Nanosonics Limited

Strong Performance in FY19: Nanosonics Limited (ASX: NAN) provides infection control solutions, and has developed a unique automated disinfection technology, which is the first major innovation in high-level disinfection for ultrasound probes in more than 20 years.

FY19 Results Highlights for the period ended 30 June 2019: The company recorded revenue at $84.3 million, up 39% on prior corresponding period. The company delivered decent global installed base growth of 20,930 units, up 18% y-o-y. NAN posted operating profit before tax at $16.8 million, up 201% y-o-y. The company successfully launched trophon®2 across North America, Europe and Australia during the year. The company expanded its geographical footprint through a strategic distribution agreement with GE Healthcare. The alliance will include distribution in Norway, Denmark, Finland, Spain and Portugal as well as new distributor agreements in Switzerland and Israel. Revenue from North America came in at $76.5 million, up 41% on y-o-y, followed by ~27% y-o-y growth in Europe/Middle East to $3.8 million and 21% growth in the Asia Pacific to $4.0 million.  Gross profit came in at $62.8 million, a rise of 39% on pcp. The company reported a profit after tax at $13.6 million, a rise of 137% from the previous financial period. R&D (Research & Development) expenses came in at $11.4 million, up 15% on prior corresponding period. Free cash flow for FY19 stood $2.6 million as compared with $6.2 million in FY18.


FY19 Financial Highlights (Source: Company Reports)

Outlook: The company intends to establish trophon technology across the major markets. Expansion and investment into new geographies are one of the core areas set under the strategic growth agenda. The management expects the similar growth, witnessed in FY19, to be continued across the US market. The company will focus on Managed Equipment Service growth in the UK. FY20 operating expenses are expected to be ~$67 million, including ~$15 million in R&D, an increase of 32% as compared to FY19.

Stock Recommendation: On 30 August 2019, the stock closed at $6.670 after making a new 52-week high of $6.850 as on same day. The stock has already gained 130.58% on YTD. On TTM basis, it has a higher P/E and P/BV multiple of 140.310x and 17.4x as compared to the industry average (Healthcare Equipment and Supplies) of 22.9x and 11.5x, respectively, showing the stock to be overvalued.The company posted a strong set of numbers for FY19 which were announced on 27 August 2019 and giving a thumbs up to the results, the stock climbed 32.653% on the same date. Considering the expanding footprints across new geographies, robust earnings growth, and increasing demand of trophon, etc., the outlook for the business seems to be decent. However, we are of the view that the recent momentum seen in the stock price might have discounted and might see some pullback in the near-term. Hence, we give an “Expensive” recommendation on the stock at the current market price of $6.670 (up 4.71% on 30 August 2019) and suggest investors to wait for better entry zone.
 

Afterpay Touch Group Limited

Stellar Performance in FY19:Afterpay Touch Group Limited (ASX: APT) is engaged in offering technology-driven payments solutions for retailers and corporates through its Afterpay and Pay Now services businesses.

FY19 Results Highlights for the yearended 30 June 2019:The company posted underlying sales amounting to $5.2 billion, up 140% on a y-o-y basis.In FY19, APT reported total active customers at 4.6 million, up 130% from FY18. Active merchants during the year were reported at 32,300, up 101% on a y-o-y basis. The business reported Pro forma EBITDA at $35.5 million, marginally higher than the prior corresponding period. This above strong result was aided by stellar earnings growth from Australia and New Zealand. Strong earnings growth helped in offsetting start-up expense across the US and UK markets. At the end of FY19, underlying free cash flow stood at $33.3 million, indicating a high return on capital employed (ROCE) business model and organically adding to balance sheet growth capacity. Total Afterpay pro forma income stood at $251.6 million, up 115% y-o-y, while Afterpay Net Transaction Margin (NTM) was at $126.1 million, up 126% y-o-y.


FY19 Financial Highlights (Source: Company Reports)

APT posted stellar growth across all the geographies and channels. Growth in the US and UK were higher than expected, driven by on-boarding of new major merchant brands. Underlying sales in the US amounted close to $1 billion during FY19. Merchant income margin in the US came in-line with the merchant income margin of Australia and New Zealand. During the first 15 weeks of trading, more than 200,000 UK customers on-boarded.

Stock Recommendation: On 30 August 2019, APT made a new 52-week high of $31.070 and closed at $30.980. The stock has gained 146.83% on YTD. FY19 turned out to be a significant year for APT as it posted better than expected growth across the US and UK regions. Taking cues from the stellar results across all the segment in FY19, the stock gained ~26.44% in the last four trading session. On TTM (Trailing Twelve Months) basis, it reported a higher EV/Sales and P/BV multiples of 27.5x and 11.5x, against the industry median of 2.1x and 2.7x, respectively, indicating the stock to be expensive at the current level. Hence, considering the strong results for FY19, higher returns in the recent past and premium level at the current juncture, we give an “Expensive” recommendation on the stock at the current market price of $30.980, up 4.591% as on 30 August 2019. We presume some sort of pullback in the stock and suggest investors to wait for better entry level.
 

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