Stocks’ Details

Mesoblast Limited

Positive Outcome from Remestemcel-L: Mesoblast Limited (ASX: MSB) is engaged in the development of regenerative medicine products. The company’s regenerative medicine technology platform is based on specialised cells known as mesenchymal lineage adult stem cells. The company has announced on 25 May 2021 regarding its product Remestemcel-L performance. The product has significantly improved respiratory and functional clinical outcomes in patients with chronic obstructive pulmonary disease (COPD) and high levels of the inflammatory biomarker C-reactive protein (CRP). The positive outcome is likely to result in a prospective use of Remestemcel-L in inflammatory lung diseases, together with Covid-19 acute respiratory distress syndrome (ARDS).

Quarterly Activities: During 3QFY21, MSB has completed US$110mn of private placement with a cash balance of US$158.3mn as of 31 March 2021. The results from the trial of Rexlemestrocel-L showed that a single injection may provide at least two years of chronic low back pain (CLBP) reduction. 

1HFY21 Financial Highlights: MSB has registered a decline in revenue to US$3.54mn in 1HFY21 against US$19.25mn in 1HFY20. The company has incurred a loss of US$50.23mn in 1HFY21 against US$30.06mn in 1HFY20. The company has seen a decline in its total liabilities to US$168.57mn as of 31 December 2020 against US$184.27mn as of 30 June 2020.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: The company may be denied of regulatory approvals for not completing ongoing and future clinical trials of product candidates. The company’s operations depend on third parties such as warehouses, distributors, and other logistical services. Therefore, any mishandling of the product candidates may lead to financial losses for the company. 

Outlook: The company has raised capital for operational and regulatory initiatives across multiple products. The company is likely to meet with US FDA in the 2Q and 3Q of CY2021. The company has witnessed a positive outcome from its product Remestemcel-L and utilise the raised funds for commercial supply for increased market opportunities. 

Valuation Methodology: EV/Sales based Relative Valuation Method (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 MSB gave a return of ~-1.79% in the last one month and a return of ~-17.94% in the last three months. The current market capitalisation of MSB stands at ~$1.27bn as of 01 June 2021. The stock is currently trading below the average 52-weeks’ price level range of ~$1.70~$5.70. We have valued the stock using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight discount as compared to its peer median, considering the company has incurred a loss in 1HFY21 and associated business risks. For this purpose, we have taken peers Clinuvel Pharmaceuticals Ltd (ASX: CUV), CSL Ltd (ASX: CSL), Adalta Ltd (ASX: 1AD), to name a few. Considering positive outcome from its product Remestemcel-L, decline in total liabilities, current trading levels and valuation and key risks associated with the business, we recommend a “Speculative Buy” rating on the stock at the current market price of $1.920, down by ~2.041% as on 01 June 2021.

MSB Daily Technical Chart, Data Source: REFINITIV

Opthea Limited

Change in Interest: Opthea Limited (ASX: OPT) is engaged in developing and commercialising therapies primarily for eye diseases. The company operates in medical technology and healthcare industry in Australia. OPT has reported on 20 May 2021 regarding change of interest of substantial holder. Bank of America Corporation and its related bodies corporate has reduced its holding in OPT from 6.95% to 5.55%.

Change in Management: OPT has informed the market regarding the resignation of its company secretary and CFO Mr. Michael Tonroe on 6 April 2021. Mr. Tonroe has resigned from his positions with effect from 24 June 2021. OPT is currently in search for potential replacement to carry out its business activities which were assigned to Mr. Tonroe. 

1HFY21 Financial Highlights: OPT has registered an increase in its revenue to $314.29k in 1HFY21 against $273.11k in 1HFY20. The company has incurred a loss of $34.98mn in 1HFY21. OPT has reported an increase in its cash balance to $202.54mn as on 31 December 2020 against $62.02mn as on 30 June 2020.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to Covid-19 impacts. Therefore, any such situation may impact the business performance of the company. The company deals with multiple currencies. Therefore, any adverse change in foreign exchange prices may impact the financials of the company. 

Outlook:  OPT is progressing with its Phase 3 clinical trial for OPT-302 by engaging patients. The Phase 3 trials are expected to contribute to the company’s topline by CY2023. If successful on topline results, OPT intends to file for marketing approval for OPT-302 for the treatment of wet AMD in the US, EU, and other regions.

Stock Recommendation: The stock of OPT gave a return of ~6.25% in the last one month and a return of ~-5.26% in the last three months. The current market capitalisation of OPT stands at ~$524.96mn as of 1 June 2021. The stock is currently trading below the average 52-weeks’ price level range of ~$1.30~$3.60. On a TTM basis, the stock of OPT is trading at an Price/Book Value multiple of 2.7x, lower than the industry median (Biotechnology & Medical Research) of 5.2x. Considering the company has registered an increase in revenue in 1HFY21, an increase in its cash balance as on 31 December 2020, current trading levels and valuation on TTM basis, along with key risks associated with business, we recommend a “Speculative Buy” rating on the stock at the current market price of $1.53, up by ~1.324% as on 1 June 2021.

OPT Daily Technical Chart, Data Source: REFINITIV

Technical Analysis: OPT has seen a consistent decline in its price since November 2020 and took a support of ~1.321 in April 2021. The stock is expected to trade in a range of its immediate support and resistance levels of ~$1.425 and ~1.71, respectively. One should be cautious, if the stock trades and closes below ~1.425 level consecutively for two days.

Althea Group Holdings Limited

Quarterly Activities: Althea Group Holdings Limited (ASX: AGH) is a provider of medicinal cannabis in Australia. The company holds licenses and permits for the importation, cultivation, production, and supply of medicinal cannabis in Australia. AGH has reported an increase of 85% YoY in its cash receipts to $2.75mn in 3QFY21. The company has witnessed a record monthly sale in March 2021 with an increased number of patients. The company has completed its share purchase plan by raising $3.78mn. AGH has reported shipping its products to Germany in 3QFY21. AGH’s subsidiary Peak Processing Solutions received a purchase orders from WeedMD and Cronos Group for the supply of adult-use cannabis products during the same period. 

1HFY21 Financial Highlights: AGH has registered an increase in revenue to $5.09mn in 1HFY21 against $1.85mn in 1HFY20. The company has incurred a loss to $8.27mn in 1HFY21. AGH has witnessed a decline in its liquidity position with cash balance at $8.64mn as on 31 December 2020 against $10.14mn as on 30June 2020.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: The company holds interest bearing liabilities. Therefore, any severe movement in interest rates may impact the financials of the company. The company deals with multiple currencies. Therefore, any adverse change in foreign exchange prices may impact the financials of the company. The company has not witnessed break-even. Any debt for expansion plan may result in rise in losses for the company. 

Outlook: AGH’s UK business continues to expand steadily post Covid-19 restrictions eased in April 2021. AGH expects Germany’s market for medicinal cannabis to reach $2.7bn by 2023 and holds a favorable regulatory and reimbursement situation.

Stock Recommendation: The stock of AGH gave a return of ~-24.21% in the last one month and a return of ~-30.76% in the last three months. The current market capitalisation of AGH stands at ~$94.45mn as of 1 June 2021. The stock is currently trading below the average 52-weeks’ price level range of ~$0.310~$0.670. On a TTM basis, the stock of AGH is trading at an EV/Sales multiple of 10.7x, lower than the industry median (Pharmaceuticals) of 12.8x. Considering an increase of 85%YoY to its cash receipts in 3QFY21, increase in revenue in 1HFY21, expansion of UK business, current trading levels and valuation on a TTM basis, and an uncertain environment led by the virus outbreak, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.36 as on 1 June 2021.

AGH 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.

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