Estia Health Limited

EHE Details

Change in Director’s Interest: Estia Health Limited (ASX: EHE) is in the provisioning of services in residential aged care homes in Australia. On 26^th August 2021, Karen Penrose has made a change to holdings in the company via acquiring 4,500 fully paid ordinary shares at a consideration of $2.365 per share.

Market Scenario in which EHE Operates:

• As per the report released by Aged Care Funding Authority in 2021, the overall market generated total revenues of $18.5 billion in FY21, out of which $13.4 billion was driven by the Australian Government.
• The Government is likely to provide additional funding of $17.7 billion to the aged care sector over the next four years as per the May 2021 response to Royal Commission Report. Out of the said total funding, $8.7 billion is likely to be invested for the improvement of the Residential Aged Care services.

FY21 Financial Highlights:

• Increase in Revenue: For the year ended 30 June 2021, the company reported total operating revenue of ~$612.05 million as compared to ~$579.9 million, reflecting a rise of 5.5%.
• COVID-19 Impacted EBITDA: As a result of the COVID-19 pandemic and continued margin compression, EHE witnessed a fall of 24.6% in Mature home EBITDA to ~$62.4 million.
• Turnaround in Bottom Line: During the year, EHE posted a net profit after tax (NPAT) of $6.0 million against the losses of ~$116.90 million in FY20, supported by temporary Government funding and grants provided to cover the COVID-19 cost impacts during the pandemic.

Operating Revenue (Source: Analysis by Kalkine Group)

Key Risks:

• COVID-19 Disruptions: The company’s business could be impacted by the uncertainties arising from the ongoing pandemic, as it has impacted financial health in FY21.
• Funding Risk: EHE’s business model requires a regular flow of funding in order to run operations smoothly. Any disruption in funding could impact the business health.

Outlook:

• The company’s investment of $49.0 million in FY21 has enabled future increased capacity. EHE possesses an existing pipeline of 339 licenced beds at 3 new sites already held.
• EHE is optimistic that the abolition of the Aged Care Approval Round (ACAR) is likely to remove anti-competitive supply constraints and increase ability to expand existing sites with small homes to greater size, quality and performance.
• The company has scheduled to conduct the 2021 Annual General Meeting on 11^th November 2021.

Valuation Methodology: P/E 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: During FY21, the company received temporary Government funding and grants of $21.4 million. The company closed FY21 with the strong balance sheet, backed by $81.1 million of net bank debt and $244.4 million for available liquidity. The stock has been corrected by ~8.51% and ~4.77% in the past one and three months, respectively. The stock has been valued using P/E multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight premium to its peers’ average P/E multiple, considering rising revenue, turnaround in bottom line, and rising margins. For the purpose of valuation, peers such as Regis Healthcare Ltd (ASX: REG), Summerset Group Holdings Ltd (ASX: SNZ), Integral Diagnostics Ltd (ASX: IDX), and others have been considered. Considering the expected upside in valuation, rising revenues, strong balance sheet, decent outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $2.070, as on 22 October 2021, 12:33 PM (GMT+10), Sydney, Eastern Australia.

EHE Daily Technical Chart, Data Source: REFINITIV  

Bionomics Limited

BNO Details

Evaluation of Clinical Trial: Bionomics Limited (ASX: BNO) is engaged in the development of innovative treatments for cancer and diseases of the central nervous system. Recently, the company took a decision to evaluate its lead clinical compound, BNC210, for acute treatment of Social Anxiety Disorder (SAD) with a planned commencement of a clinical trial.

• BNC210 is an oral proprietary selective negative allosteric modulator of the α7 nicotinic acetylcholine receptor, which is used for the treatment of anxiety and trauma- and stress-related disorders.
• The company is planning to commence Phase 2 clinical trial by the end of 2021 and is likely to improve topline data by the end of 2022.

FY21 Financial Summary:

• Completion of Capital Raising: During FY21, the company raised circa. $44 million via issuing shares through various share placements and rights offerings with around 380 million new shares issued.
• Fall in Revenue: BNO’s revenue from continuing operations for the year decreased by $46,662 to $Nil in FY21.
• Increase in Losses: The company recorded a loss from continuing operations after tax of $8,697,037 against $5,818,975 in FY20 because of a fall in revenue, other income, and other gains and losses from continuing operations.

Losses (Source: Analysis by Kalkine Group)

Key Risks:

• Clinical Trial Risk: The company’s operational and financial health could be impacted by any failure in the clinical trial.
• Regulatory Risk: BNO’s is exposed to a more complex regulatory environment; any failure in non-compliance could lead the business to fines, penalties etc.

Outlook:

• Looking forward, the company is planning an initial public offering of American Depositary Shares in the United States and a concurrent listing of ADSs on Nasdaq in the near future.
• BNO would continue to undertake drug and clinical development and would also seek to commercialise the outcomes.

Stock Recommendation: The company has repaid the remainder of its approximately $6.2 million external borrowings outstanding at 30 April 2021, which resulted in e termination of all commitments and obligations under the loan agreements. BNO settled FY21 with a closing cash balance of ~$28.5 million as compared to ~$4.57 million as on 30 June 2020. The stock of BNO is trading below its 52-week low-high average of $0.092 - $0.448, respectively. The stock has been corrected by ~21.21% in the past one month. The stock is trading at a P/BV multiple of 2.9x as compared to the industry median (Healthcare) of 3.8x on a TTM basis, thus seems undervalued. Considering the valuation on a TTM basis, decent liquidity position, deleveraged balance sheet, decent outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of $0.125, down by ~7.408% as on 22 October 2021.

BNO 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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