Sigma Healthcare Limited

SIG Details

Recent Updates: Sigma Healthcare Limited (ASX: SIG) is involved in complete line pharmaceutical wholesale and distribution businesses delivering every day to its pharmacy network in Australia.

• SIG notified regarding the redemption of ~132.09 million shares/units for ~A$99.61 million as of 14 January 2022.
• On 10 January 2022, Spheria Asset Management Pty Limited became an initial substantial shareholder with ~5.03% voting power in SIG.
• On 1 January 2022, SIG notified that ~5.296 million shares are on the issue in the class of shares to be redeemed in an on-market buy-back proposed from 28/1/2022 to 27/1/2023 as part of the company’s capital management strategy.

Trading Update:

• SIG experienced short-term operational challenges due to the implementation of ERP (Enterprise Resource Planning) and SAP environment in August 2021. Though the company completed the ERP upgrade on budget and on time, however, it faced additional issues due to COVID-19 and its impact on its customers. The ERP operational challenges and persistent COVID-19 situation has materially affected the sales and led to a sudden rise in operating costs.
• The management is confident for its future growth profile underpinned by the expansion of the new Victorian DC Distribution Centre in Truganina. SIG plans to invest ~$20 million to increase double the existing DC capacity to accommodate the growth pipeline.
• An extensive transformation program has been underway for the last four years to put SIG on a strong foothold, implement a strategy to expedite long-term growth, and improve margins.

1HFY22 Results:

• SIG reported a ~8.7% YoY increase in like-for-like pharmacy sales in its brands during 1HFY22.
• The underlying NPAT stood at ~$14.1 million, up by ~23.7% on 1HFY21 due to flows from the positive operating performance and revenue growth.

Key Financials, Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces higher investment in technology and infrastructure upgrade, reduced export income, COVID-19 impacts, and regulatory hurdles.

Outlook:

• SIG now expects the underlying EBITDA in FY22 to be down ~10% relative to FY21. The guidance has been narrowed down from the one provided in September 2021 of ~5% growth.
• SIG expects that the non-operating and one-time costs will increase to ~$25 - $30 million. The impact of the ERP implementation is expected to flow through to FY23 sales.
• SIG plans to complete the DC expansion in Victoria over the next 18-months, focus on growing its core business, and expand opportunities across contract logistics, hospital services, medical devices, and consumables.

Valuation Methodology: Price /Earnings Per Share 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 SIG gave a positive return of ~10.46% in the past month and a negative return of ~16.66% in the past six months. The stock is currently trading towards lower than the 52-weeks’ average price level band of $0.425 -$0.740. The stock has been valued using the P/E- multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ average P/E multiple, considering the expected increase in one-time costs & in the peak net debt, and the narrowed earnings guidance for FY22. For this purpose of valuation, a few peers like Sonic Healthcare Limited (ASX: SHL), Summerset Group Holdings Limited (ASX: SNZ), Estia Health Limited (ASX: EHE) have been considered. Considering the low trading levels, decent financial results in 1HFY22, plans to leverage across its automated & expanded DC network and expand the core business and other services – hospital, contract logistics, an indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.465, as of 14 January 2022, 10:50 AM (GMT+10), Sydney, Eastern Australia.

SIG Daily Technical Chart, Data Source: REFINITIV  

Opthea Limited

OPT Details

AGM Highlights: Opthea Limited (ASX: OPT) is involved in the development and commercialisation of therapies for retinal diseases with its lead product candidate OPT-302. In a recent update, sDr. Megan Baldwin, the CEO of OPT participated in an online H.C. Wainwright BIOCONNECT Conference which was scheduled from 10-13 January 2022.

• Operational Update: OPT continues to progress its two large Phase-III registrational clinical trials for OPT-302 in wet AMD. In March 2021, OPT started two global, multi-sites, Phase 3 clinical trials, namely ShORe and COAST. It plans to recruit ~990 patients for each of the trials from over 20 countries over ~18-months.
• Expedited Regulatory Pathway: In FY21, OPT obtained fast-track status designation from the FDA for OPT-302 in the treatment of wet AMD based on superior Phase 2b results.
• NASDAQ Listing: OPT exited FY21 with the completion of an IPO in the US, listing on NASDAQ exchange with ~US$128.2 million capital raising.
• Board Additions: The Board was strengthened with the addition of Mr. Jeremy Levin as the Chairman, and Ms. Judith Robertson & Dr. Julia Haller as independent non-executive directors. OPT is building out its US team and appointed Ms. Judith as the COO to spearhead the commercialisation of OPT-302 in the US and worldwide.

Key Financials, Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces IP development and protection risk, approvals from drug authorities, the success of clinical programs, and funding for conducting seamless R&D.

Outlook:

• OPT plans to focus on the execution of the Phase 3 program for OPT-302 in wet AMD in the next twelve months. Accordingly, it needs to ensure the availability of the resources and its capability to leverage opportunities from the program.
• OPT plans to report the Phase 3 top-line data of trials in 2HCY23 and commercial launch in 2024 in EU, Japan, and rest of the world.

Valuation Methodology: Price to Book Value 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 OPT gave a positive return of ~4.132% in the past three months and a negative return of ~2.702% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $1.075 - $2.100. The stock has been valued using the Price to Book Value-multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ average P/BV multiple, considering the continuing net losses, uncertain clinical trial outcomes, and uncertainty due to new COVID-19 virus variants. For this purpose of valuation, few peers like Immutep Limited (ASX: IMM), Clarity Pharmaceuticals Limited (ASX: CU6), Mesoblast Limited (ASX: MSB), and others have been considered. Considering the low trading levels, improved liquidity position, nil debt levels, the grant of an expedited regulatory pathway for OPT-302 from the US, progress towards Phase -III trials, indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $1.260, down by ~2.326%, as of 14 January 2022.

OPT 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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