Sonic Healthcare Limited

SHL Details

SHL Provides FY20 Earnings Guidance: Sonic Healthcare Limited (ASX: SHL) is engaged in the provision of medical diagnostic services and the provision of administrative services and facilities to medical practitioners. The company recently updated that Dr Philip Dubois, one of the directors, retired from his executive position with the company with effect from 30 June 2020 and will continue to serve as a non-executive director, with retirement expected by November 2022. The company has appointed Dr Julian Adler to the position of CEO, Sonic Imaging, for succession planning.

Trading Update: The company notified that for the 8.5 months to mid-March 2020, its results remained in line with expectations. However, due to COVID-19 impact from the second half of March, the company had to withdraw its earnings guidance for FY20. The business began to recover during May, with the majority of the company’s divisions returning to pre-COVID base volumes and revenues in June. As a result, the company provided new earnings guidance and expects FY20 underlying EBITDA, excluding the impact of AASB 16, to be in line with the previous year’s statutory EBITDA of $1.075 billion. The company expects to release its FY20 results on 20^th August 2020.

Partnership with Australian Government: In April 2020, the company secured a contract from the government for the provision of dedicated pathology service for rapid sample collection and testing for COVID-19 in residential aged care facilities. Notably, 20% of all COVID-19 tests in Australia have been performed at SHL’s Australian laboratory practices.

During 1HFY20 ended 31^st December 2019, the company reported revenue and net profit amounting to $3,344 million and $256 million, respectively, both up by 15% on pcp.

H1FY20 Key Financials (Source: Company Reports)

Key Risks: The company’s revenue and earnings are subject to currency exchange rate risks. Significant levels of regulation in the healthcare sector can impact the company’s costs and revenue. In addition, loss of a license or accreditation to operate one or more of the businesses can impact revenues and reputation.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: The stock of the company gave positive returns of 28.65% in the last 3 months and is currently trading close to its 52-week high of $34.380. We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price with an upside of high single-digit (in percentage terms). Considering the recent trading update, earnings guidance, partnership with the Australian Government, and current trading levels, we maintain a “Hold” rating on the stock at the current market price of $34.13, up 0.264% as on 12^th August 2020.

SHL Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Mesoblast Limited

MSB Details

FDA Advisory Committee Meeting Scheduled on 13^th August: Mesoblast Limited (ASX: MSB) is a world leader in developing allogeneic (off-the-shelf) cellular medicines. The company recently updated that the voting power of M&G Plc and its subsidiary companies reduced from 1.22% to 1.19%, with effect from 5^th August 2020. As per another recent update, the voting power of M&G Investments Funds also reduced from 1.19% to 1.18%, with effect from the same date.

Meeting Update: As per a recent announcement by MSB, the meeting of the Oncologic Drugs Advisory Committee (ODAC) of the US FDA for reviewing the data for Biologics License Application (BLA) for approval of RYONCIL™ (remestemcel-L), will be conducted on 13^th August 2020. Notably, the application involves the request for approval of the drug in the treatment of steroid-refractory acute graft versus host disease (SR-aGVHD) in children. RYONCIL is under Priority Review by the FDA with an action date of September 30, 2020.

Q4FY20 Highlights: During the quarter, the company made a payment of US$6.7 million for research and development in relation to Phase 3 programs. The first interim analysis of the Phase 3 trial of remestemcel-L in ventilator-dependent COVID-19 patients having moderate to severe acute respiratory distress syndrome, is expected to take place in early September. During the quarter, the company also made payments of US$7.4 million as commercial manufacturing investment for the potential launch of RYONCIL. In addition, JCR Pharmaceuticals Co. Ltd made royalty payments of US$2.1 million for TEMCELL HS Inj^(R) . 

Operating Cash Flow (Source: Company Reports)

What to Expect: In May 2020, the company raised US$90 million from global institutional investors and expects to have additional funding of US$67.5 million through existing financing facilities and strategic partnerships over the next 12 months. If approved by the FDA Advisory Committee Meeting, RYONCIL is expected to be launched in the US in 2020. The company expects to release its FY20 results on 27^th August 2020.

Key Risks: MSB is a clinical-stage biotechnology company and has not generated any revenues. Moreover, the company expects its expenses to increase as it moves towards commercialisation. In such a scenario, MSB may have to witness a prolonged period of losses. Another risk factor is the availability of adequate funding for the research and clinical development. Any challenges in obtaining the funds can negatively impact operations. The company is also subject to risks related to currency fluctuations as most of its expenses and cash are denominated in US dollars. 

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

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: The stock of the company gave positive returns of 16.67% in the last 6 months and is currently trading above the average of its 52-week high and low of $4.880 and $1.020, respectively. As on 30^th June 2020, the company had a cash balance of US$129.3 million. We have valued the stock using the EV/Sales multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). Considering the upcoming FDA Advisory Committee Meeting, expected launch of RYONCIL in the US, decent cash position, and current trading levels, we maintain a “Hold” rating on the stock at the current market price of $3.070, down 8.631% as on 12^th August 2020.

MSB Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer  

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as personalised advice.