Stocks’ Details
 

Estia Health Limited

Increase in Average Occupancy: Estia Health Limited (ASX: EHE) provides services in residential aged care homes in Australia. As on 26 February 2020, the market capitalisation of the company stood at ~$577.01 million. The company has recently released interim results for the period ending 31 December 2019 and stated that it had achieved 93.7% of average occupancy in mature homes. During 1H20, EBITDA on mature homes stood at $40.9 million, and NPAT of the company was $14.3 million. EHE is accelerating significant refurbishment program with a total of 42 homes and is qualifying for the higher accommodation supplement with additional eight homes in 2H20. The company has declared a fully franked interim dividend of 5.4 cents per share which is to be paid on 27 March 2020.


H1 FY20 Financial Overview (Source: Company Reports)

Future Expectations and Guidance: The strong balance sheet of the company is expected to create opportunities to invest in the development pipeline and continued refurbishments. EHE has provided guidance for FY20 and expects EBITDA to be in the range of $78 million to $82 million. The company also expects capital investment between $58 million to $64 million in 2H20 and is targeting bank debt gearing in between 1.5x-1.9x EBITDA.

Valuation Methodology: Price to Cash Flow Based Valuation

Price to Cash Flow Based Valuation (Source: Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As per ASX, the stock of EHE is trading very close to its 52-weeks low level of $2.03, proffering a decent opportunity for accumulation. During 1H20, EBITDA margin of the company stood at 20.6%, higher than the industry median of 9%. In the same time span, net margin of the company was 4.5% as compared to the industry median of 3.4%. Considering the trading levels, higher EBITDA and net margin and decent outlook, we have valued the stock using price to cash flow-based relative valuation method and arrived at a target upside of lower double-digit (in percentage terms). Hence, we recommend a “Buy” rating on the stock at the current market price of $2.06, down by 6.787% on 26 February 2020. 
 

Pro Medicus Limited

Decent Increase in Revenue and Profit: Pro Medicus Limited (ASX: PME) is engaged in the development and supply of software and IT solutions to the Public and Private Health sectors. As on 26 February 2020, the market capitalisation of the company stood at ~$2.28 billion. During 1H20, revenue of the company went up by 15.7% and stood at $29.3 million and profit after tax witnessed a rise of 32.7% to $12.1 million. In the same time span, cash from operations grew strongly to $16.1 million, up from $6.4 million on 30 June 2019. The company also reported a strong and stable balance sheet with no debt. Owing to the decent financial performance, the Board declared a fully franked interim dividend of 6 cents per share which is to be paid on 20 March 2020. 


1H20 Financial Performance (Source: Company Reports)

What to Expect: The company is expecting continuous growth from Partners, Duke, OSU and existing clients. PME is strategising growth from new product offerings and extension in geographical markets.

Stock Recommendation: As per ASX, the stock of PME is trading close to its 52-week low of $13.079, offering an opportunity to investors for accumulation. During 1H20, EBITDA margin of the company was in-line with the previous half and stood at 63.5%. In the same time span, ROE witnessed a slight improvement and stood at 23.7%, up from 22.2% in 2H19. Considering the current trading levels, improvement in ROE and decent outlook, we recommend a “Buy” rating on the stock at the current market price of $20.850, down by 4.925% on 26 February 2020.
 

CLINUVEL PHARMACEUTICALS LTD

Eighth Consecutive Half-Year Profit: CLINUVEL PHARMACEUTICALS LTD (ASX: CUV) focuses its research and development on the interaction of skin with its environments, aiming to deliver innovative medical solutions for complex problems. As on 26 February 2020, the market capitalisation of the company stood at ~$1.15 billion. The company has recently released its half-year results wherein it reported a strong balance sheet with no debt. During 1H20, revenue of the company went up by 11% to $9.971 million and reported an 8^th consecutive half-year with net profit, which stood at $1.059 million. 


1H20 Financial Highlights (Source: Company Reports)

CLINUVEL to expand its Singapore laboratories: The company has announced that it is investing in further expansion of VALLAURIX R&D facilities in Singapore. CUV is adding new, highly skilled local personnel to its existing team to further boost the progress of its product pipeline.

Stock Recommendation: As per ASX, the stock of CUV is trading very close to its 52-weeks’ low level of $21, proffering a decent opportunity for accumulation. During FY19, EBITDA margin of the company witnessed a slight improvement over the previous year and stood at 54.9%, up from 48.5% in FY18. In the same time span, ROE of the company stood at 37.5%, higher than the industry median. Considering the trading levels, improvement in EBITDA margin and higher ROE, we recommend a “Buy” rating on the stock at the current market price of $21.50, down by 7.248% on 26 February 2020. 
 

Healius Limited

Efficiencies from Organizational Redesign and Cost Savings: Healius Limited (ASX: HLS) provides medical facilities and services to independent general practitioners and other healthcare professionals. As on 26 February 2020, the market capitalisation of the company stood at ~$1.72 billion. The company has recently released its interim results for the period ending 31 December 2019, wherein it reported an increase of 4% in underlying EBIT of $75.7 million and a growth of 8% in underlying NPAT. These performances reflect the efficiencies from organisational redesign and cost savings initiatives. The company reported a strong balance sheet and is focused on maintaining its debt level to balance an optimal gearing ratio. HLS as declared a fully franked interim dividend of 2.6 cents per share, representing a payout ratio of 38% of underlying NPAT.


1H20 Group Results (Source: Company Reports)

Future Expectations: The company has increased the bottom end of the FY20 guidance range and expects underlying NPAT to be in between $96 million to $102 million. The company has simplified its organisation structure and has identified further savings in 2H20.

Valuation Methodology: EV/Sales Based Valuation 

EV/Sales Based Valuation (Source: Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As per ASX, the stock of HLS is inclined towards its 52-week high of $3.315. During FY19, gross margin of the company stood at 88.6%, higher than the industry median of 37.2%. In the same time span, Assets/Equity ratio of the company was 1.63x, lower than the industry median of 2.82x. Considering the trading levels, higher gross margin and modest outlook, we have valued the stock using EV/Sales valuation multiple and have arrived at a target price offering an upside of higher single-digit (in percentage terms). For the said purposes, we have considered Ansell Ltd (ASX: ANN), Sonic Healthcare Ltd (ASX: SHL), etc. as peers. Hence, we recommend a “Hold” rating on the stock at the current market price of $3.180, up by 15.217% on 26 February 2020, owing to its recent release of interim results.

Cann Group Limited

Progress in Manufacturing of Medicinal Cannabis: Cann Group Limited (ASX: CAN) is engaged in the cultivation of cannabis for medicinal and research purposes and manufacturing of medicinal cannabis products. As on 26 February 2020, the market capitalisation of the company stood at ~$138.15 million. During 1H20, the company made positive progress in the manufacturing of locally sourced medicinal cannabis formulations. In the same time span, revenue of the company stood at $0.57 million and incurred an operating loss of $8.4 million.


1H20 Financial Highlights (Source: Company Reports)
 
Secures Institutional Funding Support for Working Capital: The company has successfully completed the issue of convertible notes to raise $8 million, which will be used for working capital requirements. CAN and IDT Australia Limited recently announced that GMP extraction activities are underway for the first batches of medicinal cannabis resin, which will be used as an Active Pharmaceutical Ingredient in formulation and packaging activities.

Stock Recommendation: As per ASX, the stock of CAN gave a return of 55.2% on the YTD basis and is trading close to its 52-weeks’ low level of $0.375. Over the span of 4 years, the company has witnessed a substantial improvement in EBITDA margin and net margin. During FY19, current ratio of the company stood at 10.74x, higher than the industry median of 1.9x. On the TTM basis, the stock is trading at a price to book multiple of 1.8x, lower than the industry average (Healthcare) of 2.7x. Considering the returns, current trading levels, improvement in margins and valuation, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.875, down by 9.794% on 26 February 2020. 
 
 
Comparative Price 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.