Sigma Healthcare Limited

SIG Details

Key Updates: Sigma Healthcare Limited (ASX: SIG) is involved in the pharmaceutical wholesale and distribution business to pharmacies in Australia. On 17 December 2021, SIG announced that its CEO, Mark Hooper will exit from the business on 31 December 2021. Mr. Vikesh Ramsunder will join as the new MD & CEO of the company from 1 February 2022. Meanwhile, Mr. Ray Gunston, the Chairman, will serve as the company CEO.

Change in Shareholding: On 14 December 2021, the KKR companies - Comet Asia Holdings I Pte. Ltd., Comet Asia Holdings II Pte. Ltd., KKR Asian Fund III L.P., and KKR Asia III Fund Investments Pte. Limited ceased to be a substantial shareholder in SIG.

On the same date, CBA (Commonwealth Bank of Australia) and Superannuation and Investments HoldCo Pty Limited also ceased to be substantial shareholders in the company.

Business & Guidance Update:

• Based on the recently sought approval from the Board to expand the capacity at the new distribution center (DC) in Truganina (Victoria), SIG plans to invest ~$20 million to accommodate the growth pipeline. It plans to complete the capacity expansion in the next 18-months.
• SIG now expects the underlying EBITDA for FY22 would be down ~10% compared to FY21.
• The downgrade in earnings is due to the operational challenges faced during the application of Enterprise Resource Planning (ERP) and the shift towards the live SAP environment in August 2021. The continued impact of COVID-19 has also compounded these issues.
• SIG reported that these transformative changes had a material impact on the sales in 2HFY22 and led to an unexpected rise in operating costs. These issues are expected to flow through to FY23 sales, however, would slow down throughout FY23.

Key Financial Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces COVID-19 impact on export sales, reduced prices due to government regulations, and higher investment in IT and infrastructure due to the ongoing transformation changes.

Outlook:

• SIG focuses on growing its main business and simultaneously seeks expansion opportunities across areas of contract logistics, hospital services, medical devices, and consumables.
• Due to the ongoing changes and COVID-19 restrictions, SIG expects the non-operating and one-time costs to increase to ~$25-$30 million. The peak net debt is also expected to increase in proportion to the increased costs.
• SIG expects to declare the financial results for FY22 on 29 March 2022.

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

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of SIG gave a negative return of ~22.95% in the past three months and a negative return of ~19.65% in the past six months. The stock is currently trading closer to its 52-weeks’ low level of $0.425. The stock has been valued using the P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ median P/E multiple, considering the continued impact of COVID-19 restrictions & regulatory price erosion, expected increase in non-operating costs, and peak net debt. For this purpose of valuation, a few peers like Ramsay Health Care Limited (ASX: RHC), EBOS Group Limited (ASX: EBO), Integral Diagnostics Limited (ASX: IDX) have been considered. Considering the low trading levels, growth plans for capacity expansion and infrastructure renewal, opportunities to increase other businesses and diversify revenue, M&A avenues, indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.460, as of 23 December 2021, 10:40 AM (GMT+10), Sydney, Eastern Australia.

SIG Daily Technical Chart, Data Source: REFINITIV  

Bionomics Limited

BNO Details

Recent Updates: Bionomics Limited (ASX: BNO) Bionomics Limited is a clinical-stage biopharmaceutical developer of new drug candidates to aid in the treatment of central nervous system (CNS) disorders.

• On 20 December 2021, Director, Mr. Alan Fisher, acquired ~1.0 million shares at $0.12 per share in an on-market purchase of shares.
• On 22 December 2021, Director, Dr. Errol De Souza, acquired ~61.21 million unlisted options for nil value post-approval by the shareholders in the recently held AGM on 2 December 2021.
• On 20 December 2021, BVF Partners L.P reduced its shareholding from ~15.49% to ~12.99% in BNO.

IPO Closure: On 21 December 2021, BNO completed the US IPO via an offering of ~1.62 million ADSs (American Depositary Shares) at ~US$12.35 per ADS. BNO raised ~US$20 million gross proceeds from the IPO (before the costs of offer and underwriting commissions). The ADSs are now trading on the Nasdaq Global Market under the ticker symbol BNOX

On 16 December 2021, BNO requested ASX for a trading halt on its securities pending the release of an announcement or the start of normal trading on 20 December 2021 whichever is earlier. On the same date, BNO issued ~291.96 million ordinary shares at ~US$0.06861 per share under the news declaration on 16 December 2021.

AGM Presentation Highlights:

• The company has obtained approval from the US FDA for the IND filing and a fast-track status for conducting the Phase II of its acute social anxiety disorder (SAD) Prevail study for its lead drug candidate BNC210.
• BNO is still undergoing the Phase 2B trial for the Attune Study for Post-Traumatic Stress Disorder (PTSD) and has an accelerated status designation.
• In partnership with Merck, BNO is advancing on the development of an α7 receptor PAM for the treatment of cognitive impairment. The company updated that the second molecule candidate has been advanced into Phase I clinical trials.
• BNO held ~$17 million cash balance as of 30 September 2021.

Total Assets & Total Liabilities Position; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of regulatory changes, funds for conducting clinical trials, and partner issues on joint projects/ trials.  

Outlook:

• The company is on track to conduct the Phase 2 trial by close of 2021 and read out top-line data by 2022-end.
• BNO plans to publish the results from the Attune Study in 1HFY23.
• BNO expects to achieve several potential value-enhancing clinical milestones in the next four to eight quarters.

Stock Recommendation: The stock of BNO gave a negative return of ~36.36% in the past three months and a negative return of ~49.99% in the past six months. The stock is currently trading at par to its 52-weeks’ low level of $ 0.105. On a TTM basis, the stock of BNO is trading at a price to book value multiple of 3.2x, lower than the industry (Biotechnology & Medical Research) median of 4.4x, thus seems undervalued. Considering the current trading levels, recent listing on the US Nasdaq and access to an expanded investor base, low debt levels, fast track FDA status on the PTSD and SAD trials, valuation on a TTM basis, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.105, down by ~8.696% as of 23 December 2021.

BNO Daily Technical Chart, Data Source: REFINITIV

Medlab Clinical Limited

MDC Details

Conference Highlights: Medlab Clinical Limited (ASX: MDC) is engaged in the development and monetization of its pharmaceutical delivery platform, NanoCelle®. MDC is developing NanaBis™, a cannabis-based lead drug candidate for cancer bone pain treatment and other cannabis-related products. MDC presents the following takeaways from the recently held Jefferies Healthcare Conference in London:

• MDC’s current portfolio constitutes NanoCelle® Delivery Platform, NanaBis™ (a lead candidate for cancer bone pain treatment), NanoCBD™ (an OTC registered medicine).
• MDC also owns the global rights for IP licencing & R&D for the nutraceutical business and exploring global trade opportunities to grow revenue.
• The company is exploring partnering opportunities for multiple different molecules with different companies for the development and commercialisation of its NanoCelle® platform.
• MDC is preparing to make NanaBis™ available for compassionate use in the UK and Australia in January 2022). It is also preparing to start the process of filling a new drug application with the US FDA and a multi-site Phase III study overseas.
• MDC held ~$75 million cash as of 30 September 2021. With the sale of nutraceutical business to PharmaCare and an R&D grant, the company expected to have ~$13 million cash in mid-November 2021. It also estimates ~$2 million cash savings in annual opex due to the sale of nutraceutical business.

Key Financial Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces the uncertainty of clinical trial results, cost-effective funding for multi-site trials, regulatory delays.  

Outlook:

• The company is exploring various partnership models via joint ventures, asset sales, and royalty payments to commercialise its clinical programs, assets, and regulatory approvals rapidly in the US and Europe.
• It plans to launch compassionate / ethical programmes in the UK and EU4 for NanaBis™.
• For its NanoCBD™ candidate, MDC plans to strengthen its Chemistry Manufacturing and Controls (CMC) package for filing the drug application for approval from TGA.

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

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of MDC gave a negative return of ~3.22% in the past three months and a negative return of ~3.22% in the past six months. The stock is currently trading at par to its 52-weeks’ low level of $0.140. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount than its peers’ average EV/Sales multiple, considering its continuing trend of negative net margin, negative ROE, the risk of clinical trial results, and regulatory approvals for new geographies, etc. For this purpose of valuation, few peers like Adalta Limited (ASX: ADA), Aroa Biosurgery Limited (ASX: ARX), Anteotech Limited (ASX: ADO) have been considered. Considering the current trading levels, decline in debt-to-equity ratio, indicative upside in valuation, expected annual savings in opex, grant of the US patent for NanoCelle®, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.140, as of 23 December 2021, 10:40 AM AEST (GMT+10), Sydney, Eastern Australia.

MDC Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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