Ansell Limited

ANN Details

Establishment of New Facility: Ansell Limited (ASX: ANN) provides superior health and safety protection solutions, and the company possesses leading positions in the personal protective equipment and medical gloves market category. In the month of August 2021, the company appointed Mr Rikard Froberg as President, Industrial Global Business Unit (IGBU), which became effective on 1^st September 2021. Mr Rikard Froberg has succeeded Mr Neil Salmon, who has been elevated to the role of Managing Director and Chief Executive Officer.

• Recently, ANN announced that it would invest around $80 million in order to establish a new manufacturing facility in Tamil Nadu, India. The said facility would have the capability to produce a wide range of products.
• The initial focus of the facility would be on surgical and life science gloves for the Indian domestic market and for export.

 FY21 Financial Summary:

• Growth in Sales: For the year ended 30^th June 2021, the company recorded sales amounting to US$2,026.9 million, reflecting a growth of 25.6%. This was mainly backed by healthcare organic growth of 34.8% with volume growth for Surgical and Life Sciences as well as favourable pricing/mix benefit for Exam/SU.
• Increase in EBIT and EBIT Margin: During the year, the company recorded EBIT of ~US$338 million, showcasing the growth of 56% on a YoY basis. As a result, the EBIT margin improved by 330bps to 16.7%. This growth was mainly due to higher production volumes, pricing/mix benefits and SG&A operating leverage.
• Rising Bottom Line: Profit for the year amounted to US$246.7 million, increased by 57.5% on a YoY basis, and EPS surged by 59.9% to 192.2 cents per share.

EBIT Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Competition: The company’s financial and operational health could be impacted by the stiff competition by peers and changes in consumer sentiments.
• Regulatory Risk: Any failure in meeting regulatory requirements could expose the business to fines, penalties etc.

Outlook:

• The company expects continued demand for Mechanical, Surgical, Life Sciences and internally manufactured Single Use gloves. Though, it anticipates low demand in areas which benefited most during the onset of COVID-19.
• ANN expects net interest expense in the ambit of US$20.0 million-US$21.0 million and the effective tax of between 22.0-23.0% in FY22.
• The company has scheduled to conduct the 2021 Annual General Meeting on 11 November 2021.

Valuation Methodology: P/E 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: During FY21, the company increased its spend on capex to US$82.7 million in order to match the higher demand for some of its products. The company declared a final dividend of US43.6¢, which took the full-year dividend to US76.8¢, reflecting a growth of 53.6% growth over FY20. The stock of ANN is trading below to the average of the 52-week low and high price of $33.230 and $44.070, respectively. The stock of ANN has been corrected by ~9.39% and ~17.76% in the past one and three months, respectively. 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 can trade at a slight discount to its peers’ average P/E multiple, considering high debt-to-equity ratio, low current ratio and business risks. For the purpose of valuation, peers such as Healius Ltd (ASX: HLS), Sonic Healthcare Ltd (ASX: SHL), and Estia Health Ltd (ASX: EHE) have been considered. Considering the expected upside in valuation, rising sales, growth in EBIT, growing bottom line, dividend growth, decent outlook, and current trading levels, we recommend a ‘Buy’ rating on the stock at the current market price of $33.990, as on 07 October 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

ANN Daily Technical Chart, Data Source: REFINITIV 

Aroa Biosurgery Limited

ARX Details

Signing of Contract Extension: Aroa Biosurgery Limited (ASX: ARX) is engaged in designing and selling regenerative healing products. Recently, the company has inked a contract extension with HealthTrust Purchasing Group, L.P (a leading US group purchasing organization) for its Myriad products. ARX added that the said extension is for a period of around 3 years, which will end on 31 July 2024. This contract will provide access of around 1,500 US hospitals and healthcare systems to Myriad products.

• In the month of August 2021, the company closed its Share Purchase Plan (SPP), wherein the company targeted to raise up to A$5 million. The SPP follows the previously completed placement of A$47 million.
• The company has decided to use the funds for financing incremental investment in its US commercial operations, R&D and product pipeline, and growing cash on the balance sheet.

1H FY22 Financial Summary:

• Growth in Sales Revenue: The company recorded preliminary unaudited product sales revenue of around NZ$17 million, which indicates a growth of 108% over 1H FY21 and circa 38% over 2H FY21 on a constant currency basis. However, the final 1H FY22 sales revenue numbers are subject to confirmation of its quarterly revenue share from TELA Bio, Inc. ARX would release final 1H FY22 revenue numbers at the end of October 2021.
• Exceeding Internal Forecasts: The preliminary results indicate a strong revenue result for the 1H FY22, which surpassed the internal forecast in spite of the challenges created by the COVID-19 pandemic.

FY21 Financial Summary:

• Fall In Product Gross Margin: During FY21, the company recorded total revenue of ~NZ$22.34 million against ~NZ$25.07 million in FY20. The company’s product gross margin went down to 68% against 71% in FY20. The fall was due to lower product sales.
• Increase in Losses: ARX recorded a rise in normalized loss before income tax to NZ$7.4 million against NZ$3.8 million in FY20.
• Cash Outflow from Operations: ARX recorded net cash outflow from operating activities of NZ$5.0 million against the inflow of NZ$1.7 million in FY20, due to increased investments in operating expenses.

Product Sales (Source: Analysis by Kalkine Group)

Key Risks:

• Forex Headwinds: The company’s financial performance could be impacted by any adverse movement in the foreign currency.
• Regulatory Risk: ARX’s business is exposed to a more complex regulatory environment; any failure in regulation may lead the business to penalties, fines, etc.

Outlook:

• For FY22, the company is expecting to report revenue at the upper end of the previous guidance range of NZ$30 million - NZ$33 million. However, the company is planning to further evaluate guidance once unaudited revenue for 1H FY22 is confirmed and clarity on the outlook for COVID-19.
• For the upcoming 24 months, ARX is focused on developing its US commercial operations over in order to generate revenue growth for reaping benefits of the opportunities presented by its expanded product portfolio.

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: As on 31^st March 2021, the total cash on hand stood at ~NZ$36.97 million, which comprised of cash and cash equivalents of ~NZ$15.38 million, short-term investments of NZ$1.58 million, and term deposits of ~NZ$20 million against $3.8 million as on 31^st March 2020. The stock is trading close to its 52-weeks’ average levels of $0.970-$1.550. The stock of ARX gave a return of ~19.60% in the past one month. The stock has a support and resistance level of $1.150 and $1.253, respectively. The stock has been valued using EV/Sales multiple-based illustrative relative valuation and arrived at a correction of high single-digit (in % terms). The company can trade at a slight discount to its peers’ median EV/Sales multiple, considering a fall in product gross margin, rising losses, and uncertainties from COVID-19. For the purpose of valuation, peers such as AVITA Medical Inc (ASX: AVH), CSL Ltd (ASX: CSL), and Kazia Therapeutics Ltd (ASX: KZA) have been considered. Considering the expected correction, RSI Levels, and key risks associated with the business, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the current market price of $1.235, as on 07 October 2021. 12:30 PM (GMT+10), Sydney, Eastern Australia.

ARX Daily Technical Chart, Data Source: REFINITIV 

Medlab Clinical Limited

MDC Details

Notice of Allowance: Medlab Clinical Limited (ASX: MDC) is engaged in the research and development of nutritional pharmaceuticals. Recently, USPTO (United States Patent and Trademark Office) has issued a “Notice of Allowance” to NanoCelle®, its proprietary delivery platform. This resulted in the opening of gates in the United States for NanoCelle®.

FY21 Financial Summary:

• Solid Growth in Revenue from Operations: During FY21, MDC posted a growth of over 54% in revenue to ~$4.4 million against ~$2.9 million in FY20. This was mainly backed by sales in Nutraceutical products which is a clinically driven R&D business with significant margins and optimization of operating non-core spend.
• Improvement in Net Losses: MDC witnessed an improvement of 8% in net loss after tax to $12.4 million, and diluted loss per share also improved by 30% to 4.18 cents.
• Growth in Cash: The company closed FY21 with a cash balance of ~$13.43 million against ~$9.06 million as on 30^th June 2021.

Revenue Trend from Operations (Source: Analysis by Kalkine Group)

Key Risks:

• COVID-19 Disruptions: The uncertainties arising from the COVID-19 pandemic could impact the company’s performance in future, both operationally and financially.
• Clinical Trial: The company’s business model requires approval from health authorities: any failure in receiving approval may cause operational risk for business.

Outlook:  

• The company’s near-term priorities revolve around partnering opportunities in NanoCelle® in generic plus and non-injectable immunotherapies / vaccines products.
• Looking forward, MDC would also focus on improvement in revenue as well as research & development grants.
• The company will conduct 2021 Annual General Meeting on 13^th October 2021.

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: During the year, the company has evolved with the strategic focus to shift from a local business to a global Biotech firm. MDC also raised $15.5 million via a placement to institutional bankers in March 2021. The stock of MDC is trading close to its 52-week low levels of $0.140, offering a decent opportunity for accumulation. The stock of MDC has been corrected by ~16.21% and ~3.12% in the past one and three months, respectively. The stock has been valued using EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers’ average EV/Sales multiple, considering negative margins and COVID-19 related disruptions. For the purpose of valuation, peers such as Adalta Ltd (ASX: 1AD), CSL Ltd (ASX: CSL), and AVITA Medical Inc (ASX: AVH) have been considered. Considering the expected upside in valuation, rising revenue, improvement in net losses, sound liquidity position, decent outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.155, as on 07 October 2021.

MDC 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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