Stocks’ Details

Resmed Inc

Decent Growth in Top-line: Resmed Inc (ASX: RMD) is a medical device manufacturing company with a market capitalisation of $33.85 Bn as on 1^st May 2020. The company has recently released its results for Q3 2020, wherein, it reported a rise of 16% in revenue to US$769.5 million. The company recorded revenue growth of 12% in the U.S., Canada, and Latin America, excluding Software as a Service, underpinned by the strong sales in its mask and device product portfolios, including increased demand for its ventilators due to COVID-19.  Non-GAAP gross margin rose by 70 bps mainly due to the benefits from product mix changes, and manufacturing and procurement efficiencies, which was partially offset by declines in average selling prices.

Key Metrics (Source: Company Reports)

Optimistic for Future Growth: The company is positive about its ability to navigate through the challenging clinical and economic environment to deliver for all its stakeholders. RMD is optimistic that its strong foundation would accelerate the adoption of much-needed digital health solutions in the field of respiratory medicine over the longer term.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: During Q3 2020, the cash flow from operations stood at US$239.7 million, against the net income of US$163.1 million during the same quarter. The stock of Resmed is trading a premium P/E multiple of 51.68x against the industry average (Healthcare Equipment & Supplies) of 16.7x on TTM basis.  We have valued the stock using P/E multiple based illustrative relative valuation method, and for the purpose, we have taken peers such as Cochlear Ltd  (ASX: COH), Sonic Healthcare Ltd (ASX: SHL), Ramsay Health Care Ltd (ASX: RHC) and arrived at a target price with the correction of low-single-digit (in percentage terms). Thus, it can be said that the stock is slightly overvalued at the current levels. Based on the above-stated factors, we have a watch stance on the stock at the current market price of $24.160 per share, up by 3.248% on 1^st May 2020.

Fisher & Paykel Healthcare Corporation Limited

Increased Demand for Key Products: Fisher & Paykel Healthcare Corporation Limited (ASX: FPH) is in the development of medical devices and systems for use in respiratory care, acute care, surgery etc. The market capitalisation of the company stood at $14.54 Bn as on 1^st May 2020. The company would release its results for the year ended 31^st March 2020 on 29^th June 2020. FPH has been designated an essential service by the Government of New Zealand, and it would continue operations in its Auckland facilities. The company added that its respiratory humidifiers and consumables are directly involved in treating patients with coronavirus, and it has experienced a rise in demand globally and has ramped up its manufacturing output. The below picture gives an overview of half-year results 2020:

Financial Performance (Source: Company Reports)

Updated Guidance for FY20: As per the company’s update released on 17 March 2020, FPH anticipates its FY20 operating revenue to be around NZ$1.24 billion and net profit after tax to be in the ambit of around NZ$275 million to NZ$280 million.

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

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

Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months, *1 AUD= 0.94 NZD

Stock Recommendation:  The stock of FPH has corrected 16.31% in the span of one month, and it is trading towards its 52-weeks high level of $31.470. We have valued the stock using EV to Sales multiple based illustrative relative valuation method and arrived at a price correction of low-single digit (in percentage terms). Therefore, considering the corrections in the past month, scheduled full-year 2020 results and current trading levels, we have a watch stance on the stock at the current market price of $26.540 per share, up by 4.901% on 1^st May 2020.

Capitol Health Limited

Equity Raising for Future Growth: Capitol Health Limited (ASX: CAJ) provides diagnostic imaging and related services to the Australian healthcare market. The market capitalisation of the company stood at $192.02 Mn as on 1^st May 2020. Recently, the company raised capital of $29.8 million in a placement to the institutional investor. The company 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. CAH has also offered a share purchase plan to the eligible shareholder for applying up to $30,000 of new Shares in the company without incurring brokerage or other transaction costs.

Liquidity Position (Source: Company Reports)

Future Aspects: The company anticipate market growth to return to a longer-term average. Beyond COVID-19, the company would be focused on its existing business as well as the development of rolling acquisition.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation:  The available liquidity of $113.4 million enables the company to navigate the coronavirus pandemic and capitalise on growth opportunities after the crisis. We have valued the stock using P/E multiple based illustrative relative valuation method, and for the purpose we have taken peers such as Integral Diagnostics Ltd (ASX: IDX), Japara Healthcare Ltd (ASX: JHC), and Pacific Smiles Group Ltd (ASX: PSQ) and arrived at a target price with the upside of lower double-digit (in percentage terms). Thus, in light of the decent amount of available liquidity and outlook, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.190 per share, down by 5% on 1^st May 2020.    

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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