Propel Funeral Partners Limited

Senior Debt Facilities from WBC increased: Propel Funeral Partners Limited (ASX: PFP) provides death care services across Australia and New Zealand. Death care services offer an arrangement of the funeral of deceased, conducting funerals, cremation, burial, memorialisation, etc. PFP has two operating segments – i) Funeral operations (~86.68% of operating revenue), and ii) Cemetery, crematoria, and memorial gardens. The company has its presence across 120 locations (with 28 cremation and 9 cemeteries) and is ranked second within the industry. PFP was founded by Propel Investments Pty Limited in FY12.

As per the recent market update, the company successfully increased its senior debt facilities with Westpac Banking Corporation (Westpac) from $50 million earlier to $100 million. As per the update, PFP’s current senior debt balance stood at $17 million and the company has entered into a binding agreement to acquire Dils group for cash consideration of ~$20 million. The acquisition is likely to be completed during FY20. With this, ~$37 million of PFP’s earlier senior debt facility limit of $50 million is currently drawn and/or committed with a ~3% rate on interest.The company’s uncommitted debt capacity stood at ~$63 million.

PFP also stated that the company’s debt covenant (including Net Leverage Ratio and Fixed coverage ratio) stands unchanged, indicating the healthy levels even after taking annualised impact of acquisitions.

1H FY19 Highlights: During 1H FY19, PFP’s top-line stood at $ 47.1 million, up 20.9% on yoy, followed by a decline in EBIT margin of 20.4% against 28.1% (yoy), primarily due to higher operating expenses. Bottom-line stood at $6.4 million, up marginally by 3.6% on yoy basis.

Funeral volumes were up by 11.7% and stood at 5,644 against 5,053 during 1HFY18. As per balance sheet on 31^st December 2018, the company had a cash surplus of $10.3 million.


1H19 Summary (Source: Company Reports)

Stock Recommendation: Currently, the stock price of PFP is quoting at $3.160, inching towards the higher end of its 52-week high of $3.340. The stock has gained ~26.55% on YTD basis. The stock is presently trading at a price to earnings multiple of 11.18x, which is slightly lower than the industry median of 12.9x. The stock is well-placed to benefit from the recent acquisition along with its robust balance sheet, strong operating cash flow, etc. With aforesaid facts, we recommend a ‘Hold’ rating on the stock at the current market price of $3.160, down 0.315% as on 05 August 2019, ahead of its full-year results which are to be released on 26 August 2019.
 

Mayne Pharma Group Limited

Recent Launched Specialty Brands to Support the Top-line in FY20: Mayne Pharma Group Limited (ASX: MYX)operates in Generic products (~73% of total revenue), Speciality Brands (8% of total revenue), Metrics Contract Services (~12% of total revenue), and Mayne Pharma International (~7% of total revenue). The company has two manufacturing facilities located in Salisbury, South Australia and Greenville, North Carolina US. Within the ‘contract services’ segment, MYX has a client base of more than 100 and has expertise in ‘Oral dose’segment. As per the recent market update, Investors Mutual limited has increased its voting power from 8.47% to 9.74%.

Recently, the Management stated that the company had faced challenges, including pricing pressure within the generic segment and destocking by several wholesalers. Thus, sales from Generic productsin the first 4 Months of CY19 were down by 32% as compared to the previous corresponding period. However, during 4M CY19, Specialty Brands were up by 53% (yoy basis) at $ 28 million, Contract Services were up by 21% (yoy basis) at $ 24.9 million and Mayne Pharma International(MPI) stood at $12.3 million, up by 8% on yoy basis.

1HFY19 Highlights: Total revenue during 1H19, stood at $274.4 million, up 13% on yoy basis, followed by an increase in reported EBITDA by whooping 184% on yoy.Gross margin improved substantially from 39% to 58% during the same period. However, the company’s net profit during 1H19, stood at $ 2.6 million against a loss of $ 174.2 million due to inclusion of one-time impairment charges of $ 183.5 million in 1H18. The company derived 92% revenue from the US, and the rest came from Australia, in the period. Depreciation & amortisation increased by 10% (yoy) and stood at $44.7 million in 1H19.


1H19 Summary (Source: Company Reports)

The management is positive on the generic segment, and the company is ready to tap the upcoming opportunities from the segment. The management is of the view that the recent disruption in distribution is temporary in nature and 4Q is likely to be stronger, driven by rebounding in generic products. Few launches like Tolsura & Lexette in specialty segments along with the growth in women’s dermatology segment are likely to contribute towards the top-line in FY20.

Stock Recommendation: The stock is trading at $0.505 with a P/E multiple of 17.18x. Currently, the stock is trading towards the lower end of its 52-week range of $0.475 - $1.425. In the last 1-year, the stock has corrected ~48%. Considering the faced competition in second half of FY19, recent new launches in specialty segment, growth in women’s health portfolio, financial performance in 1H19, etc, we have a watch stance on the stock at the current market price of $0.505, with no change as on 05 August 2019, suggesting that investors should wait for few more catalysts that may drive the stock higher.

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