Stocks’ Details

Cochlear Limited

Key Update on COVID-19 Impact:Cochlear Limited (ASX: COH) is a global leader in providing implantable hearing solutions. In a recent announcement, the company updated that in April, sales revenue across the business declined by ~60% in comparison to pcp, with a severe impact on cochlear and acoustic implants. Elective surgeries continued in South Korea and Japan, with a slowdown reported in late April for the latter due to growing COVID-19 cases. In response to the current challenges, the company has significantly reduced non-essential spending and capital expenditure until there is a sustained increase in surgeries.

During 1HFY20, the company reported a decent financial performance, with an increase in revenue and EPS, driven by a strong increase in Cochlear implant revenue.


Financial Summary (Source: Company Reports)

Outlook: The company updated that implant surgeries will recommence in some major developed markets including the US, Germany and Australia. The management is expecting gradual recovery as hospitals proceed cautiously with the resumption of elective surgery.However, the company is exposed to risk and uncertainty, as Japan and Singapore currently restricted elective surgeries due to increase in COVID-19 cases. In the long-term, the business will benefit from a significant demand for cochlear and acoustic implants, underpinning long-term sustainable growth of the business.

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

EV/Sales 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 stock of the company corrected by 19.23% and 12.51% in the last 3 months and 6 months, respectively. Amid the current uncertainties, the company has strengthened its liquidity position with a capital raising of $1.1 billion and an increase of $225 million in debt facilities. We have valued the stock using EV/Sales multiple based illustrative relative valuation method and arrived at a price with limited correction (in percentage terms). For the purpose, we have considered peers such as Sonic Healthcare Ltd (ASX: SHL), Ansell Ltd (ASX: ANN), Ramsay Health Care Ltd (ASX: RHC), etc. Hence, we have a watch stance on the stock at the current market price of $188.670, down 1.22% on 12^th May 2020.

Starpharma Holdings Limited

Starpharma’s SPL7013 Compound Highly Active Against Coronavirus:Starpharma Holdings Limited (ASX: SPL) is a world leader in the development of dendrimer products for pharmaceutical, life science and other applications. In a recent update, the company stated that the phase 1 component of its phase 1/2 trial for DEP® irinotecan met its objective of evaluating safety, tolerability, pharmacokinetics and preliminary efficacy data, along with identifying a recommended phase 2 dose. The company will now commence the phase 2 trial, with recruitment activities underway at three sites.

In another key update, the company informed that its antiviral dendrimer, SPL7013, has shown significant antiviral activity against the coronavirus that causes COVID-19. The company is now evaluating product concepts and formulation options for SPL7013, for potential applications in the prevention and management of COVID-19.

March Quarter Highlights: During the quarter ended 31^st March 2020, the company continued to progress with programs across its product portfolios. The period was marked by regulatory progress and further roll-out of VivaGel® BV internationally, expansion of Okamoto’s VivaGel® licence and advancing of clinical and preclinical DEP® programs. The company is now looking forward to the continued roll-out of products in the VivaGel® portfolio throughout multiple regions. Receipts for the quarter stood at $4.7 million. Net operating cash outflows amounted to $0.9 million.


Operating Cashflow (Source: Company Reports)

Stock Recommendation: The stock of the company corrected by 16.89% and 26.95% in the last 3 months and 6 months, respectively. As on 31^st March 2020, cash balance of the company stood at $36.1 million. The company possesses strong cash reserves and a decent balance sheet position, which will support its commercial and R&D activities in the current uncertain global environment. Its business operations have continued with minimum disruption, enabling preclinical programs, other research and clinical trial support to progress as normal. Considering the recent developments across the business, price movements, and current trading levels, we give a “Speculative Buy” rating on the stock at the current market price of $1.005, up 7.487% on 12^th May 2020.

Paradigm Biopharmaceuticals Limited

Sale of Shares by Founder and Directors:Paradigm Biopharmaceuticals Limited (ASX: PAR) is involved in the research and development of therapeutic products. In a recent update, the company stated that a group of Directors has sold a portion of shares to offshore institutional investors, to boost the increasing ownership on the Paradigm register. In addition, Founder and Managing Director Mr Paul Rennie has sold an additional 4,039,460 shares as part of the block trade. Paul’s voting power in the company now stands at 8.68%, as compared to 11.95% earlier. Details regarding the sale by directors are provided in the below snapshot.


Sale of Shares (Source: Company Reports)

In another recent update, the company announced that the treatment of all ten patients with Zilosul® under the FDA IND Expanded Access Program (EAP) in the US, has been completed. Results for the entire patient population are expected to be released in Q3CY20.The company also updated that its orphan designation request for MPS-I has also been granted by the FDA.
March Quarter Update: During the quarter, the FDA confirmed that the primary and secondary endpoints for Paradigm’s proposed phase 3 trial will be reduced WOMAC pain from baseline and improved Patient Global Impression of Change (PGIC) at week 8 (Day 53). Data for the same is expected to be released in Q3FY20. On 8^th April, the company completed a $35 million placement, strengthening its cash position. Cash flows from operating activities for the March quarter came in around $0.53 million.

Valuation Methodology: Price to Sales Market-Multiple Based Valuation (Illustrative)

P/S Market-Multiple Based Valuation Method (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters
 
Stock Recommendation: The stock of the company gained 37.37% in the last one month. Over a period of 3 months, the price corrected by 39.72%. At the CMP of $2.49, the stock has surpassed the target price estimation as per our last coverage on 29^th April 2020.We have valued the stock using Price to Sales based market multiple valuation and arrived at a price correction of low double-digit (in percentage terms). Considering the backdrop of the above factors, we suggest investors to book profit and give a “Sell” recommendation on the stock at the current market price of $2.48, down 4.981% on 12^th May 2020.
 
 
Comparative Price Chart(Source: Refinitiv, Thomson Reuters)

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