Stocks’ Details

ResMed Inc.

Acquisition of MatrixCare Led the Gross Margin Improvement: ResMed Inc. (ASX: RMD) develops, manufactures, distributes and markets the medical devices and cloud-based software applications. The company recently updated about the new issuance of securities of 669,550 CDI (Chess Depository Interests). The CDIs were allotted at an average issue price of US$4.65 per CDI and pursuant to the exercise of US$4.65 priced options. Post development, it has now issued 1,433,459,720 CDIs under Incentive Award Plan and Employee Stock Purchase Plan.  Besides this, the company announced unfranked dividend/distribution on security “RMD - CDI 10:1 FOREIGN EXEMPT NYSE” of US$0.03700. Ex-date was 8 May 2019 and payment date for the same is 13 June 2019.

Results for the Third Quarter of Fiscal Year 2019: Revenue for the company witnessed a growth of 12% to $662.2 million (up 15% on a constant currency basis) with gross margin expanding 100bps to 59.2%, due to higher margin from MatrixCare. Net operating profit also posted strong growth of 15% to $157.0 million. Non-GAAP operating profit also rose 15% to $182 million.

Looking at the geographical and segment-wise performance, revenue in the US, Canada, and Latin America, excluding SaaS (Software as a Service) saw a decent growth of 10% on pcp basis, driven by strong revenues across mask and device products. Combined Europe, Asia and other markets witnessed a pcp growth of 6% in top-line on CC (Constant Currency). Mask performed well across these markets whereas device sales in France and Japan were adversely affected as customers completed their connected device upgrade programs. Revenue from Device outside France and Japan performed excellently. Revenue from SaaS posted a robust pcp growth of 101% due to Brightree service offerings and MatrixCare.


Net Revenue Disaggregated by Segment (Source: Company Reports)

Stock Recommendation: At the current market price of $16.140 per share, the stock is trading at a price to earnings multiple of 36.860x. The stock gained 18.92% in the last one year and is trading towards its 52-week high price of $16.570. With its long-term strategy to provide innovative products, software, and solutions, the company is well positioned to improve outcomes, create efficiencies, and decrease the overall healthcare system costs. RMD is on a path to improve 250 mn lives in out-of-hospital healthcare in 2025.

Hence, considering the above-mentioned facts and current trading level, we maintain our “Hold” recommendation on the stock at the current market price of $16.140 per share (down 0.86% on 4 June 2019).
 

Commonwealth Bank of Australia

Balance Sheet Further Strengthened: Commonwealth Bank of Australia (ASX: CBA) is one of Australia’s leading providers of integrated financial services and proffers various financial services such as retail, business and institutional banking, funds management, superannuation, life insurance, general insurance, broking services and finance company activities. The Bank recently updated that it has become an initial substantial holder of Cleanaway Waste Management Limited with total voting rights of 5.11%. The bank recently announced that 2.00% 5-year Covered Bonds due 18 June 2019 are suspended from quotation as on 30 May 2019, pending the maturity of the Notes on 18 June 2019. These notes will be finally removed from Official Quotation w.e.f. the close of business on 19 June 2019.

3Q19 Trading Update: The bank achieved a sustainable increase in the core franchise volume. Home loan grew by 2.5%, in line with the system. Household deposits continued the growth with a 2.8% increase whereas business lending (BPB) posted a growth of 2.3%. NII (Net Interest Income) saw degrowth of 3%, on the back of 2 fewer days in the third quarter. NII was flat on a day-weighted basis. Profit was adversely affected by $714 million in pre-tax additional customer remediation provisions ($500 million post tax). Unaudited statutory bottom-line was ~$1.75 billion in 3Q.

Cash net profit from continuing operations stood at ~$1.70 billion whereas cash net profit excluding notable items declined by 9%.


Summary of 3Q19 Trading Update (Source: Company Reports)

Funding and liquidity positions for the bank continued to remain strong. Customer deposit funding at 69% was in-line with previous quarter while higher on y-o-y basis. The average tenor of the long-term wholesale funding portfolio stood at 5.2 years. NSFR (Net Stable Funding Ratio) came in at 113%, largely driven by the growth in retail deposits. LCR (Liquidity Coverage Ratio) at 134% was higher on y-o-y led by an improved customer deposit mix. CET1 (Common Equity Tier 1) APRA ratio stood at 10.3% as at 31 March 2019.


Key Balance Sheet Ratios (Source: Company Reports)

Stock Recommendation: At the current market price of $78.240, the stock is trading at price to earnings multiple of 15.18x. Annual dividend yield for the stock stands at 5.53% with a market capitalization of ~$137.92 billion. Considering the historical price performance, the stock has gained 11.80% in the last 1-year and 3.91% in the last 1-month. With the sustained volume growth in core segments, strong balance sheet, additional customer remediation to meet the regulatory requirement, sound credit quality, we are optimistic about the future growth, going forward. Hence, we recommend a “Hold” rating on the stock at the current market price of $78.420 per share (up 0.655% on 04 June 2019).
 

Pro Medicus Limited

7-Year Deal with Duke Health: Pro Medicus Limited (ASX: PME) is a leading healthcare IT company, specialized in enterprise imaging and radiology information system (RIS) software. The company has recently announced a buy-back of maximum number of 10,361,651 within the period of 1 April 2019 – 31 March 2020. The company, recently, also confirmed that Visage Imaging Inc., (its wholly owned US subsidiary), has signed a 7-year contract with Duke Health. With this, Visage 7 will be implemented to all of the radiology departments of Duke. The agreement will consolidate the position of PME in this competitive segment with a strategic advantage to the company in fields like AI (artificial intelligence) and machine learning.

1H FY19 Results: Profit for PME was reported at $9.082 million, up 184.3% as compared to the same period last year. Revenue from contracts with customers for the 6-month recorded a growth of 59.4% to $25.315 million. The underlying profit of $9.234 million was also higher as compared to an underlying profit of $5.134 million (restated), with a growth of 79.9%, pcp. European business performed strongly throughout the period while Australian business improved as a result of increased adoption of the Visage RIS and Visage PACS products.

 
 

1H FY19 Results (Source: Company Reports)

Stock Recommendation: At the current market price of $21.190, the stock is trading at a higher price to earnings multiple of 130.460x. Currently, the stock is moving towards the upper range of 52-week price of $23.740. The stock has risen substantially with a gain of 179.40%, 102.42% and 41.56% in the last 1-year, 6-months, and 3-months respectively. Although the company has been a consistent performer and value generator for the investors, the current price might have discounted all the recent positive developments. Hence, we put our watch stance on the stock at the current market price of $21.200 per share and suggesting that the investors should wait for a better entry level.

Starpharma Holdings Limited

Development and Option Agreement with AstraZeneca: Starpharma Holdings Limited (ASX: SPL) is engaged in the research & development and commercialisation of dendrimer products for pharmaceutical, life-science and other applications. The company recently announced that it has entered into a Development and Option Agreement with AstraZeneca. The agreement is related to the progress of the development of a Dendrimer Enhanced Product (DEP®) version of an undisclosed AstraZeneca major marketed oncology medicines. AstraZeneca may exercise its option and licence the DEP® drug candidate for clinical and commercial development at any time from the signing of the agreement to a defined period after the completion of this testing. In case, AstraZeneca exercises this option, amount of US$5 million and other fees will be payable to Starpharma.

The company recently, updated that its patented nanoparticle formulation, DEP® irinotecan, has shown significant efficacy and safety benefits over leading colorectal cancer drugs irinotecan (Camptosar®) and cetuximab (Erbitux®), in the irinotecan-refractory HT-29 human colon cancer model.

Quarterly Cashflow Report for March 2019: Cash balance as at 31 March 2019 for the company came in at $44.7 million with a positive net operating and investing cash inflow for the quarter of $0.3 million.


Cash Flow from Operating Activities (Source: Company Reports)
 
Stock Recommendation: Historical price movement for the stock indicates the volatile performance with the gain of 24.65% in the last 3-months and a negative return of 14.38% in the last 6-months. With the upcoming expected receipts associated with the international roll-out of VivaGel® products and recent agreement and developments related to the products, werecommend a “Hold” rating on the stock at the current price of $1.330 per share (down 0.746% on 04 June 2019).

 
Comparative Price Chart (Source: Thomson Reuters) 

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