Stocks’ Details

Capitol Health Limited 

Equity Raising for Future Growth: Capitol Health Limited (ASX: CAJ) provides diagnostic imaging and related services to the Australian healthcare market. In a recent update, the company advised the market that 1,650,000 Unlisted Options have lapsed, due to unmatched performance.

COVID-19 Impact: The business has continued to be operational in light of providing the essential services in the ongoing crisis, while ensuring patient and staff health, keeping a check on the supply chain of business-critical consumables and equipment, along with proper adjustment of the cost base.

Other Recent Updates: In another update, the company stated that Challenger Limited, a substantial holder of the company has decreased its voting power from 11.6% to 10.09%. Recently, the company completed its previously announced Share Purchase Plan Offer. The offer provided eligible shareholders for applying up to $30,000 of new Shares in the company without incurring brokerage or other transaction costs, at an issue price of $0.16 per share. The SPP aimed to raise up to $10 million and would utilise the proceeds to strengthen balance sheet flexibility during the current macroeconomic uncertainty, decreasing net debt, as well as to finance the potential future acquisitions and other growth initiatives.

1HFY20 Key Highlights: During 1H20, the company reported an increase of 11% in revenue to $80.6 million and a growth of 15% in underlying EBITDA to $13.7 million.

1HFY20 Key Highlights (Source: Company Reports)

Risks: The company is exposed to certain risks, which include stiff competition from peers, foreign currency risk and a leveraged balance sheet. Further, the company is exposed to interest rate risk.

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation:  The stock of the company is currently trading slightly below the average of its 52-week low and high of $0.155 - $0.305, respectively. The company has a market capitalisation of ~$214.75 million. The stock of CAJ gave a negative return of ~16% in the last six months and a negative return of ~14.29% in the one-month period. The available liquidity will aid the company to navigate the coronavirus pandemic and capitalise on growth opportunities after the crisis. We have valued the stock using the P/CF multiple based illustrative relative valuation method and arrived at a target price with an upside of lower double-digit (in percentage terms). Thus, in light of the decent liquidity position and outlook, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.21 per share as on 5 August 2020. 

Compumedics Limited

Preliminary Business Update for the Period Ended 30 June 2020: Compumedics Limited (ASX: CMP) develops and manufactures diagnostics technology for sleep, brain, and ultrasonic blood-flow monitoring applications. For FY20, the company stated that preliminary sales amounted to ~$35m down 15% year over year, due to lock-downs led by COVID-19 pandemic. The company has strengthened its balance sheet, improving cash on hand to $6.5m as at 30 June 2020. The company has also secured bank borrowing facilities in Australia and Germany, with unused bank borrowing facilities of $3.5m as at 30 June 2020. In FY20, revenues from China and the US were down 43% and 11%, respectively, year over year. However, revenues from Japan increased by 192% on pcp.

The company expects Initial sales pipelines for FY21 to remain in line with the previous year, with good new sales orders in the first weeks of FY21. The company finds it difficult to forecast sales due to COVID-19 pandemic. However, it is taking the necessary measures to develop the required contingency plans to manage the impact of the crisis.

Half Yearly Highlights: During the six months ended 31st December 2019, the company reported revenue amounting to $18.3 million, down by 2% on the prior corresponding period, due to lesser sales booking in the US. The company has been continuously engaged in investing in new products for the core business, with orders worth $18 million taken in 1HFY20.

1HFY20 Key Highlights (Source: Company Reports)

Growth Opportunity: Going forward, the company expects key growth opportunities to deliver an increase in revenues and earnings. It remains on track for the installation of the dual-helmet Dewar at Barrow Neurological Institute (BNI) in Phoenix along with numerous field trials of the Somfit technology. These activities will seek strategic alliances and partnerships, which are likely to gain momentum.

Risks: The risks CMP is exposed to through its financial instruments are foreign currency risk, interest rate risk, liquidity risk and credit risk. Also, stiff competition and shorter-term disruptions due to COVID-19 led outbreak to add to the risk profile.

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

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

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of the company is currently trading below the average of its 52-week low and high of $0.25 - $0.96, respectively. The company has a market capitalisation of ~$77.07 million. The stock of CMP gave a negative return of ~36.5% in the last six months but ran up ~8.75% in the last one-month period. While the company has revoked its financial outlook due to coronavirus impact, it is actively pursuing certain business activities and is preparing to gain momentum despite the turmoil in the global markets. The company is set to report its FY20 results on 26 August 2020. We have valued the stock using the EV/Sales multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). Considering the current trading levels, resilient business model and decent growth opportunities, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.44, up 1.149% on 5 August 2020.

Paragon Care Limited

Controlled Measures for COVID-19: Paragon Care Limited (ASX: PGC) is involved in end to end healthcare solutions, which include equipment and service solutions for acute, aged, and primary care. Recently, the company announced that Michael Newton has ceased to be a substantial holder of the company, effective from 30 June 2020. In another update, the company notified the market regarding its control measures undertaken to curb the impact of COVID-19 outbreak. Paragon has established protocols and procedures in order to ensure the safety of all personnel and to assess and manage potential operational risks. During 1H FY20, the revenue of the company increased to $120.7 million. Moreover, gross margin for the period was consistent with the previous year and stood around 38%.

1H FY20 Financial Performance (Source: Company Reports)

Focus for FY20: Due to controlled measures amid COVID-19 led outbreak, the company is pleased to advise that there has been a strong upturn in PGC’s May and June 2020 revenues, on the back of better-than-expected level of elective surgery cases due to the recent favourable policy changes by the Federal Government. Therefore, the company now expects FY20 revenues to be more than $220 million. It is worth noting that, to date, the company has saved more than $4 million of permanent annualised cost and expects to double the amount over the next financial year.

Key Risk: The company’s financial instruments comprise mainly of receivables, payables, bank loans and overdrafts, finance leases, loans from related parties, cash, and short-term deposits. The main risks PGC is exposed to through its financial instruments are foreign currency risk, interest rate risk, liquidity risk and credit risk. On the flip side, the company is exposed to shorter-term disruptions from challenging macro-economic environment due to COVID-19 led outbreak. The company also faces stiff competition from peers.

Stock Recommendation: The company finished the first half of the financial year 2020 (31st December 2019) with a cash balance of around $18 million. The stock of the company is currently trading below the average of its 52-week low and high of $0.095 - $0.5, respectively. The stock of PGC gave a negative return of ~47.69% in the last six months. Current ratio of PGC stood at 1.43x in 1H FY20 as compared to the industry median of 1.29x. This reflects that the company is in a decent position to address its short-term obligations versus the overall industry. PGC has an EV/Sales multiple of 0.7x as compared to the industry median of 10.6x on TTM basis. The stock is trading at a price to book value multiple of 0.3x against the industry median of 4.3x on TTM basis. Thus, considering the decent liquidity position, valuation on TTM basis, and positive outlook, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.175 per share, up by 2.941% on 5 August 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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