Opthea Limited

OPT Details

Director’s Interest Notice: Opthea Limited (ASX: OPT) is a biopharmaceutical company and is engaged in the treatment of retinal diseases, including wet age-related macular degeneration (wet AMD) and diabetic macular edema (DME).

• Recently, the company informed the market that Megan Baldwin, a company director, has acquired 1,600,000 performance rights ordinary shares for nil consideration.
• In another update, the company stated that Ms Julia Haller, a company director, has acquired 2,000,000 unquoted options ordinary shares for nil consideration.

A Quick Look at FY21 Key Results:

• In FY21, OPT reported operating revenues of US$68,613, up from US$59,061 in FY20.
• The net loss during the period widened to US$45.34 million in FY21, from a loss of US$11.12 million in the prior corresponding year, owing to higher R&D expenses during the year.
• R&D expenditure in FY21 stood at US$25.89 million, compared to US$12.06 million in FY20, due to costs related to the Phase 2b and Phase1b/2a clinical trials of OPT-302 for wet AMD and DME and the initiation of Phase 3 clinical trials.
• The company reported US$138.1 million of total current assets as at 30 June 2021. Cash and cash equivalents at the end of the period were reported at US$118.19 million as compared to US$42.65 million at the end of 30 June 2020.

Cash Highlights (Analysis by Kalkine Group)

Key Risks: The company is exposed to pricing pressure in the competitive Australian healthcare market. Also, the increased costs of developing a drug using a costly technology and pipeline setbacks are a few major headwinds. Other headwinds the company faces include government scrutiny of high drug prices and stiff competition in the market.

Outlook: The company’s capital raising initiatives, and its focus towards delivering on the pipeline of catalysts aid the company’s future growth prospects. In FY22, OPT aims to focus on implementing Phase 3 pivotal program for OPT302 in wet AMD. In addition, the company plans to report Phase 3 top-line data in 2HCY23. Positive data from the trials, encouraging pipeline progress and favorable regulatory updates are likely to aid the company in the near future.

Valuation Methodology: P/B 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: The stock of OPT is trading close to its 52-weeks' low level of A$1.200. The stock of OPT gave a negative return of ~30.89% in the past nine months. The stock has been valued using a P/B multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount to its peers’ average P/B multiple, considering mounting losses, pricing pressure, increasing expenditure, failure of clinical trials, etc. For the purpose of valuation, peers such as Mesoblast Ltd (ASX: MSB), AVITA Medical Inc (ASX: AVH), Integral Diagnostics Ltd (ASX: IDX) have been considered. Considering the current trading levels, indicative upside in valuation, higher revenue base, completion of Phase 2 trials, positive outlook, decent cash position, and the other key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of A$1.230, as of 18 November 2021, 12:30 PM (GMT+10), Sydney, Eastern Australia.

OPT Daily Technical Chart, Data Source: REFINITIV 

IDT Australia Limited

IDT Details

Digging into FY21 Results: IDT Australia Limited (ASX: IDT) is engaged in supplying products, research, and development in the pharmaceutical space, including medicinal cannabis. The company booked its first operating profit since 2009.

• Top and Bottom-Line Details: In FY21, the company’s revenue went up by 19.5% on pcp and included $0.9 million of JobKeeper receipts. NPAT for the period came in at $2.1 million, compared to a loss of $1.92 million in FY20, primarily due to a higher revenue base and deeper controls in procurement and manufacturing.
• Secured Licence: During the period, the company secured a Sterile Manufacturing Licence from The Therapeutic Goods Administration (TGA). The company assisted the Australian Government with certain COVID-19 response activities to enhance Australia’s production capability for a COVID-19 vaccine.

• Implementation of IDT’s Medicinal Cannabis Manufacturing Plan: The company finalised process development of cannabis resin products in FY21 and expanded stability data for flower-in-bottle and oil-in-bottle products. The company also remained on track to advance a pipeline of new product development opportunities. After completing stability trials, the company expects to expand its range of proprietary medicinal cannabis products in the Australian market.

• Liquidity Position: The company exited FY21 with a cash balance of $6.9 million. Total borrowings amounted to ~$766k at the end of the period.

EBITDA Highlight; Analysis by Kalkine Group

Key Risks: The company is exposed to a complex regulatory landscape in the cannabis business. The company is also exposed to forex headwinds and stiff rivalry from competitors developing similar product lines and services.

Outlook: The company’s mission and vision involve providing contract development and manufacturing services to its present and future medicinal cannabis customers. It also aims to expand its range of IDT proprietary medicinal cannabis products for both local and international distribution. Going forward, the company remains focused on re-establishing sterile manufacturing, assisting the Australian Government with certain COVID-19 vaccines and other therapeutics.

Stock Recommendation: Currently, the stock is trading below the average of its 52-week high and low levels of $0.755 and $0.165, respectively. On a TTM basis, the stock of IDT is trading at an EV/Sales multiple of 6.2x lower than the industry median (Healthcare) of 14.2x, thus seems undervalued. Considering the decent liquidity position, higher revenue base, increase in profits, robust product pipeline, recent agreement with Monash University, positive outlook, current trading levels, valuation on TTM basis, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.435, as on 18 November 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

IDT 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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