Stocks’ Details

Fisher & Paykel Healthcare Corporation Limited

Record Result for FPH: Fisher & Paykel Healthcare Corporation Limited (ASX: FPH) is one of the leading firms in medical devices and systems for use in respiratory care, acute care, surgery and in the treatment of obstructive sleep apnea. As on 30 July 2020, the market capitalization of the company stood at ~$18.96 billion. During the year ended 31 March 2020, the company reported an increase of 18% in operating revenue to NZ$1.26 billion, driven by increased usage of its Optiflow^TM nasal high flow therapy, demand for products to treat COVID-19 patients, and strong hospital hardware sales throughout the year. In the same time span, net profit after tax was up by 37% on the pcp to a record NZ$287.3 million.

FY20 Financial Highlights (Source: Company Reports)

Outlook: The company has provided guidance for FY21 and expects full-year operating revenue of approximately NZ$1.48 billion and net profit after tax in the range of NZ$325 million to NZ$340 million. It also expects its capital expenditure to be approximately NZ$160 million.

Key Risks: The investment in the company is subject to various risks and uncertainties, which may impact its performance. These risks include market access risk, cybersecurity and data protection, business continuity. The company’s activities expose it to a variety of financial risks, including market risk -currency risk and interest rate risk, credit risk and liquidity risk.

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

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

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As a result of increased demand for the Hospital and Homecare products, the 2H20 saw the company deliver better-than-expected performance. As per ASX, the stock of FPH gave a return of 52.97% in the past six months and a return of 4.14% in the last one month. However, the stock of FPH is trading very close to its 52-weeks’ high level and seems overvalued. We have valued the stock using an EV/Sales multiple based illustrative relative valuation and have arrived at a downside of lower single-digit (in percentage terms). Considering the current trading levels, returns in the past three months, resilient performance and key risks, we suggest investors to wait for better entry levels and have a watch stance on the stock at the current market price of $32.95, down by 0.091% on 30 July 2020.

Mesoblast Limited

Quarterly Update: Mesoblast Limited (ASX: MSB) is a biotechnology company in the area of adult stem cell technology. As on 30 July 2020, the market capitalization of the company stood at ~$2.13 billion. The company has recently announced that the independent Data Safety Monitoring Board has set a date for early September to complete the first interim analysis of the Phase 3 trial of remestemcel-L in ventilator-dependent COVID-19 patients with moderate to severe acute respiratory distress syndrome. The US FDA has also scheduled a meeting on 13 August 2020 to review data supporting MSB’s Biologics License Application for approval of RYONCIL in the treatment of SR-aGVHD in children.

During the quarter ended 30 June 2020, the company completed a capital raise of US$90 million from global institutional investors and reported a cash balance of US$129.3 million. In the same time span, total operating activities resulted in net cash usage of US$19.6 million. The company is scheduled to release its FY20 results on 27 August 2020.

Quarterly Cash Flow Activities (Source: Company Reports)

Key Risks: The company is exposed to a variety of risks including the undesired results of Mesoblast’s preclinical and clinical studies, and Mesoblast’s research and development programs; inability to advance its manufacturing capabilities, to be withdrawn from the market due to patient adverse events or deaths, etc.

Stock Recommendation: The company is on track to achieve key milestones from the upcoming Phase 3 read-outs in chronic heart failure and back pain. As per ASX, the stock of MSB gave a return of 78.05% on the YTD basis and a return of 18.12% in the last one month. The stock of MSB is trading close to its 52-weeks’ high levels but retains the potential for further growth. On a TTM basis, the stock is trading at a price to book value multiple of 2.7x, lower than the industry median (Healthcare) of 3x.  Considering the current trading levels, attractive returns on the YTD basis, upcoming Phase 3 read-outs and ample liquidity levels, we recommend a ‘Hold’ rating on the stock at the current market price of $3.83, up by 4.932% on 30 July 2020.

Nanosonics Limited

Key Business Update: Nanosonics Limited (ASX: NAN) is focused on the research, development, and commercialization, of innovative technologies in infection control and decontamination. As on 30 July 2020, the market capitalization of the company stood at ~$1.89 billion. During the third quarter of FY20, unaudited sales were up on the pcp, reflecting continued underlying growth momentum for the business and growing awareness and understanding of the importance of ultrasound probe decontamination. The ongoing fundamentals for the business seem to be sound.

During 1H20, the company reported record sales of $48.5 million, up 19% on the prior corresponding period and witnessed global installed base growth of 17% in the past one year.

1H20 Financial Highlights (Source: Company Reports)

Key Risks: All research and new product development programs of the company involves inherent risks and uncertainties, which can impact commercialization timelines. The company also recognizes the transition risks such as regulatory, supply chain, and transportation risks which may impact future operations.

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

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

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The supply chain is being closely managed and is currently well-positioned to meet customer demand, having an increased inventory of raw materials and finished goods for capital equipment and consumables. However, the company might face some uncertainty from the outbreak of the COVID-19. As per ASX, the stock of NAN gave a negative return of 8.45% in the past six months and a negative return of 6.96% in the last one month. The stock is also inclined towards its 52-weeks’ high levels of $7.73 and thus seems overvalued. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and have arrived at an upside of lower single-digit (in percentage terms). Considering the current trading levels, volatility in returns, key risks and uncertainty from the COVID-19 pandemic, we suggest investors to wait for the better entry levels and recommend a watch stance on the stock on the current market price of $6.520, up by 3.822% on 30 July 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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