Australian Pharmaceutical Industries Limited

API Details

Marginal Growth in Revenues Despite Pandemic Situation: Australian Pharmaceutical Industries Limited (ASX: API) is a pharmaceutical distributor, and health and beauty retailer. API has registered a revenue growth of 0.2% YoY to $4.02 bn in FY20 despite Covid-19 situation across the world. The company was able to reduce its Cost of Doing Business (CODB) by 70 bps in FY20. Pharmacy distribution revenues has seen a revenue of $2,898mn in FY20 as compared with $2,732mn in FY19. API has announced a fully franked final dividend of 2 cents per share, representing a payout ratio of 33%. 

Operational Highlights (Source: Company Reports)

Change in Director’s Interest: Richard Craig Vincent has acquired 8,25,400 performance rights under API’s long term incentive plan. The director doesn’t have to pay any amount on the exercise of the performance rights.

Key Risks: Since API is present in healthcare industry, any adverse effect may arise to the customers from the consumption of wrong pharmaceutical products. Losing a skilled pharmacist is also one of the key risks to the continuity of the business.

Outlook: The company is predicting results of the retail trading to be lower in 1HFY21 against the last corresponding period. However, in 2HFY21, the company expects an improvement in retail performance. At the end of FY20r, the Priceline network came in at 474 stores and the Clear Skincare network increased to 67 clinics. The company has started the expansion of the new Sydney Distribution Centre with state-of-the-art technology. It expects total expenditure is be in the order of $50mn, with the bulk anticipated in the FY22. 

Valuation Methodology: P/E based Relative Valuation Method (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: In the last one month, API has decreased by 10.23% and by 7.31% in the last three months. The current market capitalisation of API stands at ~$554.23mn as on 8 March 2021. The stock is currently trading slightly below the average 52-weeks’ price level range of $0.995-$1.335. On the technical analysis front, the stock has a support level of ~$1.10 and resistance of ~$1.14. We have valued the stock using a P/E multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight premium as compared to its peer average, considering an increase in revenues, expansion of the new Sydney Distribution Centre and positive outlook. For the purpose, we have taken peers Apiam Animal Health Ltd (ASX: AHX), Virtus Health Ltd (ASX: VRT), Compumedics Ltd (ASX: CMP) to name a few. Considering an increase in revenues in FY20, enhancing shareholder’s value, positive outlook, valuations, and current trading levels, along with key risks associated with the business, we recommend a “Speculative Buy” rating on the stock at the current market price of $1.14, up by 1.333% as on 8 March 2021.

API Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Jayex Healthcare Limited

JHL Details

FY20 Key Highlights: Jayex Healthcare Limited (ASX: JHL) is engaged in the development and provision of healthcare industry service technologies, and the development of integrated dispensing automation systems for the pharmaceutical and healthcare sectors. The company's segments are Australia and United Kingdom. JHL has registered a sale of $460,000 in the month of November 2020 backed by vaccines for Covid-19, which has shown some signs of recovery. JHL has posted a decline in revenues for FY20 to $6.06mn as compared with $7.18mn in FY19. Cash receipts in FY20 came in at $8.01 million as compared to $8.61 million in FY19. The company has posted a loss of 0.79mn in FY20 on the back of high employee benefit expense and high depreciation cost. The company exited the period with cash balance of $1.18 million.

Financial Highlights (Source: Company Reports)

Outlook: JHL is expecting the healthcare market to return to normal trading in the latter half of 2021 on recovery in UK and Australian markets post the arrival of covid-19 vaccines.  

Stock Recommendation: In the last one month, JHL has increased by 9.75% and by 15.38% in the last three months. The current market capitalisation of JHL stands at ~$9.26mn as on 8 March 2021. The stock is currently trading above the average 52-weeks’ price level range of $0.012-$0.067. On the technical analysis front, the stock has a support level of ~$0.038 and resistance of ~$0.052. On the valuation front, the stock is trading at an EV/EBITDA multiple of 32.8x as compared to the industry median of 5.2x on TTM (Trailing Twelve Months) basis. Considering a decline in revenues in FY20, registering losses in FY20, valuation on TTM basis, and current trading levels, we give an “Avoid” rating on the stock at the current market price of $0.045, down by 2.174% as on 8 March 2021.

JHL Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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