Mainstream Group Holdings Ltd

MAI Details

H1FY21 Results Update (Half-year Ended 31 December)

Mainstream Group Holdings Ltd (ASX: MAI) is a specialist fund administrator for the financial services industry. Clients include fund managers, superannuation trustees, listed companies, family offices and dealer groups. It has a market capitalization of ~AUD273.41 million as on 14^th April 2021.

The company reported an increase in revenue by 18% YoY to $31.5 million, led by organic growth from existing clients and new client wins. Operating EBITDA jumped by 61% to $10.3 million versus $6.1 million in H1FY20. Operating EBITDA margin witnessed an improvement by 10% driven by rise in contribution from higher margin businesses. Finally, the company reported NPAT of $0.4 million from net loss of $0.5 million in H1FY20.

H1FY21 Financial Performance (Source: Company Reports)

Recent Updates:

Conclusion of ‘go shop’ Period: As per the release dated 12 April 2021, the company and Vistra has concluded the ‘go shop’ period under the terms of the Scheme Implementation Deed.

The company has received superior proposal from SS&C Technologies Holdings for $2.00 cash per share that reflects 67% premium to the price per share offered by Vistra on 9 March 2021. This development has been notified to Vistra to match, or offer more favourable terms until Friday, 16^th April 2021. SS&C and the company entered a Scheme Implementation Deed on 11 April 2021, conditional upon Vistra not exercising the Vistra Matching Right, the company terminating the Scheme Implementation Deed with Vistra and Mainstream paying a break fee of $1.708 million to Vistra.

Repayment of $2 million of bank facility: The company made a $2 million repayment to its debt facility that was funded from operating earnings. The payment was made on 31^st March 2021. Now, the bank debt position is at $7 million and the next repayment of $2 million is due in August 2021, before the facility matures in January 2022.

Fund administration receives Court approval: The company’s US hedge fund administration subsidiary, Fund administration, Inc., has received Court approval to reach a settlement with no admission of liability following discussions on potential claims.

Key Risks: The company is exposed to interest rate risk, foreign currency risk, credit risk and liquidity risk. The company’s exposure to the risk of changes in the market interest rates is mainly related to the company’s interest-bearing liabilities. The company’s exposure to the risk of changes in foreign exchange rates is mainly related to the group’s operating activities (when the company’s revenue or expense is denominated in the foreign currency) and its net investments in the foreign subsidiaries. The company is exposed to credit risk from its operating activities, broadly trade receivables and deposits with banks. Liquidity risk arises when company is not able to maintain sufficient liquid assets to cover debts, when they become due.

The company stated that its short-term outlook can be influenced by material exchange rate, interest rate or market movements as well as key client losses or closures, mainly under the COVID-19 market conditions.

Outlook:

The management is positive about the growth prospects of the company led by strong pipelines in core markets of Australia, Asia, and the US. The ongoing disruption and consolidation in Australian fund administration and custody sectors continues to generate quality new business leads. The company is on track to deliver FY21 revenue of ~$65 million and EBITDA of ~$11.5 million. 

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation (Illustrative)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Technical Overview:

Weekly Chart –

Source: Refinitiv (Thomson Reuters)

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

The stock opened with a huge gap and made the high of $2.04 and finally closed at $1.98. This reflects on running out of bull run. The technical indicator RSI with a reading around 89 suggests that the stock is in highly oversold zone.

Going forward, the stock may have resistance around $2.04 whereas support could be around the 23.6% retracement level of $1.64.

Stock Recommendation: The stock has a 52-week low and high of $0.360 and $2.03, respectively and is currently trading above the average of 52-week high-low range. The stock reported triple digit return of ~161.5% in the past six months and ~441.09% in the past one year. Considering the aforesaid facts, we have valued the stock using a Price/Earnings Per Share multiple-based illustrative relative valuation and there are expectations that the stock price might witness a fall of high-single digit (in % terms). We have assigned a slight discount to Price/EPS Multiple (NTM) (Peer average) considering lower current ratio. Also, the company’s short-term outlook is susceptible to key client losses or closures.

Considering the technical analysis, recent returns, risks associated, and current trading levels, we believe it is prudent to book profits in MAI. Thus, we give a ‘Sell’ recommendation at the current price of $1.975 per share, down by 0.253% on April 14, 2021.

MAI Daily Technical Chart (Source: Refinitiv (Thomson Reuters)) 

Note: 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.

CLINUVEL PHARMACEUTICALS LIMITED

CUV Details

CLINUVEL PHARMACEUTICALS LIMITED (ASX: CUV) is a global biopharmaceutical company engaged in developing and commercialising treatments for patients with genetic, metabolic, and life-threatening disorders, as well as healthcare solutions for the general population. It has a market capitalization of ~AUD1.46 billion as on 14^th April 2021.

Second Strategic Update: The company on 12 April 2021 released its second Strategic Update on expansion and growth. The highlights of the update are given below:

Commercial: Accomplished training and accreditation of 40 American Specialty Centers to supply SCENESSE (afamelanotide 16mg) to EPP patients. R&D, Clinical Progress: Expanding the therapeutic potential of melanocortins and, SCENESSE in several genetic, metabolic, and life-threatening disorders. DNA Repair Program: The company has identified untreated and unserved groups for photodamage and skin cancers and is developing products and solutions for these patients. Afamelanotide is being evaluated for xeroderma pigmentosum C and variant (XP-C and XP-V) with studies to start as soon as COVID restrictions allow in Europe and the United States.

SCENESSE evaluated xeroderma pigmentosum variant (XP-V): As per the release of 24 March 2021, the company has reached an agreement with clinical and academic experts to increase its DNA repair program in patients diagnosed with xeroderma pigmentosum variant (XP-V). This program was commenced in 2020 and evaluating SCENESSE in XP-C patients.

H1FY21 Results Update: The company reported a jump in revenue by 57.9% to $15.7 million versus $10.0 million in H1FY20 led by significant rise in sales from commercial operations in European economic area and made progress in its operations in the US, that resulted a rise in commercials by 84.4% to $13.6 million versus $7.4 million in H1FY20. However, revenue from Sales reimbursements fell by 18.1% to $2.1 million versus $2.6 million in H1FY20. Finally, the company reported a triple digit increase in profit after tax by 962.3% to $6.5 million versus $0.6 million in H1FY20.

H1FY21 Financial Performance (Source: Company Reports)

Key Risks: The company is exposed to technology risk despite receiving marketing approvals, those products could prove not to be safe and/or of clinical or other benefit. Further, it faces supply risk as the manufacturing unit may not produce product in batches that should meet minimum levels set, that raw material ingredients may not be sourced to specification, new manufacturing process issues not identified earlier, and of non-controllable interruptions to the operations of the products’ contract manufacturers. Importantly, clinical trials may not yield the planned results medicinal product(s) under investigation to obtain further regulatory approvals.

Outlook:

The company has strong pipeline with focus on novel treatments for patients with severe genetic and vascular disorders who lack therapeutic alternatives. The major pipeline includes a paediatric formation of SCENESSE, DNA repair with focus on reparative properties of melanocortins on XP, SCENESSE for AIS, SCENESSE for adult vitiligo patients. In line with this, the company is also developing next generation products based on melanocortin analogues CUV9900, parvysmelanotide and phimelanotide with an aim to be administered topically and developing a range of OTC products for general photoprotective and reparative application. Thus, strong pipeline will help increase sales and profitability of the company in the upcoming years.

However, the company is exposed to supply chain disruptions which might occur with the prolonging of the pandemic specially when cases of COVID variant are being reported. 

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

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Technical Overview:

Weekly Chart –

Source: Refinitiv (Thomson Reuters)

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

The stock in the ongoing week made a high of $30.49 and finally closed at $30.04 thereby forming a ‘Hanging Man’ pattern which is believed to be formed at the end of an uptrend. The technical indicator RSI with a reading around 71 suggests that the stock is in the overbought zone.

Going forward, the stock may have resistance around the previous high of $30.59 whereas support could be around the 38.2% retracement level of $26.45.

Stock Recommendation: The stock has a 52-week low and high of $19.53 and $30.61, respectively and is currently trading above the average of 52-week high-low range. The stock reported an increase of ~28.3% in the past six months and ~45.54% in the past one year. Considering the aforesaid facts, we have valued the stock using a Price/Sales multiple-based illustrative relative valuation. We have assigned a slight discount to Price/Sales Multiple (NTM) (Peer Median) considering fall in ROE and other risks like technology risk and supply risk.

Considering the technical analysis, recent returns, and current trading levels, we believe it is prudent to book profits in CUV at current levels and wait for a better entry price. Thus, we give a ‘Sell’ recommendation at the price of $30.040, up by 1.144% on April 14, 2021.

CUV Daily Technical Chart (Source: Refinitiv (Thomson Reuters)) 

Note: 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.

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