Stocks’ Details

Mesoblast Limited

Business Update: Mesoblast Limited (ASX: MSB) develops allogeneic cellular medicines. It has made use of its proprietary mesenchymal lineage cell therapy technology platform to establish a broad portfolio of commercial products and late-stage product candidates. The market capitalisation of the company as on 02 December 2020, stood at ~$2.42 billion. In a recent update, the company has announced that the US FDA has approved Fast Track designation of its product Remestemcel-L in the treatment of acute respiratory distress syndrome (ARDS) due to COVID-19 infection.

Global Collaboration: On 20 November 2020, MSB entered into a global collaboration agreement with Novartis to develop, manufacture and commercialise its mesenchymal stromal cell (MSC) product Remestemcel-L, for an upfront payment of US$50 million. MSB expects an additional US$67.5 million that might be available through existing financial facilities and strategic partnerships over next 12 months.

1QFY21 Key Highlights: Total revenues for the period stood at US$1.3 million, as compared to US$17 million reported in the year-ago period. Loss before tax for the period came in at US$25.3 million, as compared to a loss of US$7.4 million reported in the year-ago period.

1QFY21 Financial Results (Source: Company Reports)

Outlook: The company looks good to reap the advantage of its mesenchymal lineage cell technology platform to establish a broad portfolio of products. Going forward, the company stands to benefit from the collaboration with Novartis to develop, manufacture and commercialise its key product Remestemcel-L.

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 cash balance of the company was US$108.1 million on 30 September 2020. As per ASX, the stock of MSB gave a positive return of 44.9% in the past one month and a return of 14.2% in the past six months.  As per ASX, the stock of MSB is trading above the average of its 52 weeks’ trading range of $1.02 - $5.70. On a technical front, the stock of MSB has a support level of $3.55 and a resistance level of $5.2. We have valued the stock using an EV to sales multiple based illustrative relative valuation and have arrived at a target price with an upside of lower double-digit (in % terms). For the purpose, we have taken peers such as Avita Therapeutics Inc (ASX: AVH), Paradigm Biopharmaceuticals Ltd (ASX: PAR), Immutep Ltd (ASX: IMM), to name a few. Considering the current trading levels, strengthened balance sheet, decent outlook and returns in past months, we recommend a ‘Hold’ rating on the stock at the current market price of $4.43, up by 7.236%  as on December 02, 2020.

Sigma Healthcare Limited

Business Update: Sigma Healthcare Limited (ASX: SIG) is a full line pharmaceutical wholesaler and distributor in Australia. The company operates Australia’s largest pharmacy network, across the brands Amcal, Chemist King, Discount Drug Stores, Guardian and PharmaSave.  The market capitalisation of the company as on 02 December 2020, stood at ~A$603.83 million.

Financial Update: The company reported underlying EBITDA attributable to owners of $34.1 million in 1HFY21, down 7.7% year over year. EBITDA margins were at 2.2% in 1HFY21 as compared to 2% in 1HFY20. EBIT margins were at 1.3%, which was same as the previous comparable period. The results were impacted by one-off elements like increase in provision for doubtful debts, redundancies related to warehouse closures.

Figures in ‘000

1HFY21 Financial Results (Source: Company Reports)

Outlook: The company has a strong pipeline of products, going forward. It has a market share of ~10% and is expected to increase with operational progress throughout all the States, along with implementation of expansion plans.

Valuation Methodology:  P/E Multiple Based Relative Valuation (Illustrative)

P/E 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 company went through a capex phase and is near to its targeted investment cycle end. Net debt position as at 31 July 2020, stood at $179 million. The company expects its underlying business to remain strong. As per ASX, the stock of SIG gave a negative return of 11.62% in the past three months and a positive return of 10.67% in the past one month.  As per ASX, the stock of SIG is trading below the average of its 52 weeks’ trading range of $0.45 - $0.74. On a technical front, the stock of SIG has a support level of $0.507 and a resistance level of $0.597. We have valued the stock using a price to earnings multiple based illustrative relative valuation and have arrived at a target price with an upside of lower double-digit (in % terms). Considering the current trading levels, diversified growth and business expansions and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.570 as on December 02, 2020.

Japara Healthcare Limited

Business Update: Japara Healthcare Limited (ASX: JHC) owns, operates, and develops residential aged care homes. The market capitalisation of the company as on 02 December 2020, stood at ~$189.74 million. The company’s portfolio occupancy as on 25 October 2020 was 87.6%, with 3,902 occupied places. Occupancy at JHC’s Victorian homes stood at 85.4%, whereas occupancy in other states averaged to ~92.5%.

Financial Update: Revenue per resident during 1QFY21 was mostly in expected lines, however lower occupancy levels have impacted overall revenues. RAD and ILU inflows of $2.3 million were received from 1 July 2020 to 30 September 2020, and this includes $2.6 million of net outflows from the closure of Japara Wyong. During FY20, the company reported total revenues of $427.5 million, from $399.7 million in FY19. Loss for the period came in at $292.08 million in FY20, due to an impairment charge on its assets.

Financial Results (Source: Company Reports)

Outlook:  The COVID-19 pandemic has caused disruptions in the business with occupancy levels remaining below historic levels. As such the company might face challenge for raising funding in the present scenario. The company expects to release the Final Report in February 2021.

Valuation Methodology:  P/CF Multiple Based Relative Valuation (Illustrative)

P/CF 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 company incurred direct costs in its fight with COVID-19 since the elderly are more vulnerable to the virus. Although, the company provided a decent top line increase in FY20, the immediate future looks a little uncertain. As per ASX, the stock of JHC gave a return of 66.29% in the past three months and a return of 92.20% in the past one month.  As per ASX, the stock of JHC is trading at an average of its 52 weeks’ trading range of $0.345 - $1.135. On a technical front, the stock of JHC has a support level of $0.623 and a resistance level of $0.869. We have valued the stock using a P/CF multiple based illustrative relative valuation and have arrived at a target price with an upside of lower double-digit (in % terms). For the purpose, we have taken peers such as Estia Health Limited (ASX: EHE), Virtus Health Limited (ASX: VRT), Pacific Smiles Group Limited (ASX: PSQ), to name a few. Considering the current trading levels, decent revenue growth in FY20, decent portfolio occupancy rate and key risks, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.740, up 4.225% as on December 02, 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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