Opthea Limited

OPT Details

Business Update: Opthea Limited (ASX: OPT) is a biotech company developing and commercialising therapies primarily for eye disease. The market capitalisation of the company as on 18 June 2021 stood at ~$578.84 million. As per a recent announcement, the company has appointed Mrs Karen Adams as Vice President of Finance and Company Secretary, effective from 12 June 2021.

H1FY21 Financial Performance: During the period, the company has reported a loss of $34,982,213 in H1FY21, compared to $7,620,018 in H1FY20 due to an increase in R&D spending. However, the company has reported an increased revenue to $314,294 in H1FY21 against $273,115 in H1FY20. The cash position of the company stood at $202.54 million as of 31 December 2020.

H1FY21 Financial Performance (Source: Company Reports)

Outlook: The company has invested $18.8 million in R&D in H1FY21, which may help it to stay ahead of market trend. The company is expanding its footprint by setting up US-based operations. In addition, OPT is focused on the commercial potential to grab opportunities by engaging with other pharmaceutical/ biotechnology companies in the sector.

Key Risk: The company is associated with patent protection risk, intellectual property rights risk, lengthy clinical trial process, and rapid technological advancement. Therefore, the company has to spend on R&D and technology to be competitive in the market. The company has incurred a loss in net foreign exchange of $12,442,849 in H1FY21 that has impacted the company's bottom line.

Stock Recommendations: The company has announced on 31 March 2021, that the US Food and Drug Administration (FDA) has given an initial Pediatric Study Plan (iPSP) waiver for OPT-302 in Wet AMD which is in Phase 3 clinical development to treat neovascular treatment. The stock of OPT is trading below its average 52-weeks' levels of $1.300-$3.280. The stock of OPT gave a positive return of ~14.84% in the past one month and a negative return of ~42.17% in the past one year. On a TTM basis, the stock of OPT is trading at a Price/Book multiple of 4.9x, lower than the industry median (Biotechnology & Medical Research) of 5.3x. Considering the current trading levels and valuation on a TTM basis, the strategic geographical reach, increase in R&D spend, economic recovery and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $1.410, down by 15.31%(as on 18 June 2021, 3:00 PM (GMT+10), Sydney, Eastern Australia).

OPT Daily Technical Chart, Data Source: REFINITIV 

Australian Pharmaceutical Industries Limited

API Details

Appointment of a Director to the Board: Australian Pharmaceutical Industries Limited (ASX: API) engages in commercialising beauty, health and lifestyle products through a network of pharmacy and retail stores. The market capitalisation of the company as of 18 June 2021 stood at ~$573.94 million. As per a recent announcement, the company has appointed George Tambassis as a non-executive director to join the API Board.

H1FY21 Financial Performance: During the period, the company has recorded a decline in its revenue by 2.6% to ~$2.0 billion in H1FY21, compared on a pcp basis. API has reported a decreased underlying EBIT by 26.5% to ~$32 million, compared to $43.5 million in H1FY20. In addition, the company has posted a decline in underlying NPAT to $17.7 million in H1FY21, compared to $25.4 million in H1FY20. The company has announced a fully franked interim dividend of 1.5 cents per share for H1FY21, which represents a payout of 47% of NPAT.

H1FY21 Financial Performance (Source: Company Reports)

Outlook: The management is expecting to generate sufficient cash to support growth in pharma distribution. API is focused on its digital potential with the provision of quality services by investing in Priceline Pharmacy and Clear Skincare.

Key Risks: The company has faced challenges due to the COVID-19 pandemic, like delays in sourcing the products and demand drop for cosmetics that impacted the company's financials. 

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

Data Source: Refinitiv, Thomson Reuters, 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 Recommendations: As per a recent update, Pfizer Australia has signed an agreement with API for a wholesaler distribution model through Community Service Obligation (CSO)pharmaceutical distribution, effective from 1 September 2021. Therefore, the company estimates an increased EBIT by $4 million on an annualised basis. The stock of API is trading below its average 52-weeks' levels of $1.005-$1.375. The stock of API gave a positive return of ~14.21% in the past nine months and a negative return of ~4.89% in the past three months. We have valued the stock using an EV/EBITDA multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at some discount to its peer average EV/EBITDA (NTM trading multiple), considering the uncertainty over COVID-19 impact and a significant decline in top-line and bottom-line growth. For this purpose, we have taken peers such as Compumedics Ltd (ASX: CMP), Regis Healthcare Ltd (ASX: REG), Paragon Care Ltd (ASX: PGC). Considering the current trading levels and expected upside in valuation levels, economic recovery, strategic digital potential, leading market share of Clear Skincare and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $1.145, down by 1.717% as on 18 June 2021.

API 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: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

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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