Mesoblast Limited

MSB Details

Q4FY21 Financial Performance: Mesoblast Limited (ASX: MSB) engages in the development and commercialisation of allogeneic cellular medicines that offer products in the areas of cardiovascular, spine orthopedic disorder, oncology, hematology, and immune-mediated and inflammatory diseases.

• Mesoblast has recorded an increase in its revenue from TEMCELL royalties to US$1.9 million in Q4FY21, compared to US$0.7 million in Q4FY20.
• The company has recorded receipt from customers of US$1.95 million in Q4FY21 and reported US$6.12 million on YTD basis.
• Mesoblast has reported cash used in operating activities at US$20.7 million in Q4FY21, which includes the investment of US$5.9 million for COVID-19 ARDS trials, CHF and CLBP, as well as to support these programs.
• The company has entered into a license and collaboration agreement with Novartis to develop and commercialise the remestemcel-L and analyse the COVID-19 ARDS trial results.
• The cash position of the company stood at US$136.4 million as of 30 June 2021.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Regulatory Risk- The company must have the approval to commercialise the product or clinical trial; any delay could have an impact on its overall performance.
• Capital Adequacy- The company requires to invest in R&D, clinical trials, strategic distribution network and operating activities.

Outlook:

• The company and its partner have amended their collaboration to strategically achieve regulatory harmonisation, cost efficiencies and potential product/regulatory approvals in the US and EU from US trials that could drive growth to the company.

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 per a recent update, the company CFO Josh Muntner will be leaving the company post-release of financial results, and Andrew Chaponnel has been appointed as interim CFO, effective 30 August 2021. The stock of MSB is trading below its average 52-weeks' levels of $1.700-$5.700. The stock of MSB gave a positive return of ~18.02% in the past three months and a negative return of ~39.58% in the past one year. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight premium to its peer average EV/Sales (NTM trading multiple), considering the expected economic recovery and strategic commercialising activity in FY21. For this purpose, we have taken peers such as Clinuvel Pharmaceuticals Ltd (ASX: CUV), Paradigm Biopharmaceuticals Ltd (ASX: PAR), Kazia Therapeutics Ltd (ASX: KZA), to name a few. Considering the healthy balance sheet, robust revenue, and strategic collaboration, completion of phase 3 trial and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $1.9825, down by 2.339%, as on 11 August 2021, 3:11 PM (GMT+10), Sydney, Eastern Australia.

MSB Daily Technical Chart, Data Source: REFINITIV 

ReadyTech Holdings Limited 

RDY Details

H1FY21 Financial Performance: ReadyTech Holdings Limited (ASX: RDY) engages in the Education and Employment segment that offers cloud-based student management systems, skills profiling tools to track on-the-job training, and provides platforms to help state governments manage vocational education and training programs.

• The company has acquired Open Office, and it has achieved the first set of earnout huddles ahead of management expectations and recorded trailing 12 months revenue of $18.26 million and recurring revenue of $11.35 million.
• RDY has reported revenue growth of 13.4% to $21.8 million in H1FY21, compared to $19.2 million in H1FY20.
• The company has recorded a decrease in its profit to $1.33 million in H1FY21 against $2.27 million on a pcp basis.
• The company maintained a strong balance sheet with cash at $33.15 million as of 31 December 2020.

Financial Performance (Source: Analysis by Kalkine Group)

Key Risks:

• Reputation Risk: The company should maintain its brand equity in the market; any negative news against the company could impact its enrolment performance.
• Regulatory Risk- The company should follow the guidelines issue by Territory Education Quality and Standards Agency (TEQSA)

Outlook:

• The company has estimated FY21 revenue growth rate in the mid-teens, with an EBITDA margin in the range of 37%-39% and further, the acceleration of government support programs that could bring sustainable growth opportunity.
• The company has been advised to release its FY21 full-year result on 24 August 2021.

Technical Overview:

RDY prices have witnessed significant upside rally and recently tested its 52-week high levels of ~$2.74. Prices are now facing resistance of the upward sloping trend line. There is a negative RSI divergence with prices clearly visible on a daily chart which is supporting our bearish stance in the stock. RSI (14-period) is also trading in an overbought territory at ~69.33 on a daily chart that further indicating that the prices are likely to get downward correction from higher levels. Immediate support levels for the stock are $2.447 while immediate resistance level is $2.74.

Stock Recommendation: As per a recent update, the Pemba Capital Partners Fund, a substantial shareholder, has reported a decline in voting power from 37% to 34% and represent 34,539,611 ordinary shares of the company. The stock of RDY is trading above its average 52-weeks' levels of $1.465-$2.740. The stock of RDY gave a positive return of ~75.08% in the past one year and a positive return of ~25.0% in the past three months. On a TTM basis, the stock of RDY is trading at a Price/CF multiple of 18.1x, higher than the industry average (Software & IT Services) of 0.2x, implying overvaluation. Considering the current trading levels and valuation on TTM basis, recent rally in the stock price, technical analysis, impact of COVID-19 over enrollments and the 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 $2.700, as on 11 August 2021, 12:57 PM (GMT+10), Sydney, Eastern Australia.

RDY Daily Technical Chart, Data Source: REFINITIV

Laybuy Group Holdings Limited 

LBY Details

Raise in Capital: Laybuy Group Holdings Limited (ASX: LBY) is a fintech company that offers buy now pay later services through integrated payment platforms in New Zealand, Australia, the UK, and the USA. As per a recent update, the company has raised $40.0 million to support UK region growth.

Q1FY22 Financial Performance:

• The company has recorded a robust income growth of 70% to NZ$10.4 million in Q1FY22, compared to NZ$6.1 million in Q1FY21. Further, it was supported by robust UK GMV growth through improved active customers and merchants.
• Laybuy has reported an uptick in a net transaction by ~568% to NZ$3.7 million in Q1FY22 against NZ$0.6 million over a pcp basis.
• The company has delivered a record in Gross Merchandise Value (GMV) of NZ$184 million or annualised GMV of NZ$738 million in Q1FY22, an improvement of 58% YoY.
• The cash position of the company stood at NZ$36.5 million as of 30 June 2021.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Credit Risk- The company provide financial services, which is exposed to credit risk. Therefore, any delays in payment or bad debt could impact the company’s financials.
• Impact of COVID-19 pandemic- Due to a slowdown in economic activity, a decrease in customers and demand could impact the company's earnings in the near-term future.

Outlook: The company is expecting a boost in GMV due to strategic partnership with Rakuten, Awin and Sovrn in tech development, and a number of household merchants’ brands have joined Laybuy in Q1FY22 with more in the pipeline for Q2FY22 and beyond. Laybuy is estimating annualised GMV is more than NZ$1 billion during FY22.

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

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of its 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 signed a Merchant Partnership Agreement with The Fragrance Shop in the UK, which will allow customers to shop online and in-store. Further, the company expect this will result in accelerating growth in the UK. The stock of LBY is trading below its average 52-weeks' levels of $0.415-$2.300. The stock of LBY gave a positive return of ~10.47% in the past one month and a negative return of ~59.44% in the past nine months. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at some premium to its peer average EV/Sales (NTM trading multiple), considering the economic recovery and raise in capital to support UK region growth. For this purpose, we have taken peers such as Openpay Group Ltd (ASX: OPY), EML Payments Ltd (ASX: EML), Computershare Ltd (ASX: CPU). Considering the current trading levels, indicative valuation, healthy balance sheet, robust income growth and strategic collaboration, 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 $0.570, as on 11 August 2021, 12:49 PM (GMT+10), Sydney, Eastern Australia.

LBY 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 for 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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