Sigma Healthcare Limited

SIG Details

Business Update: Sigma Healthcare Limited (ASX: SIG) delivers medicine services to community and hospital pharmacy in Australia. SIG supplies third party and fourth party logistic services to pharmaceutical manufacturers and other suppliers. The market capitalisation of the company as on 13 May 2021 stood at $651.45 million. On 26 April 2021, the company has announced that Mark Hooper has resigned as CEO of the company, following which he will provide six months notice, thereby ending his term on October 2021. 

FY2021 Business Performance: As per the recent report, Sigma has reported improved revenue of 4.8% to $3.4 billion. The company recorded the underlying NPAT at $29.1 million, up by ~133%. The company issued a fully franked final dividend of 1.0 cent per share in FY21. At the end of the period, the cash balance was $16.12 million as of 31 January 2021.       

Five Year Financial Performance (Source: Company Reports)

Outlook: Sigma drives organic growth from existing core businesses and will look to expand the services through an innovative approach. It has continued on its growth momentum in FY22 and reported the first three months of sales to be ahead of expectations. It is planning for a growth of 10% for the next two years and achieve $100 million in underlying EBITDA by FY23.

 Key Risks: The Regulatory reforms and government initiatives over PBS and CSO could risk the structural and operating environment. 

Valuation Methodology: P/E Multiple Based Relative Valuation (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: The company has reported strong PPE sales due to a surge in customer demand during this pandemic. The stock of SIG is trading below its average 52-weeks’ levels of $0.507-$0.740. The stock of SIG gave a positive return of ~12.844% in the past six months and a positive return of ~6.03% in the past one week. On a technical analysis front, the stock of SIG has a support level of ~$0.573 and a resistance level of ~$0.7. We have valued the stock using a P/E based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight premium to its peer median P/E Multiple (NTM trading multiple), considering the decent financial performance, expected sales growth and an increase in EBITDA of the company. For the purpose, we have taken peers such as Sonic Healthcare Ltd (ASX: SHL), Australian Pharmaceutical Industries Ltd (ASX: API), Healius Ltd (ASX: HLS), to name a few. Considering the decent financial performance, growth in pharmacy sales, increased contribution from its own retail brands and the key risks associated with the business, we recommend a ‘Speculative Buy' rating on the stock at the current market price of $0.615 as on May 13, 2021.  

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

Medical Developments International Limited

MVP Details 

Appointment of Non-Executive Director: Medical Developments International Limited (ASX: MVP) manufactures and delivers pharmaceuticals equipment, products and medical devices. The market capitalisation of the company as on 13 May 2021 stood at $394.09 million. On 11 May 2021, the company has appointed Richard Betts as a Non-Executive Director and has got an initial director interest of 3,300 ordinary shares in the security market on an indirect basis.

H1FY21 Performance Update: The Company has recorded an increase in net sales of 15.4% to $12,574k in H1FY21, when compared to the previous corresponding period. During the period, MVP reported a loss of $1,137k in H1FY21 vs a profit of $240k in H1FY20. During the period end, the cash position of the company was $33,468k, an increase of 44.6% on the pcp.

H1FY21 Financial Performance (Source: Company Reports)

Outlook: The company is ambitiously trying for marketing authorisation for Penthrox in global markets, which might give revenue push to MVP in the near-term future.

Key Risks: MVP is a healthcare sector where regulatory compliances and approvals are challenging due to its global presence. MVP has a core Veterinary business that is declining, which might impact the earning of the company.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (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:  The stock of MVP is trading below its average 52-weeks’ levels of $4.980-$8.760. The stock of MVP gave a negative return of ~18.23% in the past six months and a negative return of ~5.87% in the past one week. On a technical analysis front, the stock of MVP has a support level of ~$5.13 and a resistance level of ~$5.799. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe the company can trade at a slight premium to its peer average EV/Sales (NTM Trading multiple), considering the expected demand from the European markets in the near-term and strong balance sheet to carry out its growth plans. For the purpose, we have taken peers such as AFT Pharmaceuticals Ltd (ASX: AFP), Clinuvel Pharmaceuticals Ltd (ASX: CUV), Neuren Pharmaceuticals Ltd (ASX: NEU), to name a few. Considering the valuation and current trading levels, improvement in top-line, decent cash position and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $5.290, down by 4.340% as on May 13, 2021.    

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

Note: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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