Stocks’ Details

Mesoblast Limited

Top-line Growth Underpinned by Royalty: Mesoblast Limited (ASX: MSB) is a biotechnology company, mainly involved in developing allogeneic (off-the-shelf) cellular medicines. The market capitalisation of the company stood at $2.88 billion as on 28^th September 2020. Recently, the company’s lead product remestemcel-L has won Fierce Biotech Innovation of the Year Award. For the year ended 30^th June 2020, the company reported revenue amounting to US$32.2 million, reflecting a rise of 92% over FY19. This was supported by the growth of 127% in milestone revenue from strategic partnerships to US$25.0 million and a rise of 32% in royalty revenue from sales of TEMCELL® HS. Inj.1 in Japan by licensee JCR Pharmaceuticals. Loss after tax for the period amounted to US$77.9 million as compared to US$89.8 million in FY19.

Key Financials (Source: Company Reports)

Capital Raising for Busines Growth: During the financial year 2020, the company finished capital raising of US$90 million through global institutional investors. In addition, the company is likely to have additional funding of US$67.5 million from existing financing facilities and strategic partnerships in the upcoming 12 months. The company would primarily use the funds for the commercial roll-out of RYONCIL for acute GVHD.  

Outlook: Looking forward, the company is optimistic about sales opportunities for RYONCIL in the US on the back of market adoption and sales of TEMCELL in Japan for SR-aGVHD by JCR.

Stock Recommendation: The company ended FY20 with a cash balance of US$129.3 million. In the past three and six months, the stock of MSB has moved up by 51.08% and 312.61%, respectively. As a result, the stock is inclined towards its 52-week high level. On the technical analysis front, the stock of MSB has a support level of ~$4.338 and a resistance level of ~$5.577.On a TTM basis, MSB has an EV/Sales multiple of 38.6x as compared to the industry median (Healthcare) of 11.8x. Thus, the stock seems overvalued at the current trading levels. Hence, considering the price movement in the past months and current trading levels, we give an “Expensive” recommendation on the stock at the current market price of $5.5 per share, up by 12.016% on 28^th September 2020.

Starpharma Holdings Limited

Approval from TGA: Starpharma Holdings Limited (ASX: SPL) is a biotechnology company that is involved in the development of dendrimer technology for pharmaceutical, life science, and other applications. The market capitalisation of the company stood at ~$598.27 million as on 28^th September 2020. Recently, the company announced that it has received approval for expansion of the marketing authorisation for VivaGel® BV from Australia Therapeutic Goods Administration (TGA). The company added that these expanded claims carry the approved indications for VivaGel® BV in line with those in Europe and Asia.

MRFF Funding for COVID-19 Spray: On 3^rd September 2020, the company notified that it has secured the $1 million funding by the Australian Government's Medical Research Future Fund (MRFF) Biomedical Translation Bridge (BTB) Program to accelerate the development and commercialisation of its COVID-19 antiviral nasal spray based on SPL7013. The company added that SPL7013 nasal spray has the capability to prevent the acquisition and transmission of SARS-CoV-2 and may play a role for other respiratory preparedness.

Decent Growth in Topline: For the year ended 30^th June 2020, the company reported revenue other income amounting to $6.6 million, reflecting a rise of 142% over pcp. In the same time span, it recorded a net loss of $14.7 million, against $14.3 million in FY19. The net operating cash outflows for the period stood at $10.8 million as compared to $10.3 million in the last year.  

Financial Summary (Source: Company Reports)

Outlook: The company seems to be well-positioned to leverage its expertise, resources and, IP portfolio in order to generate success and increase shareholder value.  In addition, the company is also focused on progressing its clinical DEP® assets as well as the expansion of the portfolio.

Stock Details: On 28^th September 2020, the company requested ASX to grant a trading halt on its securities as the company is likely to release an announcement in relation to capital raising through institutional placement (Placement) and share purchase plan. The securities of SPL will be in a trading halt until the earlier of the commencement of normal trading on 30^th September 2020 or when the announcement is released to the market. The stock last traded at $1.605.

Mach7 Technologies Limited

First Positive Earnings in FY20: Mach7 Technologies Limited (ASX: M7T) provides imaging data sharing, storage and interoperability for healthcare enterprises globally. The market capitalisation of the company stood at ~$247.27 million as on 28^th September 2020. As per the recent quarterly rebalance of the S&P/ASX Indices, M7T has been added to S&P/ASX All Technology Index, which became effective on 21^st September 2020. During FY20, M7T completed 29 new sales order contracts from a mix of new and existing customers, reflecting growth of 115%. In the same time span, the company reported revenue amounting to $18.9 million, reflecting a rise of 102% over pcp. In addition, M7T recorded Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) and Net Profit After Tax (NPAT) of $3.3 million and $0.2 million, respectively, which were underpinned by robust growth in revenues due to customer take-up and installation progress. M7T posted contracted annual recurring revenue (CARR) amounting to $9 million, indicating a growth of 14% over pcp.

Revenue by Segment (Source: Company Reports)

Outlook: For 2H FY21, the company is expecting to report growth in CARR on the back of an anticipated rise in demand for its solutions because of COVID-19. In addition, the company is optimistic about its capabilities to report strong double-digit growth in revenue and EBITDA and positive free cash flows into the future.

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

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

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

Stock Recommendation: The company managed to close FY20 with a strong financial position comprising a cash balance of $15 million and zero debt. On the technical analysis front, the stock of M7T has a support level of ~$1.034 and a resistance level of ~$1.143. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price, which is offering an upside of lower double-digit (in percentage terms). Therefore, considering the growth in the sales order, decent FY20 results, robust balance sheet and expected growth in the future, along with key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $1.115 per share, up by 5.687% on 28th September 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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