Sigma Healthcare Limited

SIG Details

Merger Proposal Rejection: Sigma Healthcare Limited (ASX: SIG) is a wholesale distributor of pharmaceutical products and operates a network of branded & independent pharmacy stores. On 27 September 2021, SIG announced the submission of a merger proposal with API (Australian Pharmaceutical Industries Limited). On 5 November 2021, SIG’s management declared not to go ahead with the merger proposal with API.

Though the Board acknowledged synergies and strategic rationale of the merger with API. However, on further evaluation, and with the evolving dynamics of the competitive bid process (including economic factors), SIG has decided not to proceed with the current offer.

Update on Key Positions:

• Recently, Jackie Pearson resigned as the CFO of SIG due to personal. On 24 September 2021, Vikesh Ramsunder joined as the MD & CEO of the company.
• Recently, Ms. Kara McGowan joined the firm as the Company Secretary and General Counsel effectively from 21 October 2021.

1HFY22 Results:

• The revenue increased by ~5.5% YoY to ~$1,732.64 million in 1HFY22.
• SIG declared a dividend of 1.0 cent per share, reflecting ~75% dividend payout of Underlying NPAT.
• The company reported organic growth across its pharmacy brands and independent stores network, including the sales to Chemist Warehouse (CW) during 1HFY22. It added new customers during 1HFY22. SIG reported ~13.6% growth in wholesale sales and ~8.7% increase for like-for-like sales for pharmacy brands in 1HFY22.
• SIG had ~$82 million net debt as of 31 July 2021 up from $50.25 million as of 31 January 2021 due to the continuing capital expenditure on the IT assets.

Revenue & Net Income Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of regulatory delays, technological changes, COVID-19 impact on supply chain and retail activities.

Outlook:

• SIG now expects to generate around 5% underlying EBITDA growth versus previously stated CAGR of ~10% for the next two years due to the increased impact of COVID-19 restrictions in 2HFY22.
• It plans to target ~$95-$100 million underlying EBITDA by FY23.
• The company is on track to aim for the underlying ROIC to be above 10% in FY22.
• SIG plans to fast-track the pursuit of M&A opportunities for business expansion.
• SIG expects the net debt to increase to ~$130 million in December 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: The stock of SIG gave a negative return of ~17.85% in the past three months and a negative return of ~15.85% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.515 - $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 increase in net debt position, expected increase in net debt in CY21, and continued impact of COVID-19 on the business. For this purpose of valuation, few peers like Australian Pharmaceutical Industries Limited (ASX: API), Sonic Healthcare Limited (ASX: HLS), Ramsay Health Care Limited (ASX: RHC) have been considered. Considering the current trading levels, growth in revenue and underlying EBITDA in 1HFY22, expected underlying EBITDA growth & pursuit of M&A avenues, upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.518, as of 11 November 2021, 10:51 AM (GMT+10), Sydney, Eastern Australia.

SIG Daily Technical Chart, Data Source: REFINITIV

Volpara Health Technologies Limited

VHT Details

 Bell Potter Healthcare Conference Highlights: Volpara Health Technologies Limited (ASX: VHT) is a New Zealand-based health technology software developer offering an integrated platform for the delivery of personalised breast care. VHT’s CEO Dr. Ralph Highnam addressed the investors in an online presentation held at the Bell Potter Healthcare Conference on 9 November 2021.  

• VHT reported that US FDA is still working on wording for the breast density mandate as per an update on 26 October 2021.
• The company plans to go live with Analytics in Action, a new service for BreastScreen Queensland and announce a research project around reporting Density for BreastScreen South Australia in CY22.

Q2FY22 (Ending 30 September 2021) Highlights:

• VHT recorded an Annual Recurring Revenue (ARR) of ~US$20.4 million in Q2FY22, depicting a rise of ~US$1.2 million on Q1FY22. The company inked contracts VHT’s full product suite for platform deals and standalone sales during Q2FY22.
• VHT covered more than ~34% US women for best screening in Q2FY22 versus ~33% in the previous quarter.
• The ARPU (Average Revenue Per User) over the installed base rose by ~5% QoQ to ~US$1.46 at the of end Q2FY22. VHT signed its largest agreement to date which is expected to generate ~US$2.15 million in revenue in the next five years plus ~US$430K in ARR.
• The company posted an increase of ~52% YoY in cash receipts collected from customers to ~NZ$7.1 million in Q2FY22.
• VHT reported cash outflows of ~NZ$3.017 million for Q2FY22 in line with Q1FY21.
• The company held ~NZ$25.0 million cash on hand and no debt on its balance sheet as of 30 September 2021.

Annual Recurring Revenue Highlights; (Analysis by Kalkine Group)

Key Risks: The company risks technological changes, regulatory delays, COVID-19 uncertainty, adequate funding for scaling up and accessing new markets.

Outlook:

• The company plans to release its 1HFY22 earnings on 23 November 2021.
• VHT continues to develop the new client-centric service - Analytics in Action, exclusively for the customers of Volpara® Analytics™ software. VHT will commence a pilot program and plans to demonstrate it in late November 2021 at the largest radiology conference, RSNA (Radiological Society of North America) in Chicago.
• The company plans to invest in Volpara ® Lung™ software given its potential and demand from patients for lung screening.
• VHT expects ~NZ$25.0 - ~$26.0 million in revenue in FY22, given its pipeline of new deals due to new contracts, customer referrals, and digital marketing.

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 stock of VHT gave a positive return of ~4.69% in the past three months and a negative return of ~9.34% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $1.050 - $1.715. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount than its peers’ average EV/Sales multiple, considering its negative operating cash flows, continuing net loss, and decline in current ratio in FY21, etc. For this purpose of valuation, few peers like Mach7 Technologies Limited (ASX: M7T), Alcidion Group Limited (ASX: ALC), CogState Limited (ASX: CGS), and others have been considered. Considering the current trading levels, increase in ARR, subscription revenue, cash receipts, new contracts in Q2FY22, higher revenue expected for FY22, upside in valuation, we give a ‘Buy’ rating on the stock at the current market price of $1.115, as of 11 November 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

VHT Daily Technical Chart, Data Source: REFINITIV  

Imricor Medical Systems, Inc

IMR Details

Q3FY21 (30 September 2021 Ending): Imricor Medical Systems, Inc. (ASX: IMR) is a medical device firm manufacturing and distributing MRI (magnetic resonance imaging) compatible products used in medical procedures to treat arrhythmias.

• In October 2021, IMR inked a new purchase contract with Semmelweis University Heart and Vascular Centre in Budapest, Hungary
• The procedure volumes are reported to be slow due to the lingering COVID-19 impact with four (4) active sites in operation currently.
• IMR raised ~$16.5 million via an institutional placement under a security purchase plan (SPP) at $1.00 per CDI during Q3FY21
• The company has obtained TGA approval for the Advantage-MR system in Australia and Medsafe approval for all its products for sale in New Zealand
• IMR signed sales distribution agreements with MiRTLE Medical, LLC (MiRTLE) and NordicNeuroLab AS (NordicNeuroLab) during the quarter.
• IMR held a cash balance of ~US$22.202 million as of 30 September 2021.

Total Revenue & Net Loss Trend from 1HFY19-1HFY21; (Analysis by Kalkine Group) 

Key Risks: The company faces forex risks, regulatory delays, the impact of COVID-19, failure of clinical trial outcomes to test for the device commercialisation.

Outlook:

• The company is planning at the Semmelweis site to start procedures before CY21-end in an existing Cardiovascular Magnetic Resonance (CMR) suite planned to be positioned as the iCMR lab.
• IMR plans to add six additional sites to commence procedures in Q4FY21 or Q1FY22.
• With the CE Mark approval and presence in eleven European sites, IMR is progressing to expand in the US, Australia, other European countries, and New Zealand.
• IMR awaits approval for its Vision-MR Ablation Catheter device which is under review with the TGA.
• IMR plans to fund its product development pipeline, aid clinical and regulatory needs, and provide working capital for corporate activities with the recent capital raised.
  

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 stock of IMR gave a positive return of ~2.822% in the past month and a negative return of ~10.83% in the past three months. The stock is currently trading lower than the 52-weeks’ average price level band of $1.000 - $2.700. The stock has been valued using EV/Sales 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 premium than its peers’ median EV/Sales multiple, considering the grant of approval from TGA & New Zealand, plans to add sites in FY22, new distribution contracts signed in Q3FY22. For this purpose of valuation, few peers like Oventus Medical Limited (ASX: OVN), Polynovo Limited (ASX: PNV), Nanosonics Limited (ASX: NAN,) and others have been considered. Considering the current trading levels, expanding multi-geography regulatory approvals, the addition of sites in CY21, plans to use funds for product pipeline, valuation, upside, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of ~$1.200, as of 11 November 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

IMR 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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