FX changes of around A$60 million and acquisitions while opportune sale and lease-back of two properties would enhance the capital structure. Moreover, there was a negative growth in the earnings of the Australian business in FY 16 due to the impact of specimen collection infrastructure costs and Nov ‘14 Medicare fee cuts. We give an “Expensive” recommendation on the stock at the current price of $21.62  

Mesoblast Limited

Phase 2 trial result of Mesenchymal Precursor Cell’s therapy diabetic kidney disease have been published: Mesoblast Limited (ASX: MSB) recently delivered a strategic update on product commercialization plans in Japan and the group intends to leverage global Phase 2 and Phase 3 clinical trials’ results to support regulatory filings and product approvals. The group has also announced that the results from the randomized, placebo-controlled Phase 2 trial of its proprietary allogeneic Mesenchymal Precursor Cell (MPC) product candidate, MPC-300-IV, in patients with diabetic kidney disease, have been published in the current issue of the peer-reviewed journal EBioMedicine. Additionally, MSB in FY 16 has reported 115% increase in the revenue to US$42.5 million and the loss before income tax grew by 6% on prior period. MSB is removed from S&P/ASX 200 index after the market close effective September 16, 2016. We give a “Hold” recommendation on the stock at the current price of $1.16 

Virtus Health Limited

Strong growth in international operations in FY 16: Virtus Health Limited (ASX: VRT) reported that their international operations has delivered an EBITDA growth of 138% to $5.7m despite the Singapore clinic reduced loss. VRT has reported 11.6% growth in the revenue to $261.2 million and the NPAT grew 14.5% to $34.8m on prior corresponding period (pcp) mainly due to the growth from its international operations. Moreover, VRT is the market leader in Australia and Ireland and is growing its presence in Singapore, UK and Europe. We give a “Hold” recommendation on the stock at the current price of $ 7.29  

Ramsay Health Care Limited

Completed brownfield capacity expansions: Ramsay Health Care Limited (ASX: RHC) reported a 16.8% growth in the core net profit after tax (Core NPAT) to $481.4 million in FY 16 and 18.1% growth in the group revenue to $8.7 billion. As per RHC, the company’s segments have performed at or above expectations. RHC has finished over $300 million in brownfield capacity expansions across the group by opening over 500 beds and 26 operating theatres. Moreover, RHC expects the Core NPAT and Core EPS growth for the group to be 10% to 12% in FY 17. Meanwhile, RHC is trading at a decent dividend yield, and we give a “Hold” recommendation on the stock at the current price of $ 79.10 

Sirtex Medical Limited

Launched SIRCCA: Sirtex Medical Limited (ASX: SRX) is set to hold its AGM on October 25, 2016. The group has launched a new randomized controlled clinical study of SIR-Spheres Y-90 resin microspheres, known as SIRCCA in the patients with unresectable Intrahepatic Cholangiocarcinoma, also known as iCCA. Moreover, the initial safety and efficacy results from the RESIRT clinical data has been presented at the 2016 ESMO Congress. In addition, SRX has announced that the cancer researchers from Assistance Publique – Hôpitaux de Paris (AP-HP) and The Asia-Pacific Hepatocellular Carcinoma Trials Group (AHCC), National Cancer Centre Singapore and Singapore Clinical Research Institute (SCRI) intend to collaborate on a prospective meta-analysis which would combine the impending results of two large, randomized controlled studies of SIR-Spheres Y-90 resin microspheres versus sorafenib. The results of the prospective meta-analysis are expected to be out in CY 2017. We give a “Hold” recommendation on the stock at the current price of $ 29.62 

SomnoMed Limited

FDA approval received for SomnoDent Alpha device: SomnoMed Limited (ASX: SOM) has received the FDA 510k approval for its new instant fit SomnoDent Alpha device, which is a result of a two-year in-house development project. Moreover, in FY 17, EBITDA of core business is expected to grow by over 170% and by over 100% on underlying EBITDA of FY 16. In addition, the change in French regulations before the end of 2016 would generate a major growth in demand for COAT in FY 17 and beyond. We give a “Speculative Buy” recommendation on the stock at the current price of  $ 3.45

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