Stocks’ Details

Volpara Health Technologies Limited

1HFY20 Results is to be Released on 20 November 2019:Volpara Health Technologies Limited (ASX: VHT) develops digital health solutions to enable personalised breast cancer screening software applications. The market capitalisation of the company stood at ~A$432.85 Mn as on 18^th November 2019. The company will release its half-year results for the period ended 30^th September 2019 on 20^th November 2019. Recently, the company updated the market with the results for Q2FY20. The cash receipts from customers of the group witnessed a rise of 190% to NZ$4.9 Mn for Q2. Cash outgoing for the Q2 were offset by a net NZ$4.5 Mn, received in early Q2 after the retail portion of the June capital raising.


Cash Flow Statement (Source: Company Reports)

What to Expect:As per the annual report 2019, the company stated that its key business structures and disciplines are currently in place. It added that building on the pillars of investment, a receptive market, and expansion over the next 12 months, the company would focus on four key areas - (1) increasing the US market share with a target of 27% and continuing to grow ARR to around US$11.5 Mn, (2) integrating MRS into VHT’s operations, (3) deploying further in research and development, bringing to market a personalised risk assessment product, and (4) growing the engineering team to accelerate the core functionality of VolparaDensity and VolparaEnterprise.
Stock Recommendation:Gross margin of VHT witnessed a YoY growth of 5.6% to 82.6% in FY19. Current ratio of the company stood at 3.69x in FY19, reflecting YoY growth of 52.1%. This implies that VHT has improved its liquidity position to address its short-term obligations. On the stock’s performance front, it delivered returns of 26.84% and 42.81% in the span of one month and three months, respectively. Thus, considering, the company’s plan to deliver Q3 with new integrated products at RSNA (or Radiological Society of North America), its big trade show in Chicago; the publication of the DENSE results from the Netherlands after a 10-year randomised control trial using Volpara®Density™ software as well as a possible breast density announcement from the FDA and VHT’s position of no debt, we give a “Hold” rating on the stock at the current market price of A$2.090 per share, up 5.29% on 18^th November 2019.
 

Cochlear Limited

Received Clearance from FDA:Cochlear Limited (ASX: COH) is engaged in the manufacturing and sale of Cochlear implant systems with a market capitalisation of ~A$12.99 Bn as on 18^th November 2019. Recently, the company announced that FDA has provided clearance for the Cochlear™ Osia® 2 System. It added that this system is indicated and approved in the US for adults and children (12 years and older) with conductive hearing loss, mixed hearing loss and single-sided sensorineural deafness. COH would start the commercial launch of the Osia 2 System in the US during 2H FY20.

Recently, Chairman of the company addressed the shareholders and stated that FY19 has been a busy year for COH with a focus on building awareness and market access to cochlear implants, expanding its marketing activities and customer servicing capability, while maintaining its commitment to product innovation via its investment in research and development. In FY19, the company reported a net profit amounting to $276.7 Mn, reflecting a rise of 13% as compared to FY18. Reported net profit includes a $10.8 Mn net gain from the revaluation of innovation fund investments.


FY19 Regional Performance (Source: Company Reports)

Future Guidance:The company expects net profit in the range of $290Mn-$300Mn for FY20, reflecting a rise in the ambit of 9-13% as compared to the underlying net profit of FY19. It anticipates stronger growth in cochlear implant units in developed markets. The company’s outlook also revolves around delivering consistent revenue and earnings growth.

Stock Recommendation:The company has achieved a major milestone in FY19 by entering the next phase in the development of a totally implantable cochlear implant, with the start of a further clinical feasibility study. When it comes to valuation, the stock of COH is trading at a price to earnings multiple of 46.82x as compared to the industry average (Healthcare Equipment & Supplies) of 6.5x on TTM basis. VHT has EV to EBITDA multiple of 30.8x against the industry average (Healthcare Equipment & Supplies) of 13.5x. As per the ASX, the stock is trading close to its 52-week higher levels of A$226.710. Therefore, considering the stretched valuations and current trading levels, we give an “Expensive” recommendation on the stock at the current market price of A$ 223.910 per share, down 0.285% on 18^th November 2019.
 

CSL Limited

Double-digit Profit Growth:CSL Limited (ASX: CSL) is involved in the development, manufacturing, and marketing of pharmaceutical and diagnostic products, cell culture media and human plasma fractions.The company has recently issued 9,291 fully paid ordinary shares under PRP (Performance Rights Plan) upon exercise of Rights and Options granted. In FY19, CSL again delivered double-digit profit growth as compared to a strong comparative period, with solid performances from its immunoglobulin, specialty products and influenza vaccines franchises. The following picture provides an idea of key dates for FY20:


Key Dates 2020 (Source: Company Reports)

Future Aspects:CSL expects Seqirus to deliver in line with prior guidance and benefiting from product differentiation and process improvement. It is expecting NPAT in the range of ~$2,050 Mn to $2,110 Mn on CC basis and revenue growth of around 6% for FY20.

Stock Recommendation:On the valuation side, the stock of CSL has EV to EBITDA multiple of 30.6x as compared to the industry average (Pharmaceuticals) of 5.3x on TTM basis.CSL has EV to sales multiple of 10.5x against the industry median (Healthcare) of 9.6x on TTM basis. The stock of CSL generated higher returns of 36.80% in the span of six months and 48.20% on YTD basis. Thus, considering the significant movement in the price levels and higher valuation metrics, we are of the view that most of the positive factors have been discounted at the current juncture. Hence, we give an “Expensive” recommendation on the stock at the current market price of A$271.990 per share, down 1.001% on 18^th November 2019. 
 
 

Nanosonics Limited

Chairman’s Address to Shareholders:Nanosonics Limited (ASX: NAN) is focused on research, development, and commercialisation of innovative technologies in infection control and decontamination. The market capitalisation of the company stood at ~A$2.21 Bn as on 18^th November 2019. Recently, the Chairman of NAN at its 2019 Annual General Meeting addressed the shareholders and communicated that FY19 again witnessed the delivery of an impressive financial result, with a rise of 39% in revenue to $84.3 Mn and a robust increase of 201% in operating profit before tax to $16.8 Mn. NAN also delivered a return on invested capital of around 15%, well in excess of its cost of capital.


Total Revenue and Capital Revenue (Source: Company Reports)

Outlook:The company expects continued growth in the installed base in North America with FY20 adoption like FY19. It anticipates a material rise in sales and margin from consumables in North America, the full impact of which would be realised in 2H FY20. It is targeting the introduction of the next significant new product for the end of FY20, which is subject to regulatory approval.

Stock Recommendation: NAN is accelerating investment in its global expansion and further making an investment in resources to increase its share of current markets. The stock of NAN has EV to Sales multiple of 23.3x as compared to the industry median (Healthcare) of 9.6x on TTM basis. NAN witnessed a rise of 165.11% on YTD basis and 141.64% in the span of one year. Thus, considering NAN’s expectation of FY20 profit to be heavily inclined towards 2H FY20, above industry valuation and current trading levels, we have a watch stance on the stock at the current market price of A$7.230 per share, down 1.9% on 18^th November 2019.
 

Monash IVF Group Limited

MVF Revises FY20 NPAT Guidance:Monash IVF Group Limited (ASX: MVF) operates via Monash IVF Group Australia and Monash IVF Group International. Under Monash IVF Group Australia, MVF provides assisted reproductive services, ultrasound and other related services, whereas under Monash IVF Group International, MVF provides assisted reproductive services in Malaysia.

On November 18, 2019, the company provided an update on anticipated FY20 net profit after tax (NPAT) before non-regular items. On a variable contribution basis, NPAT for the year ending June 30, 2020 may be impacted by around $1.5 Mn to $2.5 Mn if all Doctors ceased referring to the Company at the end of Q1 FY 2020.Moreover, due to the downward pressure on the company’s stimulated cycle volumes in Q2FY20 as compared to the previous corresponding period, the company’s NPAT before non-regular items for H1FY20 is now expected to be in the range of $8.5 Mn to $9.0 Mn, and NPAT for FY20 is expected to be in the range of $18.0 Mn to $19.0 Mn.


FY19 Key Metrics (Source: Company Reports)

What to Expect:The company’s key initiatives include expansion of the Monash IVF domestic footprint demonstrated through the recent Fertility Solutions acquisition in Queensland which joined the Company on September 16, 2019; recruitment of new fertility specialists including confirmation of a new established Fertility Specialist recruited in Sydney; commitment to build a new Sydney CBD fertility clinic as a flagship offering in NSW, opening in Q4FY20; commencement of a transformation program with a particular focus on the Victorian market; and progress of its Asia Pacific expansion strategy through acquisition and partnerships.
 
Valuation Methodology: Price to Earnings (PE)based Valuation

Price to Earnings (PE)based Valuation (Source: Thomson Reuters)

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

Stock Recommendation:MVF’s share generated a positive YTD return of 10.66%. Looking at the revised FY20 guidance for NPAT, we have valued the stock using a relative valuation method, i.e.,price to earnings (PE) multiple, and therefore, recommend a “Sell” rating on the stock at the current market price of $1.075, down 1.376% on November 18, 2019.
 
 
Comparative Price Chart (Source: Thomson Reuters)

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