Stocks’ Details

Volpara Health Technologies Limited

Transformation to New Digital Approach: Volpara Health Technologies Limited (ASX: VHT) is engaged in the development of health solutions to enable personalised breast cancer screening software applications. The market capitalisation of the company stood at $324.07 million as on 4^th August 2020. Recently, the company announced the acceleration of changes to business strategy and executive team. The company stated that its business strategy is currently accelerating its transformation to new digital approaches. This transformation is likely to generate increased demand from clinical sites and increase the number of women that take benefit of its suite of products. The company also announced the appointment of Katherine Singson for the role of CEO of Volpara Solutions, Inc. (US subsidiary of VHT) to finish the digital transformation and push continued growth in Annual Recurring Revenue (ARR).

During Q1 FY21, the company reported a growth of NZ$1.1 million in ARR to NZ$19.1 million due to new customers and upsells, customers commencing maintenance contracts for the first time, as well as movements in foreign exchange. VHT reported a growth of 112% in cash receipts from customers to NZ$5.0 million. The net cash outflow for operating activities stood at NZ$3.73 million.

Cash Flows (Source: Company Reports)

Outlook: The company is focused on long-term SaaS contracts. The company is well placed against its peers, supported by a robust balance sheet and access to capital. VHT has scheduled to conduct its 2020 Annual General Meeting on 19^th August 2020.

Key Risks: The company is exposed to financial risks such as interest rate risk, foreign currency risk and liquidity risk. Liquidity risk arises from the inability of the company paying off its obligations. VHT continuously monitor the forecast and actual cash flows to manage the liquidity risk.

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

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: During Q1 FY21, the company finished a capital raising of A$34 million, comprising of Share purchase plan of A$9 million and a placement of A$28 million. Also, the company closed FY20 with a decent cash balance, which allows the company to capitalise on potential acquisition opportunities arising from COVID-19. We have valued the stock using EV/Sales multiple based illustrative relative valuation method and arrived at a target price of lower double digit-upside (in % terms). For this purpose, we have taken peers such as Pro Medicus Ltd (ASX: PME), Nanosonics Ltd (ASX: NAN) and Telix Pharmaceuticals Ltd (ASX: TLX), etc. Therefore, considering the decent growth in ARR during Q1 FY21, recent capital raising, robust balance sheet and valuation, we give a “Buy” recommendation on the stock at the current market price of $1.340 per share, up by 3.077% on 4^th August 2020.

Australian Pharmaceutical Industries Limited

Government Funding for Wholesalers: Australian Pharmaceutical Industries Limited (ASX: API) works as a wholesale distributor of pharmaceutical and allied products to pharmacists. The market capitalisation of the company stood at $541.92 Mn as on 4^th August 2020. The company recently notified the market that it welcomes the Government funding for a network of medicine wholesalers of Australia. The company added that it is one of the four members of the National Pharmaceutical Services Association, which will be benefited from the commitment of additional funding over the upcoming five years. The funding is likely to support critical national infrastructure and ensure equality of access to vital medicines for all Australians.

During 1H FY20, the company reported total revenue amounting to $2.0 billion with a growth of 2.8% over pcp. Underlying earnings before interest and tax (EBIT) for the period stood at $41.7 million, reflecting a fall of 6.1%.

Underlying EBIT (Source: Company Reports)

Focus for Short-Term: The company’s strengthened balance sheet is likely to provide flexibility in managing the business and investing for growth. The company will be focused on preserving cash in the short term from a capital management perspective.

Key Risks: The company’s business is exposed to numerous economic and business risks, including structural reforms within the Australian Community Pharmacy sector, continued competitor threats and cyber security and IT systems failure.

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

EV/EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: During 1H FY20, the company’s cost of doing business (CODB) excluding Hepatitis C and depreciation experienced a decline of 6.1% over the pcp to 10.8% of revenue. The company is focused on driving further cost efficiencies through the business. The company intends to release its FY20 results on 19 October 2020. We have valued the stock using an EV/EBITDA multiple based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in percentage terms). For this purpose, we have taken peers such as Opthea Ltd (ASX: OPT), Integral Diagnostics Ltd (ASX: IDX) and Mayne Pharma Group Ltd (ASX: MYX), etc. Thus, in light of the recent government funding, low cost of doing business, and challenging retail conditions and consumer sentiment, we give a “Speculative Buy” recommendation on the stock at the current market price of $1.100 per share on 4^th August 2020.

Atomo Diagnostics Limited

Change of Auditor: Atomo Diagnostics Limited (ASX: AT1) is a supplier of unique, integrated rapid diagnostic test (RDT) devices to the global diagnostic market. The market capitalisation of the company stood at $190.77 million as on 4^th August 2020. Recently, the company announced the change of its current auditor KPMG to BDO Audit Pty Ltd, which became effective from 3^rd August 2020. The company reported FY20 unaudited revenue of over $5 million, which is around 10 times of FY19 revenue. During Q4 FY20, the company experienced new customer demand generated by COVID-19 point of care antibody testing. AT1 posted cash receipts of $1.84 million in Q4, which is more than double of combined cash receipts of the previous three quarters. The company finished the quarter with no outstanding debt and cash on hand of $27.1 million.

Cash and Cash Equivalents (Source: Company Reports)

Future Aspects: The company will be focused on addressing demand created by the continuing COVID-19 pandemic. AT1 is also be focused on scaling up and ongoing global roll-out of business in the HIV Self-Test market.

Key Risks: The company’s business is sensitive to a number of risks, which include dependence on distributors and OEM customers, competitive industry. In addition, the business is regulated by various regulations in the jurisdictions in which it operates. Hence, any interruption in the regulatory clearance might lead to delay in the launch date of certain products and may impact the financial performance of the company.

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

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation:  Gross margin of the company stood at 42.0% in 1H FY20, reflecting YoY growth of 12.8%. The stock of AT1 has corrected 20.93% within the past three months. As a result, the stock is inclined towards its 52-week low levels of $0.280. We have valued the stock using EV/Sales multiple based illustrative relative valuation method and arrived at a target price of lower double digit-upside (in % terms). Therefore, considering the decent growth in revenue, no outstanding debt, current trading levels and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.355 per share, up by 4.412% on 4^th August 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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