Micro-X Limited

MX1 Details

Key Positives:

High Current Ratio (6.08x in H1FY22 Vs 3.77x of Industry Median), Increase in Accounts Receivable Turnover Ratio (1.7x in H1FY22 Vs 0.9x in H1FY21)

Key Negatives:

Low Gross Margin (64.4% in H1FY22 Vs 65.7% of Industry Median), High proportion of LT Debt to Total Capital (15.5% in H1FY22 Vs 7.4% of Industry Median)

Key Investment Risks:

Regulatory Risk, Technology Risk, Competition Risk, etc.

MX1 Cashflow Highlights: Micro-X Limited (ASX: MX1) is an advanced medical equipment & technology company engaged in designing and manufacturing ultra-lightweight carbon nanotube-based X-ray products for global healthcare and security markets.  

• millionmillionMX1 generated $2.1 million in customer receipts from sales and $1.5millionmillion from contracts with DHS and ASA, while $0.1millionmillion from other income.
• MX1 reported a cash outflow of $0.2millionmillion from investing activity and a $7.3millionmillion outflow from operating activity because of additional equipment purchases and salaries paid.
• The company reported a $0.1millionmillion outflow from financing activity because of the principal component of operating lease repayments. The overall cash outflow was $3.9millionmillion, with a cash balance of $16.1millionmillion as of 31^st March 2022.

Quick Overview on Milestone:

• 24^th May 2022, the company reported that its US subsidiary has met the initial System Concept milestone as part of its development contract, funded by the US Department of Homeland Security (DHS).
• The next phase of the Micro-X proprietary Passenger Self-Screening project is worth approximately US$0.7 million over the next six months period.
• The DHS acceptance has brought Micro-X self-screening station a sept closer to tap business from North American Airports.
• MX1 is further collaborating with its partners to refine the technology using a combination of simulations to increase efficiency. The picture below shows the objectives of the Passenger Self-Screening Checkpoint concept for both passengers and the airport throughout.

Passenger Self-Screening Checkpoint Objectives, (Source: Analysis by Kalkine Group)

Key Risks: Company may encounter difficulties in the commercialization of new technology due to competition that could result in delay or reduction in revenue. Mobile DR products under development need regulatory clearance, exposing MX1 to regulatory risk.

Outlook:  MX1 will focus on building the sales pipeline for Argus IED X-ray cameras by conducting successful customer demonstrations. The company also planned one global commercial launch in Q3 of CY2022. MX1 is also ensuring to build inventory in advance to avoid supply chain issues in the future for Argus’ commercialization. Further, the sales in the Mobile DR division will be driven by the new and improved Rover Mark II. The company will also focus on supporting its newly built distribution network like MXR in the USA.

Stock Recommendation: The stock is currently trading near its 52-week low of $0.150, offering a decent opportunity for accumulation. The stock has been corrected by 6.06% in the past month. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a target of low double-digit upside (in % terms). The company can trade at a slight discount to its peers, considering the regulatory risk, difficulty in the commercialization of new technology, etc. For the purpose of valuation, peers such as ImpediMed Ltd (ASX: IPD), Atomo Diagnostics Ltd (ASX: AT1), Cochlear Ltd (ASX: COH), and others have been considered. Considering the expected growth in the market, newly built distribution network, development of Argus, current trading levels, expected upside in valuation, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on this stock at the closing market price of $0.155, down by -6.060% as of 10^th June 2022.

Markets are trading in a highly volatile zone currently due to certain macroeconomic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

MX1 Daily Technical Chart, Data Source: REFINITIV 

Pharmaxis Limited

PXS Details

Key Positives:

Higher Quick Ratio (2.92x in H1FY22 Vs 1.53x of Industry Median), Higher Account Receivable Turnover Ratio (2.2x in H1FY22 Vs 1.7x of Industry Median)

Key Negatives:

Decline in Gross Margin (72.5% in H1FY22 Vs 91.2% in H1FY21), Higher Debt to Equity Ratio (1.66x in H1FY22 Vs 0.11x of Industry Median)

Key Investment Risks:

Risk from Covid-19, Currency Risk, Rising competition Risk, etc.

PXS Business Updates: Pharmaxis Limited (ASX: PXS) is a clinical-stage drug development company that makes drugs for inflammatory and fibrotic diseases. PXS has two approved respiratory products, Aridol and Bronchitol.

• PSX will hold a general meeting on 11^th July 2022 at 11:00 am with the aim to approve the issue of securities by the company under the placement in November 2021.

Quick Lookback: 

• PSX finished its quarter as on 31^st March 2022 with $14.8million in cash, and accounts receivable including $583,000 will be received in June 2022 associated with Russian distribution rights.
• After filling the income tax return for 2022, the company expects to receive its 2022 R&D tax credit in the December quarter, which will increase its cash position.

Asset comparison (Unudited), (Source: Analysis by Kalkine Group)

Key Risks: The group faces the risk of a pandemic, which has impacted its Aridol sales, and the company is also exposed to market risks such as currency risk and interest rate risk.

Outlook: Company has initiated expense on clinical trials in myelofibrosis in the last three and nine months, and some amount was used to support pre-clinical work by a European university for the effectiveness of the PXS-5505 drug. The future growth of the company is dependent on the success of the clinical trials, and the drugs under trial (PXS-5505 and PXS-5505) have a total addressable market of US$15 billion.

Stock Recommendation: The stock of PXS is currently trading below its 52-week low-high average of $0.071-$0.150, respectively. The stock has been corrected by ~10.11% in the past month. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a target of low double-digit upside (in % terms). The company can trade at a slight discount to its peers’ median, considering the impact of the COVID-19 crisis, uncertainty of future clinical trials, the impact of the Russia Ukraine war, etc. For the purpose of valuation, peers such as Vita Life Sciences Ltd (ASX: VLS), Starpharma Holdings Ltd (ASX: SPL), Cann Group Ltd (ASX: CAN), and others have been considered. Considering the key addressable market, initial success in clinical trials, current trading levels, expected upside in valuation, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on this stock at the closing market price of $0.081, up by ~1.250% as of 10^th June 2022.

Markets are trading in a highly volatile zone currently due to certain macroeconomic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

PXS Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and a 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 price

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