Mesoblast Limited

MSB Details

Q1FY21 Highlights: Mesoblast Limited (ASX: MSB) is a biotechnology company in the area of adult stem cell technology. As on 29 October 2020, the market capitalization of the company stood at ~$1.81 billion. The company has recently updated about the potential pathway to marketing approval for its lead product candidate remestemcel-L, and mentioned that it is likely to have a potential for the treatment of severe and life-threatening inflammatory conditions, including COVID-19, acute respiratory distress syndrome, and steroid-refractory acute graft versus host disease. During the first quarter ended 30 September 2020, the company reported a cash balance of US$108.1 million and also have access to an additional US$67.5 million through existing financing facilities and strategic partnerships. In the same time span, the company used US$28.16 million from operating activities.

FY20 Financial Highlights: For FY20, the company reported an increase of 92% in total revenue to US$32.2 million compared to US$16.7 million for FY19. This was mainly due to strategic partnerships, licensing agreements and royalty from the sale of its product - TEMCELL in Japan. In the same time span, the company saw a reduction of 13% in loss after tax to US$77.9 million, from US$89.8 million in FY19.

FY20 Financial Highlights (Source: Company Reports)

Valuation Methodology: Price to Sales Based Market Multiple Valuation (Illustrative)

Price to Sales Based Market Multiple Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company retains a healthy balance sheet and is scaling up manufacturing for a projected increase in capacity requirements. As per ASX, the stock of MSB gave a negative return of 17.75% in the past three months and a negative return of 39.39% in the past one month. The company is likely to release its results for the first quarter of FY21 on 23 November 2020 and will hold its AGM on 24 November 2020. The stock is trading lower than the average 52-weeks’ price level band. The stock of MSB has a support level of ~$2.799 and a resistance level of ~$3.66. We have valued the stock using the Price to Sales based market multiple valuation and have arrived at a target upside of lower double-digit (in % terms). For the said purposes, we have considered Immutep Ltd (ASX: IMM), Clinuvel Pharmaceuticals Ltd (ASX: ASX: CUV) and Starpharma Holdings Ltd (ASX: SPL) as peers. Considering the current trading levels, decent financial performance and the potential pathway to marketing approval for Remestemcel-L, we recommend a ‘Buy’ rating on the stock at the current market price of ~$3.150, up by 1.612% on 29 October 2020.

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

Resapp Health Limited

RAP Details

Launch of ResAppDx on Selected Android devices: Resapp Health Limited (ASX: RAP) is engaged in the research and development of digital healthcare solutions for respiratory disease. As on 29 October 2020, the market capitalization of the company stood at ~$87.18 million. The company has recently launched smartphone-based acute respiratory diagnostic test- ResAppDx on selected Android devices. This application is to be used by clinicians for the diagnosis of lower respiratory tract disease, croup, pneumonia, asthma/reactive airway disease exacerbation, COPD exacerbation and bronchiolitis and is a major achievement for RAP. It is also likely to significantly broaden the addressable market of the company.

Partners with Largest Australian Consumer Healthcare Network: The company has recently signed a 12-month non-exclusive marketing agreement with HealthEngine to integrate its booking engine into ResApp’s mobile medical application, SleepCheck. Under the terms of the agreement, RAP will integrate HealthEngine’s booking network into its SleepCheck application and the company will receive a share of the revenue from HealthEngine for every new patient referred through the SleepCheck application.

FY20 Financial Highlights: During FY20, interest income of the company went down to $51.2k from $94.1k in FY19. In the same time span, loss of the company went up to $8.4 million, up from $5.4 million in FY19.

FY20 Financial Highlights (Source: Company Reports)

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

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

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The Group will continue the development and commercialization of its technology and will provide health care solutions to assist doctors and consumers diagnose respiratory disease. The company is likely to hold its AGM on 26 November 2020 and will release its results for the first quarter FY21 on 30 October 2020. As per ASX, the stock of RAP is inclined towards its 52-weeks’ low level of $0.055, proffering a decent opportunity for the investors to enter the market. The stock of RAP gave a negative return of 21.42% in the past three months but a positive return of 4.76% in the last one month. On a technical analysis front, the stock of RAP has a support level of ~$0.087 and a resistance level of ~$0.141. We have valued the stock using the EV/Sales Multiple based relative valuation and have arrived at a target upside of lower double-digit (in % terms). For the said purposes, we have considered PainChek Ltd (ASX: PCK), Adherium Ltd (ASX: ADR) and PKS Holdings Ltd (ASX: PKS) as peers. Considering the current trading levels, decent returns in the past one month, launch of android mobile application and key investment risks, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.11, down by 4.348% on 29 October 2020.

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

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