Sigma Healthcare Limited

SIG Details

Changes in the Board: Sigma Healthcare Limited (ASX: SIG) is one of the largest wholesalers and distributors of pharmaceutical products and operates a network of branded and independent stores. It also develops a range of private label products in Australia. Recently, Mr Vikesh Ramsunder has been appointed as a Managing Director and Chief Executive Officer. Further, Mr Hooper has resigned from the Board and continues to serve as a CEO until 31 January 2022.

H1FY22 Financial Performance:

• The company has recorded a sales revenue of $1.73 billion in H1FY22, up by 5.5% YOY, driven by improving organic growth across pharmacy brands and independent networks.
• Sigma delivered a strong underlying EBITDA performance of ~$39.2 million in H1FY22, grew by ~14.7% from ~$34.1 million on a pcp basis. This reflected the higher revenue growth and the margin benefits associated with a more efficient operating platform across the business.
• The company narrowed down its net loss to $786k in H1FY22, compared to loss of $3.23 million in H1FY21.
• At the end of the period, the company’s cash position stood at $15.48 million as of 31 July 2021.

Total Current Asset (Source: Analysis by Kalkine Group)

Key Risks:

• Impact of COVID-19 pandemic- The company had a significant impact on retail sales, especially in Victoria, New South Wales, Queensland, and still, the market environment is uncertain going forward.
• Regulatory Risk- To distribute its product, the company requires certain approvals, and any delays could impact its financial operations.

Outlook:

• The company has updated its outlook and reduced its target close to 5% underlying EBITDA growth, reflecting the increased impact and uncertainty from COVID-19 restrictions in 2H22. However, it continues to target $95-$100m underlying EBITDA in FY23.
• It seems to be on target to achieve FY22 underlying ROIC to be above 10%.
• The company is actively pursuing M&A opportunities and expansion in order to drive growth in longer term.

Valuation Methodology: Price/Earnings 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: As per a recent announcement, the company has proposed to acquire 100% shares in API, and combined entity MergerCo could be potential value creation for both the companies and its shareholders. The stock of SIG is trading below its average 52-weeks' levels of $0.507-$0.740. The stock of SIG gave a negative return of ~7.72% in the past three months and a negative return of ~4.62% in the past one year. The stock has been valued using P/E multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount to its peers' median P/E multiple, considering the impact of the COVID-19 pandemic, and a higher debt-to-equity ratio. For the purpose of valuation, peers such as Australian Pharmaceutical Industries Ltd (ASX: API), Ansell Ltd (ASX: ANN), EBOS Group Ltd (ASX: EBO) and others have been considered. Considering the current trading levels, indicative upside in valuation, improved financials, strategic investment, optimistic outlook, and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $0.565, down by ~0.878%, as of 8 October 2021.

SIG Daily Technical Chart, Data Source: REFINITIV 

Bionomics Limited

FY21 Financial Performance: Bionomics Limited (ASX: BNO) is a biotechnology company that develops novel drug candidates to treat central nervous system disorders and cancers in Australia and the United States.

• The company has recorded a decline in total revenue by 7% to $5.58 million in FY21, compared to $7.93 million in FY20, impacted due to a decrease in other income.
• The Australian government has awarded $171,500 to give a cash flow boost and Jobkeeper payments to the company.
• However, there is an increase in net loss to $8.69 million in FY21 against a loss of $5.81 million in FY20, impacted due to ongoing COVID-19 disruptions in its operations.
• At the end of the period, the company’s cash position stood at $28.49 million as of 30 June 2021 vs $4.57 million as of 30 June 2020.

Total Current Assets (Source: Analysis by Kalkine Group)

Key Risks:

• Impact of COVID-19 pandemic- The company has a significant impact on its clinical trial for PTSD in the US due to the COVID-19 pandemic, and still, the uncertainty prevails.
• Liquidity Risk- The company requires sufficient liquidity to meet its financial obligations, operational activity and mitigate the working capital risks.

Outlook:

• The company expects to initiate trial design, engage a clinical research organisation and submit the requisite regulatory filings to initiate BNC210 treatment in Q3 CY2021.
• The Board intend to register IPO of American Depositary Shares (“ADSs”) in the United States and expects to commence after shareholder approvals under ASX.

Stock Recommendation: Moreover, the company’s BNC210, acute treatment of Social Anxiety Disorder (SAD), is planned to commence its Phase 2 clinical trial by the end of 2021 and expects to announce topline data by the end of 2022. The stock of BNO is trading below its average 52-weeks' levels of $0.092-$0.448. The stock of BNO gave a positive return of ~12.38% in the past one year and a negative return of ~28.94% in the past six months. On a TTM basis, the stock of BNO is trading at a Price/Book Value multiple of 3.0x, lower than the industry average (Biotechnology & Medical Research) of 11.5x, thus seems undervalued. Considering the current trading levels, valuation on TTM basis, strong balance sheet, raising capital, strategic clinical trials, and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $0.130, as on 8 October 2021 11:20 AM (GMT+10), Sydney, Eastern Australia.

BNO Daily Technical Chart, Data Source: REFINITIV 

Compumedics Limited

CMP Details

FY21 Financial Performance: Compumedics Limited (ASX: CMP) engages in research, development, commercialisation of medical devices used to monitor and diagnose systems in Australia, the Asia Pacific, the Americas, Europe, and the Middle East.

• Increase in Revenue: The company has recorded an increased revenue of ~2% to $35.74 million in FY21, compared to $35.06 million in FY20. However, the USA based business sales were declined by 4%, which impacted the group sales momentum.
• Decent EBITDA Performance: In FY21, it has reported underlying EBITDA of $2.6 million. It reflects ongoing investment related to the MEG business and efficient cost management.
• Improved Bottom-line Growth- The company has reported a net profit of $998k in FY21 against a loss of $5.83 million in FY20.
• Liquidity Position- The cash position of the company stood at $6.77 million as of 30 June 2021, an increase from $6.41 million on 30 June 2020.

Cash and Cash Equivalent (Source: Analysis by Kalkine Group)

Key Risks:

• Liquidity Risk- An increase in operating costs, R&D cost, clinical trial and marketing cost could impact the company financials.
• Impact of Covid-19 pandemic- The laboratories were temporarily closed during the pandemic and had a potential impact on its operations.

Outlook:

• The company focuses on releasing a new range of ambulatory products for both its sleep and neurological diagnostic in early FY22, which was delayed due to the Covid-19 pandemic.
• It continues to pursue further opportunities in expanding its MEG and Somfit technology platforms sales within the constraints of the COVID-19 pandemic.
• The company is expanding its footprint in the USA, Germany, France and is looking to develop a strong on-trade relationship in China markets.

Stock Recommendation: The stock of CMP is trading below its average 52-weeks' levels of $0.355-$0.580. The stock of CMP gave a positive return of ~2.56% in the past three months and a negative return of ~14.89% in the past nine months. On a TTM basis, the stock of CMP is trading at an EV/Sales multiple of 2.0x, lower than the industry median (Healthcare) of 13.9x, thus seems undervalued. Considering the current trading levels, decent balance sheet, expanding its footprint, increase in brand investment, strategic enhancing of its sales for MEG, and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $0.400, as on 8 October 2021.

CMP Daily Technical Chart, Data Source: REFINITIV 

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

Note 2: Investment decisions 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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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