Stocks’ Details

ResMed Inc

Decent Growth in Revenue: ResMed Inc (ASX: RMD) is involved in the manufacturing of medical devices. The market capitalisation of the company stood at ~$40.5 Bn as on 6^th August 2020. Recently, the company released its results for the quarter ended 30^th June 2020 (Q4 FY20), wherein it reported revenue amounting to US$770.3 million, with a rise of 9%. This took the revenue for FY20 to US$3.0 billion, reflecting a rise of 13%. Net operating profit for Q4 experienced a growth of 84%. These results indicate the strength and resilience of the company’s business in an uncertain environment. Moreover, revenue for the U.S., Canada, and Latin America, excluding Software as a Service segment, witnessed a growth of 4%. This was generated by robust sales in its mask product portfolio and increased demand for its ventilators as a result of COVID-19 pandemic. Software as a Service segment reported revenue growth of 7% because of continued growth in re-supply service offerings as well as stabilizing patient flow in out-of-hospital care settings.

Key Financials (Source: Company Reports)

Outlook: The company is optimistic about its capability to navigate through the ongoing challenging clinical and economic environment to deliver for all its stakeholders. The company expects to release its Q1 FY21 results on 22^nd October 2020.

Key Risks: The inability of the company to compete successfully in its markets may impact its business. Moreover, any failure to comply with anti-kickback and fraud regulations may lead to substantial penalties and changes in business operations.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: The Board of the company declared a quarterly cash dividend of US$0.39 per share with a record and payment date of 20 August 2020 and 24 September 2020, respectively. Also, the company has paid US$56.5 million in the form of dividends during the June quarter. The stock of RMD is trading at a P/E multiple of 61.73x (on TTM basis) as compared to the industry average (Healthcare Equipment & Supplies) of 8.6x on TTM basis. We have valued the stock using the P/E multiple based illustrative relative valuation method, and for the purpose, we have taken peers such as Cochlear Ltd  (ASX: COH), Sonic Healthcare Ltd (ASX: SHL), Ramsay Health Care Ltd (ASX: RHC), etc., and arrived at a price correction of low-single-digit (in percentage terms). Thus, considering the current trading levels and valuation, we have a wait and watch stance on the stock at the current market price of $25.880 per share, down by 7.406% on 6^th August 2020 owing to the release of Q4 FY20 results.

Opthea Limited

Decline in Losses: Opthea Limited (ASX: OPT) is engaged in the development of innovative biologics-based therapies for the treatment of eye diseases. The market capitalisation of the company stood at $645.98 Mn as on 6^th August 2020. In a recent presentation, the company stated that it has a large market opportunity for OPT-302 in retinal disease. The company added that a commercial assessment of OPT-302, which was performed by an independent research firm, expects worldwide annual peak sales of OPT-302 for wet Age-related macular degeneration (AMD) and Diabetic Macular Edema (DME) to be US$5.3 billion. During 1H FY20, the company reported a decline of 39% in loss before tax to $11.465 million due to a reduction in research and development (R&D) spending.

Key Metrics (Source: Company Reports)

Focus for Future Growth: The company is strongly focused on the development of new diagnostic and therapeutic strategies.

Key Risks: The company is exposed to key financial risks such as interest rate risk, currency risk and liquidity risk. To manage interest rate risk, the company invests most of its cash in short-term deposits for varying periods between 30 days and 90 days.

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

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

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

Stock Recommendation: Current ratio of the company stood at 12.46x in 1H FY20 as compared to the industry median of 4.58x. This indicates that the company is in a decent position to address its short-term obligations. We have valued the stock using the EV/Sales multiple based illustrative relative valuation method and have arrived at a target price offering an upside of low double-digit (in percentage terms). For the said purposes, we have considered CLINUVEL Pharmaceuticals Ltd (ASX: CUV), Mayne Pharma Group Ltd (ASX: MYX) and AFT Pharmaceuticals Ltd (ASX: ALU), as peers. Thus, considering the large market opportunity for OPT-302, decline is losses and decent liquidity position, we give a “Buy” recommendation on the stock at the current market price of $2.440 per share, up by 1.667% on 6^th August 2020.

Mayne Pharma Group Limited

Agreement with Novast Laboratories Limited: Mayne Pharma Group Limited (ASX: MYX) is involved in the development, manufacturing, and marketing of branded and generic pharmaceutical products globally. The market capitalisation of the company stood at $629.65 Mn as on 6^th August 2020. Recently, the company announced that it has reached a long-term supply agreement with Novast Laboratories Limited for thirteen US generic oral contraceptive products. In another update, the company notified the market that the US Food and Drug Administration had accepted the review of the New Drug Application for E4/DRSP to prevent pregnancy. The FDA is likely to complete its review in 1H CY21. The below picture gives an overview of key financial results for 1H FY20:

Key Financials (Source: Company Reports)

Outlook: The women’s health portfolio of the company includes 27 marketed and pipeline products, which include a novel oral contraceptive E4/DRSP and two generic contraceptive products targeting markets with sales of US$1.2 billion and expected to be rolled out in FY21. The company has scheduled to release its FY20 earnings on 20^th August 2020.

Key Risks: The company deals with various material business risks, which mainly include in-market pricing and competitive intensity, product cost inflation and foreign exchange movements.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: Current ratio of the company stood at 2.21x in 1H FY20 as compared to the industry median of 1.69. This reflects that the company is in a decent position to settle its short-term obligations against the broader industry. We have valued the stock using the P/E multiple based illustrative relative valuation method, and for the purpose, we have taken peers such as Nanosonics Ltd (ASX: NAN), Opthea Ltd (ASX: OPT), Sigma Healthcare Ltd (ASX: SIG), etc., and arrived at a target price of low double-digit upside (in percentage terms). Thus, considering the long-term supply agreement with Novast Laboratories Limited, approval for E4/DRSP, and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.385 per share, up by 2.667% on 6^th August 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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