Stocks’ Details

Mesoblast Limited

Robust Top-line Numbers aided by 73%pcp Growth from TEMCELL HS Inj.®1: Mesoblast Limited (ASX: MSB) is a biotechnology company which specialises in adult stem cell technology. The Company has leveraged its proprietary mesenchymal lineage cell therapy technology platform to establish a broad portfolio of commercial products and late-stage product candidates.

H1FY20 Business Highlights for the Period ended 31^st December 2019:  MSB declared its half-year results, wherein the company reported revenue of US$19.2 million, up 43% on y-o-y basis. Growth was attributable to 73% pcp growth from sales of TEMCELL HS Inj.®1. The business reported its milestone revenue of US$15.0 million, up 36%, aided by growth from strategic partnerships. MSB posted a lower loss after tax of US$30.1 million, as compare to US$44.1 million. Decline in R&D was attributable to a reduction in third party costs of its Phase 3 clinical trials. The business entered into an agreement with Lonza for the commercial manufacture of RYONCIL. The above collaboration is likely to facilitate inventory build ahead of the planned US market launch and for commercial supply as per the company’s long-term strategy.


Key H1FY20 Income Statement Highlights (Source: Company Reports)

Outlook: For the next twelve months, the business will seek for updates on Priority Review and Prescription Drug User Fee Act (PDUFA) date for RYONCIL for SR-aGVHD in children. In addition, the company will be initiating confirmatory trial of REVASCOR for Advanced and End Stage heart failure.

Stock Recommendation: The stock of MSB is trading at $2.44 with a market capitalisation of ~$1.3 billion. The stock is trading at the upper band of its 52-week trading range of $1.18 to $3.21. The stock has generated robust returns of 72.24% and 92.06% in the last six-months and one year, respectively. The business applied for Priority Review of the BLA for RYONCIL, under the product candidate’s existing Fast Track designation and is expected to launch the product in the US in 2020. Considering the current trading levels and business prospects, we recommend a “Buy” rating on the stock at the current market price of $2.44 per share, up 0.826% on 27^th February 2020.

Ramsay Health Care Limited

Robust Growth from Europe Led Improved Business Performance: Ramsay Health Care Limited (ASX: RHC) is a global hospital group, that owns and operates a comprehensive range of healthcare facilities.

H1FY20 Operational Highlights for the Period ended 31 December 2019:  RHC announced its six-months results, wherein the company reported revenue of $6.3 billion, up 22.5% on pcp terms. During the period, the company witnessed growth across its UK, Continental Europe and Asia segments, which was partially offset by challenging conditions in Australia. EBITDAR came in at $1.1 billion, up 17.4% from H1FY19. The company’s UK business recorded its best half yearly performance in recent years, driven by growth in overall business activities. Revenue from its UK business stood at £267.6 million, up 8.7% on pcp. Australia reported a revenue of $2.7 billion, depicting an increase of 3.9% on y-o-y basis.


Key H1FY20 Financial Highlights (Source: Company Reports)

The Board of Directors announced a fully franked dividend of $2.042700 per security with a payment date of 20^th April 2020.

Outlook: The business expects growth in terms of volume and tariff in the UK and Europe segment and expects a softer growth environment in Australia. The business expects its FY20 Core EPS growth on a like-for-like basis in the range of 2% to 4%, which corresponds to a negative Core EPS of -6% to -4% under the new lease accounting standard AASB16. The business expects EBITDAR growth of 8% to 10%, that will remain unaffected by the new lease standard.

Valuation Methodology: Price to Earnings Based Valuation
 

Price to Earnings Based Valuation (Source: Thomson Reuters)

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

Stock Recommendation: The stock of RHC is trading at $73.62 with a market capitalisation of ~$15.11 billion. The stock is trading at the upper band of its 52-week trading range of $60 - $80.93. The stock has generated decent returns of 10.80% and 23.77% in the last six-months and one year, respectively. The company has a strong balance sheet, which will help in funding the pipeline of brownfield capacity expansion and future acquisitions. Considering the current trading levels and business prospects, we have valued the stock using Price to Earnings based relative valuation method. For the purpose, we have taken peers like CSL Ltd (ASX: CSL), Cochlear Ltd (ASX: COH), Sonic Healthcare Ltd (ASX: SHL), and arrived at a target price of higher single-digit upside (in % terms). Hence, we recommend a “Hold” rating on the stock at the current market price of $73.62 per share, down 1.538% on 27^th February 2020.
 

Australian Pharmaceutical Industries Limited

Reported Robust Bottom-line Growth along with Improved Market-share: Australian Pharmaceutical Industries Limited (ASX: API) operates as awholesale distributor of pharmaceutical and allied products. The company also provides retail support services to pharmacists. Recently, the company informed that one of its directors, named Richard Craig Vincent, has acquired 495,711 performance rights under the Long Term Incentive Plan 2019 - 2022.

FY19 Financial Highlights for the Period ended 31^st August 2019:API declared its full year results, wherein the company reported revenue amounting to $4 billion, up 4.1% on y-o-y basis. The company delivered robust bottom-line growth with NPAT amounting to $56.6 million, up 17.4% on y-o-y basis. During the period, the company’s growth assets continued to perform well while Priceline like-for-like sales grew 0.7%. The year was marked by growth in market share and contribution from Priceline pharmacy, consumer brands and Clear Skincare businesses, followed by a solid result from the pharmaceutical wholesaling business.

Valuation Methodology: Price to Cash Flow Based Valuation 
 

Price to Cash Flow Based Valuation (Source: Thomson Reuters)

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

Stock Recommendation: The stock of API is quoting at $1.205 with a market capitalisation of ~$591.19m. The stock is trading at the lower band of its 52-week trading range of $1.2 to $1.57. The stock has generated negative returns of 8.05% and 11.76% in the last three months and six-months, respectively. The company intends to deliver high quality, affordable and innovative products to its broad customer base and focuses on new product development which will further lead to high volume generic products introduced into the market. Considering the current trading levels and business prospects, we have valued the stock using Price to Cash Flow based relative valuation method. For the purpose, we have taken peers like Ansell Ltd (ASX: ANN), Healius Ltd (ASX: HLS) and Sonic Healthcare Ltd (ASX: SHL) and arrived at a target price of lower-double digit upside (in % terms). Hence, we recommend a “Speculative Buy” rating on the stock at the current market price of $1.205 per share, up 0.417% on 27^th February 2020.

 
Comparative Price Chart (Source: Thomson Reuters)

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