Stocks’ Details
 

Ramsay Health Care Limited

Ramsay Health Care Responds to Elective Surgery Decision: Ramsay Health Care Limited (ASX: RHC) is a global hospital group owning and operating a comprehensive range of healthcare facilities across Australia, France, Indonesia, Malaysia and the United Kingdom. The company has recently stated that it is having a discussion with Federal and State Governments in Australia regarding the capacity and support RHC is able to provide as part of the Government’s COVID-19 response. The company has also stated that it has deferred Category 3 and non-urgent Category 2 elective surgery till 1 April 2020 but will continue to provide all its other services, including urgent surgery and medical services.

During 1H20, the company reported an increase of 22.5% in revenue to $6.3 billion and a growth of 17.4% in EBITDAR to $1.1 billion. The decent financial performance of the company enabled the Board to declare a fully franked interim dividend of 62.5 cents per share, up by 4.2%, on previous corresponding interim dividend.


1H20 Financial Highlights (Source: Company Reports)

Future Expectations and Growth Opportunities: RHC has reported encouraging signs for its business in the UK and Europe in terms of volume and tariff growth. The company is also investigating acquisition and expansion opportunities with government and other private healthcare providers.

Valuation Methodology: Price to Cash Flow Multiple Based Valuation

Price to Earnings Multiple Based Approach (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 RHC is trading below the average of its 52-weeks’ trading range of $46.120 - $80.930, proffering a decent opportunity for accumulation. During 1H20, gross margin of the company stood at 74.9%, higher than the industry median of 36.7%. In the same time span, Return on Equity of the company was 10.5% as compared to the industry median of 6.8%. Considering the trading levels, higher margins and decent outlook, we have valued the stock using price to cash flow based relative valuation approach and have arrived at a target price with an upside of lower double-digit (in percentage terms). Hence, we recommend a ‘Buy’ rating on the stock at the current market price of $58.270, up by 15.34% on 26 March 2020.

Cochlear Limited

Successful Completion of $880 Million Institutional Placement: Cochlear Limited (ASX: COH) is engaged in the manufacture and sale of Cochlear implant systems. As on 26 March 2020, the market capitalization of the company stood at $9.72 billion. The company has recently completed a $880 million fully underwritten Institutional Placement of approximately 6.3 million fully paid ordinary shares to institutional investors at a consideration of $140 per share. These proceeds will be used to enhance balance sheet and financial flexibility, support the business during the current macro-economic uncertainty and materially increase liquidity and reduce future net debt.

Growth in Sales Revenue: During 1H20, the company reported a strong growth in cochlear implants with units up by 13% and a growth of 5% in sales revenue to $777.6 million. In the same time span, net profit after tax of the company was in line with the previous year and stood at $132.7 million.

 
1H20 Financial Highlights (Source: Company Reports)

Future Expectations and Priorities: The company is prioritizing to retain market leadership and to provide world class customer experience. The investment in growth, operational improvement and strong financial position will help the company to deliver consistent growth in revenue and earnings. Coronavirus is expected to have a substantial, short-term negative impact on cochlear implant surgeries, particularly in the US and Western Europe. 

Valuation Methodology: EV/Sales Multiple Based Valuation Method

EV/Sales Multiple Based Approach (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 COH is inclined towards its 52-weeks low level of $154.6. During 1H20, gross margin of the company stood at 74.8%, higher than the industry median of 72.1%. In the same time span, current ratio of the company was 1.87x as compared to the industry median of 2.84x. Considering the trading levels and short term negative impact of COVID-19 on growth, we have valued the stock using EV/Sales multiple based relative valuation approach and arrived at a downside of mid-single-digit (in percentage terms). Hence, we have a watch stance on the stock at the current market price of $182.170, up by 8.435% on 26 March 2020. 

Clinuvel Pharmaceuticals Limited

Launch of SCENESSE in USA in Mid-April: Clinuvel Pharmaceuticals Limited(ASX: CUV) is a global biopharmaceutical company focused on developing and delivering treatments for patients with a range of severe genetic and skin disorders. As on 26 March 2020, the market capitalization of the company stood at $912.11 million. The company has recently announced its plan to launch its novel drug SCENESSE in the US with the first patient to be treated in mid-April 2020. 

Eighth Consecutive Half Year of Profit: During 1H20, the company reported a growth of 11% in revenue to $9,971 million and witnessed an eighth consecutive half year of profit, which stood at $1.05 million. The company has reported a solid balance sheet, that will help in financing its growth with a cash balance of $3.18 million.


1H20 Financial Highlights (Source: Company Reports)

Stock Recommendation: As per ASX, the stock is trading very close to its 52-weeks’ low level of $12.920, proffering a decent opportunity for accumulation. During 1H20, net margin of the company stood at 10.8% and ROE of the company was 1.8%. In the same time span, current ratio of the company stood at 15.38x, higher than the industry median of 6.01x. Considering the trading levels, decent financial performance and Launch of SCENESSE, we recommend a ‘Buy’ rating on the stock at the current market price of $18.10, down by 1.95% on 26 March 2020. 
 
 
Comparative Price Chart (Source: Thomson Reuters)

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