Stocks’ Details

Australian Pharmaceutical Industries Limited

Final Dividend Declared: Australian Pharmaceutical Industries Limited (ASX: API) is engaged as a distributor of pharmaceutical, health and beauty retailer. On 22 October 2020, the company announced its fully ranked final Dividend of 2 cents per share, indicating a payout ratio of 33% of underlying NPAT. For the year ended 31 August 2020 or FY20, the company posted a gross profit of $474.5 million, which declined by 8.5% on pcp, due to lower sales of colour cosmetics. In the same time span, EBITDA for the period decreased by 29.1% year over year and came in at $87.3 million. Net profit after tax was $32.5 million, down by 42.6% year over year. Net debt as at 31 August 2020 declined to $18 million from $181.1 million as at 31 August 2019.

Financial Highlights (Source: Company Reports)

Outlook: The company is focused on taking continued advantage of growth opportunities due to a decent balance sheet position. The 7 CPA additional funding with the cost of savings has provided a platform to invest and uplift its business in FY21.

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

Price/Cash Flow 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 per ASX, the stock of API gave a return of 3.60% in the past six months and a return of 3.13% in the last three months. On a technical front, the stock of API has a support level of ~1.046 and a resistance level of ~$1.21. We have valued the stock using the Price to Cash Flow multiple based illustrative relative valuation method and have arrived at a target upside of low-double-digit (in % terms). For the purpose, we have taken peers like Mayne Pharma Group Ltd (ASX: MYX), Virtus Health Ltd (ASX: VRT), to name few. Considering the attractive returns in the past six months, decent long-term outlook, enhancing shareholder’s value via dividend distribution and key investment risks, we recommend a 'Speculative Buy’ rating on the stock at the current market price of $1.150, up by 2.22% on 20 November 2020.

Mayne Pharma Group Limited

Renewal of Board of Director: Mayne Pharma Group Limited (ASX: MYX) is a specialty pharmaceutical firm focused on commercializing branded and generic pharmaceuticals. On 9 November 2020, the company announced that Mr Roger Corbett, would stand for re-election at the AGM. Also, Mr Bruce Mathieson, Non-Executive Director and Mr Roger Corbett, one of the significant Boards of Directors, will step down from the board within the next twelve months.

FY20 Key Financial Highlights: As of FY20, the Company reported a gross profit margin of 46.3%, which declined from 55.2% in the pcp, due to change in products sales mix and reduced contribution from higher-margin products. In the same time span, the company reported a loss before tax of $135.4 million, affected by an impairment of the generic portfolio. In FY20, net research and development expense after qualifying capitalisation was reported at $24.8 million, a decrease of $3.7 million on the pcp. Also, the company incurred an impairment expense of $99 million in FY20 against $351.7 million in FY19. The company exited the period with cash and cash equivalents of $137.8 million.

Financial Highlights (Source: Company Reports)

Valuation: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

EV/EBITDA 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 company is looking forward to return to growth through repositioning of distribution channels, sustainable products, and therapeutic areas. As per ASX, the stock of MYX went down 16.47% in the past six months. On the technical analysis front, the stock of MYX has a support level of ~$0.30 and a resistance level of ~$0.61. We have valued the stock using an EV/EBITDA multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). For the purpose, we have taken peers like Sigma Healthcare Ltd (ASX: SIG), Australian Pharmaceutical Industries Ltd (ASX: API), to name a few. Considering the decent returns in the past six months, resilient performance in the softer market conditions, decent long-term outlook, and key investment risks, we recommend a ‘Speculative Buy’ rating on the stock at a current market price of $0.355, up by 1.428% on 20 November 2020.

Paragon Care Limited

Q1FY21 Financial Highlights: Paragon Care Limited (ASX: PGC) is focused on supplying of medical equipment, medical devices and consumable medical products to the health and aged care markets throughout Australia and New Zealand. In Q1FY21, the company reported revenue of $57 million, down 4.7% on the previous corresponding period, due to COVID-19 led headwinds. Further, the Company reported EBITDA of $7.5 million, up 12% in the pcp. Gross profit margin took a minor hit, falling to 37.5% from 39% in the pcp. In the same time span, the operating cash flow improved to $1 million in Q1 FY21 from a loss of $13 million in Q1 FY20. The company exited the period with cash and cash equivalents of $13.4 million. Revenues saw an upward trend from FY17 ($117.2 million) and reached to $231.7 million in FY20.

Past Trend in Revenue (Source: Company Reports)

Outlook: The company is expecting increased savings by undertaking cost cutting program throughout FY21, partially offset by reducing Jobkeeper payments over the period. Furthermore, the loss from Jobkeeper support will be more than offset through increased sales, owing to ramp up of elective surgery in Q2FY21.

Valuation: Price to Cash flow Multiple Based Relative Valuation (Illustrative)

Price/Cash flow 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 per ASX, the stock of PGC gave a return of 44.177% in the past six months and a return of 22.5% in the last one month. The stock is trading slightly below its 52-weeks' average levels. On a technical front, the stock of PGC has a support level of ~$0.16 and a resistance level of ~$0.41. We have valued the stock using the price/cash flow 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 like Australian Pharmaceutical Industries Ltd (ASX: API), Regis Healthcare Ltd (ASX: REG), to name a few. Considering the current trading levels, attractive returns in the past six months and decent financial performance amidst the COVID-19 uncertainty, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.245, up by 13.95% on 20 November 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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