Stocks’ Details

CSL Limited

Acquisition of Exclusive Global License Rights: CSL Limited (ASX: CSL) is engaged in the development, manufacturing and marketing of pharmaceutical and diagnostic products, cell culture media and human plasma fractions. The market capitalisation of the company stood at ~$128.23 billion as on 24^th July 2020. Recently, the company has appointed Mr. Pascal Soriot for the role of independent Non-Executive Director, effective from 19^th August 2020. The company also announced the acquisition of exclusive global license rights from uniQure to commercialise an adeno-associated virus (AAV) gene therapy program, AMT-061, for the treatment of haemophilia B. As per the agreement, CSL will have the exclusive global right to commercialise AMT-061 upon closing the transaction. uniQure would receive an upfront cash payment of US$450 million, followed by regulatory and commercial sales milestone payments and royalties. uniQure would complete the Phase 3 trial and scale-up manufacture for early commercial supply under an agreed plan with CSL. The following picture gives an overview of 1H FY20 results:

Key Financial Highlights (Source: Company Reports)

Profit Guidance: For FY20, the company is expecting to open 40 collection centres. The company expects to deliver profit in the range of US$2,110 million to US$2,170 million on a constant currency basis. The company is likely to release its FY20 results on 19^th August 2020

Key Risks: Due to COVID-19, the company expects plasma collections to be impacted. The company is also exposed to other business risks such as research and development/commercialisation risk, and patient safety & product quality risk.

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

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: Over the period of 2009-2019, the company reported a CAGR of 9% in revenue. The company possesses a strong capital position with available liquidity of around US$1.1 billion. Debt to equity of the company stood at 0.92x in 1H FY20 as compared to the industry median of 0.24x. We have valued the stock using the P/E multiple based illustrative relative valuation method. For the purpose, we have taken peers such as Cochlear Ltd (ASX: COH), Ramsay Health Care Ltd (ASX: RHC), Sonic Healthcare Ltd (ASX: SHL), etc., and arrived at a target price with correction low single-digit upside (in percentage terms). Thus, considering the higher debt to equity ratio, upcoming FY20 results and valuations, we have a wait and watch stance on the stock at the current market price of $277.020 per share, down by 1.912% on 24^th July 2020.

Cochlear Limited

Approval for Four New Products: Cochlear Limited (ASX: COH) is engaged in the manufacturing and sale of Cochlear implant systems. The market capitalisation of the company stood at ~$12.9 billion as on 24^th July 2020. Recently, the company announced that CFO, Brent Cubis, has resigned and will be departing from the company at the end of the calendar year to pursue other opportunities. In another update, the company stated that it has received approval for four new products from the US Food and Drug Administration (FDA). These four new systems Nucleus® Kanso® 2 Sound Processor, Nucleus® 7 Sound Processor for Nucleus 22 implant recipients, Custom Sound® Pro fitting software and the Nucleus® SmartNav, indicate the company’s ongoing commitment to innovation in hearing technology and will be released in the US and Western Europe in the next few months. The below picture gives an idea of revenue for 1H FY20 by geography:

Revenue by Geography (Source: Company Reports)

Impact of COVID-19: Due to COVID-19, the company experienced a significant decline in surgeries in major markets. The company continues to expect many of the delayed surgeries to progress once hospitals resume normal operations. On 18^th August 2020, the company is expected to release its FY20 results.

Key Risks: As of the now, the key risks with business includes the impact of COVID-19 as numerous countries are deferring surgeries, including cochlear implant surgeries. Moreover, it is also exposed to the risk of failing to develop and produce innovative products for its customers.

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

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: Recently, the company has raised a total of $1.1 billion through institutional placement and SPP to enhance balance sheet and financial flexibility. We have valued the stock using the EV/Sales multiple based illustrative valuation method and arrived at a target price with correction of low single-digit upside (in percentage terms). For the purpose, we have taken peers such as CSL Ltd (ASX: CSL), Resmed Inc (ASX: RMD), Sonic Healthcare Ltd (ASX: SHL), etc. The stock of COH has moved up by 9.46% in the past three months. Thus, considering the upside movement of stock in the past months and expected correction, we have a wait and watch stance on the stock at the current market price of $193.960 per share, down by 1.197% on 24^th July 2020.

Ramsay Health Care Limited

Termination of Agreement: Ramsay Health Care Limited (ASX: RHC) is global hospital group operating in around 500 locations in Australia, the United Kingdom, France, Sweden, Norway, Denmark, Germany, Indonesia, Malaysia, Hong Kong and Italy. The market capitalisation of the company stood at $14.73 billion as on 24^th July 2020. On 1^st July 2020, Ramsay Health Care and Western Australian Department of Health have agreed to terminate the cooperation agreement, which made the company’s WA facilities and services available during the COVID-19 pandemic with effect from 30 June 2020. The company has completed its Share Purchase Plan (SPP) and raised A$300 million. The company increased the size of SPP by A$100 million from the original target of A$200 million as a result of strong support shown by eligible shareholders. Previously, RHC also finished A$1,200 million Institutional Placement. This equity raising would cement the company’s balance sheet.

Liquidity Profile (Source: Company Reports)

Withdrawal of Guidance: Previously, the company has suspended its FY20 guidance due to the uncertainty created by the coronavirus pandemic. The company is likely to release FY20 results on 27^th August 2020.

Key Risks: The key risks with the business include the impact of COVID-19, political, economic or social instability, Government policy and regulation and reliance on private health funds and insurers.

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

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: Net margin of the company stood at 4.2% in 1H FY20 as compared to the industry median of 3.0%. This indicates that the company possesses decent capabilities to convert its topline into the bottom line against the peer group. We have valued the stock using the P/E multiple based illustrative relative valuation method. For the purpose, we have taken peers such as CSL Ltd (ASX: CSL), Sonic Healthcare Ltd (ASX: SHL), Resmed Inc (ASX: RMD), etc., and arrived at a target price of high single-digit upside (in percentage terms). Thus, considering the recent capital raising to strengthen the balance sheet and decent capabilities to convert its top-line into the bottom-line, we give a “Hold” recommendation on the stock at the current market price of $63.410 per share, down by 1.491% on 24^th July 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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