Volpara Health Technologies Limited

VHT Details

Q1FY22 Financial Performance: Volpara Health Technologies Limited (ASX: VHT) is a software application-based company engaged in offering breast imaging analytics services and products.

• Higher Cash Receipts: In Q1FY22, VHT recorded NZ$6.4 million in quarterly cash receipts from customers, up by ~30% PcP or by +50% on a constant currency basis. Subscription-based receipts were registered at NZ$6.1 million, up by ~38% PcP.
• Operating Highlights: Annual recurring revenue (ARR) has clocked ~NZ$27.8 million (~US$19.2 million), up by ~US$600,000 as reported in Q4FY21. The average revenue per unit (ARPU) clocked US$5.87 for some sites, primarily driven by significant volume deals.

 FY21 Financial Highlights

FY21 Financial Snapshot; (Analysis by Kalkine Group)

Risk Analysis: The company is susceptible to high competition risk in lungs and breast contracts space with minimal product differentiation. Further, COVID-19 led uncertainties, forex headwinds, and delays caused by regulatory approvals, and uncertainties may erode bottom-line growth.

Outlook

• Operations Growth: VHT has rapidly grown its SaaS operations with increasing ARPU, which has brought new orders in the pipeline. Whilst significant organic growth exists, VHT continues to probe into M&A activities for quick expansion or integration of the customer base.
• FDA Clearance: The recent clearance from the FDA for the following generation algorithm and architecture plays a crucial role in the company’s growth prospect via attaining greater product line scalability.

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

Source: 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 VHT gave a negative return of ~7.407% in the past one year. The stock is currently trading lower than the 52-weeks’ average price level band of $1.050 - $1.715. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at a slight premium to its peers’ average, considering FDA approval and opportunities of integrating the SaaS platform. For the purpose of valuation, few peers like Polynovo Ltd (ASX: PNV), Nanosonics Ltd (ASX: NAN), Alcidion Group Ltd (ASX: ALC) have been considered. Considering improved operating performance, inclining cash balance, high gross margins, and valuation, we give a “Buy” recommendation on the stock at the market price of $1.220, as of 3 September 2021, 11:12 AM (GMT+10), Sydney, Eastern Australia.

VHT Daily Technical Chart, Data Source: REFINITIV

Aroa Biosurgery Limited

ARX Details

Successful Allotment of Share Purchase Plan (SPP): Aroa Biosurgery Limited (ASX: ARX) is a soft-tissue regeneration firm engaged in manufacturing, selling, and distributing surgical and medical products. On 25 August 2021, ARX successfully settled and allotted a total of 340,957 new shares. This comes following the SPP opened on 4 August 2021 to complete ARX’s A$47 million institutional share placement to facilitate existing shareholders with an opportunity to participate in capital raising.

Q1FY22 Highlights

• Financial Position: ARX recorded NZ$5.3 million in cash receipts amidst lumpy product shipments and unfavourable payment timings, but expectations remain in line. Net cash outflow was registered at NZ$5.3 million, which ended the quarter with a cash balance of NZ$31.4 million.
• Key Business Developments in the Quarter –
• Product line extension for Myriad Morcells™ was launched at Society for Advanced Would Care conference.
• ARX’s dead space management system seeks to target an unmet need that estimates to US$2.5 billion markets, pursuant to which three patents are filed.

FY21 Financial Snapshot; Analysis by Kalkine Group

Key Risks and Challenges

• Regulatory Risk: The company operates in a highly regulated industry; hence, subject to approval delays in launching new products or entering new markets.
• COVID-19 Impact: ARX has witnessed a significant impact of COVID-19 on product sales and royalties due to the closure of outpatient clinics and the cancellation of elective surgeries.

Outlook

• Operational Objective: ARX plans to develop an extended manufacturing facility to generate NZ$100 million in annual revenue. ARX estimates to complete the project by March 2022.
• Resilient Growth Expected from Alliance: TELA Bio, ARX’s US commercial alliance, is expected to deliver top-line growth of 48-65% YoY in CY21 with sustained improvements in the US medical procedure figures.
• Guidance: ARX estimates product sales guidance to range between NZ$30-33 million, up by 39-53% YoY. Gross margins are estimated to remain well above 70%.

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

Source: 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 ARX gave a negative return of ~20.769% in the past one year. The stock is currently trading lower than the 52-weeks’ average price level band of $0.970 - $1.550. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at some premium to its peers’ average, considering high growth potential and increased involvement of shareholders in capital raising. For the purpose of valuation, few peers like Polynovo Ltd (ASX: PNV), Universal Biosensors Inc (ASX: UBI), Nanosonics Ltd (ASX: NAN) have been considered. Considering manufacturing facility extension, growth in TELA Bio alliance, current trading levels, valuation, and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the market price of $1.020, as of 03 September 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

ARX Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: 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.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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