CSL Limited

CSL Details
Healthy Balance Sheet:CSL Limited (ASX: CSL) is a blue-chip company with the market capitalization of circa $85.28 Bn as of November 02, 2018. The company is in the business of developing and delivering innovative medicines that save lives, protect public health and help people with life-threatening medical conditions live full lives. There are three main business verticals, i.e., Sales to external customers, Pandemic Facility Reservation fees, Royalties, and License revenue which contributed to operating revenue by around 95.9%, 1.5%, and 1.8%, respectively in FY18 and rest 0.8% operating revenue garnered from other revenue / other income (excluding interest income). On geographic front, the company generates sale around 91.3% from export market and rest comes from the domestic market in FY18. Moreover, the company’s balance sheet and debt serviceability remain strong. Net debt to Earnings Before Interest Taxes Depreciation and Amortization (EBITDA) currently stands at around one point three times (1.3x) which is within the target range of 1.0x to 1.5x. At 30 June 2018, the current ratio and quick ratio stood at 2.61x and 1.20x, respectively, representing decent liquidity position of the company.

Balance Sheet Efficiency (Source: Company Reports)
Net margin has been increased from 19.3% to 218% in FY18 over the prior year. Resultantly, RoE rose for FY18 at 47.7% from 46.7% in last year. Operating margin, on the other hand, has increased by 28.8% compared to 24.4% in FY17. On the stock performance front, the stock had a decent run on the bourses generating 11.44% in the last six months. Currently, the stock is trading at a higher level with high PE multiple of 36.41x among its peers. Hence, we suggest that the investors should wait for a few more trading sessions to get the better levels for an entry, that’s why we maintain our “Expensive” recommendation on the stock at the current market price of $192.18, considering all positive developments have been discounted at the current level.

 
CSL Daily Chart (Source: Thomson Reuters)
 

Ramsay Health Care Limited

RHC Details
Strong CAGR growth for Core NPAT and Core EPS: Ramsay Health Care Limited (ASX: RHC) is a large-cap healthcare stock with the market capitalization of circa$ 11.22 Bn as of November 02, 2018. The Company has achieved a four-year compound annual growth (CAGR) in core NPAT and Core EPS of 12.0% and 12.5% respectively to FY18. Resultantly, the company recorded total dividend of 12.6% on CAGR basis over the same period and maintained of full-year dividend payout ratio of approximately 50% of Core EPS while rest amount was invested into the business operation to tap the market opportunity. On the other hand, operating margin and Net margin stood at 7.7% and 4.5% in FY18 which is higher than the industry median of 6.5% and 3.0%, respectively. Moreover, the company has garnered higher returns for the shareholders consistently with ROE marked at 16.8% for FY18 against the industry return of 12.4%. In our view, the company has a brighter outlook as the group has approved 39 consulting suites, 340 Gross beds, 111 Conversions, 229 Net beds and 24 operating theatres by the gross capital investment of $325 Mn. Hence, we expect the benefits from FY20E onwards. The group has had a challenging run so far with lower than expected results, however, the scenario going forward is expected to improve.
 

Strong CAGR growth for Core NPAT and Core EPS (Source: Company Reports)
Meanwhile, the stock has generated a negative YTD return of 19.92% and is trading close to lower level. The stock has PE multiple of 29.73x and low beta below 1x representing undervalued scenario at the current juncture and RHC seems to grow in the upcoming session backed by recent positive developments. Hence, we maintain our “Buy” recommendation on the stock at the current market price of $56.320, up 1.5% on November 02, 2018.

 
RHC Daily Chart (Source: Thomson Reuters)
 

Cochlear Limited

COH Details
Overvalued at Current Juncture: Cochlear Limited (ASX: COH) focuses on retaining the market leadership and deliver consistent revenue and earnings growth for its shareholders. It is involved in the business of providing implantable hearing solutions with products including cochlear implants, bone conduction implants, and acoustic implants. There are three main business verticals, i.e., Cochlear implants; Services (sound processor upgrades and other); and Acoustics (bone conduction and acoustic implants) which contributed around 62%, 26%, and 12%, respectively of the total revenue from continuing operation during FY18. COH has recorded top line and bottom line growth at CAGR of 13.3% and 27.3%, respectively over the five years. Resultantly, NPAT margin came in at 15.9% on a 5-year average basis (FY14-18) and the group is on track to improve its PAT margin from the current level while COH’s trailing 5-year EPS and DPS growth (CAGR) have been around 26.9% and 4.2%, respectively. Additionally, for FY19, it expects its NPAT to grow between 8% and 12% as compared FY18 NPAT. In our view, the growth is expected to continue across the business in FY19, underpinned by the significant investments made in product development and market growth initiatives over the previous few years.

Five Year Key Metrics (Source: Company Reports)
The stock has generated a negative return of 7.45% in the past six months (as of November 01, 2018) and traded at higher PE level of 41.98x compared to peers. The stock has a market capitalization of circa $10.35 Bn and a beta of 1.08x as on 5-Year (monthly basis), representing overvalued scenario at the current juncture. In our view, there are numerous positive factors that would ensure better value to shareholders, while we assume that at the current level, the price has discounted all the positive developments. Hence, we maintain our “Expensive” recommendation on the stock at the current market price of $179.56.

 
COH Daily Chart (Source: Thomson Reuters)
 

Fisher & Paykel Healthcare Corporation Limited

FPH Details
New Applications’ Growth Aided FY 2018 Performance: Fisher and Paykel Healthcare Corporation Limited (ASX: FPH) generated operating revenues amounting to $572.1 million in FY 2018 from the Hospital product group and was helped by the robust momentum witnessed in the new applications including Optiflow nasal high flow therapy, surgery products as well as non-invasive ventilation. The company was mainly helped by the new applications in the H2 FY18 because the clinicians, as well as hospitals, have used the company’s Optiflow nasal high flow therapy.

FPH’s Financial Performance Numbers (Source: Company Reports)
In the Homecare product group, the revenue growth was 4% and the management stated that even though the growth was not very strong, they are optimistic about the increased attraction towards the new mask named F&P Brevida nasal pillows mask. In terms of the operating revenues, the company has garnered a substantial portion from the North America region. Of the total operating revenues of NZ$980.8 million, North America contributed NZ$458.5 million. The majority of the total operating revenues have been garnered from the sales.
Revenues, Earnings Growth to Underpin FPH’s Future Performance: The management of FPH is having an optimistic outlook for 2019. As per the company’s management, in the upcoming year, FPH is expected to witness the positive momentum in the revenues as well as earnings. The company has been planning additional manufacturing space for new buildings in Auckland. Moreover, the company’s management believes that the business is well-positioned for the future. It expects that the company would be able to meet the future demand and it is also making deployments to support the growth initiatives.
From the technical standpoint, the Moving average convergence divergence or MACD has been applied on the daily chart of FPH and default values are considered. The MACD line has crossed the signal line and is moving upwards representing the bullish momentum. As of now, we give an “Expensive” recommendation on the stock at the current market price of A$13.000 as it is trading slightly on the higher side with Price to earnings ratio of 40.68x.

 
FPH Daily Chart (Source: Thomson Reuters)
 
Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.