Sigma Healthcare Limited

H1FY22 Financial Performance: Sigma Healthcare Limited (ASX: SIG) engages in the commercialisation of pharmaceutical products, and it also operates independent stores and supports a range of private label products.

• Increase in Sales Revenue Growth- The company has recorded an improved sales revenue from ordinary activities by over 5.5% to $1.73 billion in H1FY22, compared to the pcp period, driven by increased retail pharmacy wholesale revenue of 3.0% from existing and new customers.
• EBITDA Performance- In H1FY22, the company delivered EBITDA of $17.71 million and underlying EBITDA of $39.8 million during the period.
• Improvement in Bottom-line Growth- The company has narrowed down the loss to ~$786k in H1FY22 against a loss of $3.23 million in the pcp.
• Liquidity Position- At the end of the period, the company’s cash position stood at $15.48 million, and net debt was $82.0 million as of 31 July 2021.
  

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Impact of COVID-19 pandemic- The company has faced significant challenges on major CBD and airport pharmacies, especially in Melbourne and Sydney which led to lower sales and supplier income due to lockdown.
• Liquidity Risk- An increase in operating costs to comply with COVID-19 regulations has impacted the company financials.

Outlook:

• The company expects closer to 5% underlying EBITDA growth and underlying ROIC to be above 10% in FY22. Moreover, the target for underlying EBITDA is between $95-$100 million and a CAGR of more than 10% by FY23.
• It strategises to drive organic acquisition growth by expanding its business and efficiently optimising the operating cost base.
• The company continues with the restructuring and reinvestment phase that improves efficiency and capability and strengthen the market position and might accelerate growth in the near 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: The company declared a dividend of 1.0 cents per share in H1FY22 with a record date of 27 September 2021. It represents a high dividend payout ratio of 75% of underlying NPAT.  The stock of SIG is trading below its average 52-weeks' levels of $0.507-$0.740. The stock of SIG gave a positive return of ~5.12% in the past three months and a negative return of ~11.51% in the past six months. On a technical analysis front, the stock of SIG has a support level of ~$0.575 and a resistance level of ~$0.680. 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' average, considering the impact of COVID-19 uncertainties and a lower gross margin. For the purpose of valuation, peers such as Australian Pharmaceutical Industries Ltd (ASX: API), EBOS Group Ltd (ASX: EBO), Paragon Care Ltd (ASX: PGC) have been considered. Considering the expected upside in valuation, current trading levels, strong financial performance, optimistic outlook, and strategic integration, we recommend a 'Hold' rating on the stock at the current market price of $0.610, as on 23 September 2021.

SIG Daily Technical Chart, Data Source: REFINITIV

Mayne Pharma Group Limited

Appointment of Chairman: Mayne Pharma Group Limited (ASX: MYX) is a specialty pharmaceutical company that develops, manufactures and commercialise generic pharmaceutical products globally. The company has appointed Mr Frank Condella as a Chairman, effectively from 30 September 2021. Further, it appointed Mr Ian Scholes as Deputy Chairman of the firm.

FY21 Financial Performance:

• The company recorded a decline in its revenue by 3% to $2 million in FY21, compared to FY20 on constant currency basis, impacted due to interrupted supply of medicines and services to its customers and patients around the world. The reported revenue stood at ~$401 million during FY21.
• In FY21, reported EBITDA dropped by 5% to $76.3 million.
• The company reported a reduced gross profit of $200.4 million in FY21 when compared to FY20, which reflects the changing sales mix with reduced contribution from higher-margin generic products such as liothyronine.
• During the year, its net loss increased to $208.4 million in FY21 from a loss of $92.8 million in FY20, potentially exposed to COVID-19 and rapidly changing industry dynamics.
• The cash position of the company stood at $97.98 million and net debt of $248.83 million as of 30 June 2021.

Total Revenue (Source: Analysis by Kalkine Group)

Key Risks:

• Capital Risk- The company is exposed to regulatory risk, capital adequacy risk that can directly affect the company operations.
• Impact of COVID-19 pandemic- The company’s activities were delayed due to the COVID-19 outbreak in the region resulting in widespread lockdowns and travel restrictions, and still, the uncertainty prevails.

Outlook:

• The company strategically signed four new supply agreements with leading pharma companies to launch up to 11 dermatology products across FY22, targeting addressable markets of US$500 million.
• It expects successful commercialisation of NEXTSTELLIS in the US and Australia, potentially launching women's health products in FY22.
• The company continues to focus on an optimised cost base by improving product costs and proactively managing the R&D, marketing, and administration expenses.
• Moreover, it expects to drive benefit of up to US$10m in COGS and operating expenses in the near-term future, and it estimates NEXTSTELLIS operating expenses to be US$50m in FY22.

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 company was alleged by Phi Finney McDonald for misleading or deceptive conduct and breaches of continuous disclosure obligations in the Supreme Court of Victoria, and the company is vigorously defending the proceeding. The stock of MYX is trading below its average 52-weeks' levels of $0.260-$0.590. The stock of MYX gave a positive return of ~2.63% in the past one month and a negative return of ~24.02% in the past one year. 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 might trade at a slight discount to its peers' average, considering a decline in topline and bottom-line and a higher debt-to-equity ratio. For the purpose of valuation, peers such as Probiotec Ltd (ASX: PBP), AFT Pharmaceuticals Ltd (ASX: AFP), Virtus Health Ltd (ASX: VRT) have been considered. Considering the current trading levels, indicative upside in valuation, signing of supply agreements, the launch of women’s health product, strategic cost management, 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 $0.285, as on 23 September 2021.

MYX Daily Technical Chart, Data Source: REFINITIV

Medlab Clinical Limited

MDC Details

FY21 Financial Performance: Medlab Clinical Limited (ASX: MDC) is a biotechnology company that researches, develops, and commercialises pharmaceutical and nutraceutical products in Australia.

• The company has recorded a strong revenue growth from ordinary activities by 54.5% to $4.39 million in FY21, compared to $2.48 million in FY20 driven by improved sales in Nutraceutical products.
• The company has reported a robust gross profit of $1.45 million in FY21 vs $43k in FY20. It reflects due to optimising cost in Nutraceuticals project that has a rapid turnaround in gross margins.
• The company narrowed its net loss to $12.4 million in FY21 against a loss of $13.4 million in FY20.
• At the end of the period, the cash position of the company increased to $13.43 million as of 30 June 2021 from $9.06 million as of 30 June 202

Total Revenue (Source: Analysis by Kalkine Group)

Key Risks:

• Impact of COVID-19 pandemic- The continuous lower foot traffic in pharmacy partners had impacted sales during the COVID-19 pandemic, and, still, the uncertainty prevails.
• Regulatory Risk- To commercialise its product, the company requires regulatory approval, and any delays could impact its operations.

Outlook:

• The company focuses on capturing the market opportunity by aiming to reduce cancer-induced chronic pain.
• The company has diversified NanoCelle into a low investment, high reward opportunities via partnering in a total addressable market of US$260 billion.
• It is strategising the growth opportunity in NanoCelle by enhancing delivery systems in multiple growth markets to drive potential growth in the near-term future.
• The company aims to engage in global partnering and agency on synthetic solutions like the FDA, MHRA & TGA to drive growth in the near future.

Valuation Methodology: Price/Book 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 MDC is trading below its average 52-weeks' levels of $0.140-$0.420. The stock of MDC gave a negative return of ~6.06% in the past one week and a negative return of ~13.88% in the past one year. The stock has been valued using Price/Book Value 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' average P/BV, considering the impact of COVID-19 pandemic and a higher debt-to-equity ratio. For the purpose of valuation, peers such as Paradigm Biopharmaceuticals Ltd (ASX: PAR), Immutep Ltd (ASX: IMM), Aroa Biosurgery Ltd (ASX: ARX) have been considered. Considering the current trading levels, indicative upside in valuation, decent balance sheet, strategic investment on R&D, enhancing global footprint, 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 $0.155, up by 3.33% as on 23 September 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 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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