Virtus Health Limited

VRT Details

Completion of Debt Refinancing: Virtus Health Limited (ASX: VRT) is engaged in the provision of fertility services, medical day procedure services and medical diagnostic service in Australia, Denmark, UK, Ireland and Singapore. The market capitalisation of the company stood at $453.39 million as on 23^rd December 2020. Recently, the company has extended its existing three-year debt finance facilities of $92 million to October 2023, which was maturing in October 2021. This extension enables the company to maintain its current headroom of $100 million under its overall debt facilities of $262 million.

Financial Highlights: For the year ended 30^th June 2020, the company recorded revenue amounting to $259 million, reflecting a fall of 7.5% over pcp. The fall was mainly due to severe disruption from the COVID-19 pandemic during the last four months of FY20 and contraction of 11.9% and 15.8% in Diagnostics and Day Hospital revenue, respectively. EBITDA for the year amounted to $46.2 million as compared to $63.5 million in FY19. EBITDA was mainly impacted by non-cash impairment charges of $25 million and restructuring costs of $1.5 million.

Key Metrics (Source: Company Reports)

Outlook: The company experienced a strong rebound in services within its operations during the two months of FY21. The strategy of the company revolves around becoming a global leader in Precision Fertility.

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: During FY20, the company decreased its net debt by $29 million to $127 million with a normalised leverage ratio of 2.2x as on 30^th June 2020. The stock of VRT has surged 55.09% and 80.44% in the last three and six months, respectively. As a result, the stock is moving towards its 52-week high level of $6.020. Considering this, we have valued the stock using the price to cash flow multiple based illustrative relative valuation and have arrived at a correction of high single-digit (in percentage terms). In addition, we have considered 14-day RSI, and it was observed that the stock is currently in the overbought zone and may witness some correction, going forward. On a technical analysis front, the stock has a support level of ~$5.203 and a resistance level of ~$6.025. Considering the price movement in the few months, current trading levels, higher valuation, and RSI level, we suggest investors to book profit and give a “Sell” rating on the stock at the current market price of $5.610 per share, down by 0.532% on 23^rd December 2020.

VRT Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Xref Limited

XF1 Details

Acquisition of New Clients: Xref Limited (ASX: XF1) is engaged in the development of human resources technology which automates the candidate reference process for employers. The market capitalisation of the company stood at $67.45 million as on 23^rd December 2020. Despite the impact of COVID-19, the company commenced Q1 FY21 with decent sales of $2.4 million, which took the revenue to $2.2 million. On 8^th September 2020, the company announced the acquisition of five new clients, which included Mubadala Healthcare, Ramsay Health Care and IHC Group. In addition to this, the company added 45 new clients during the September 2020 quarter. For the year ended 30^th June 2020, the company recorded revenue amounting to $8.02 million, reflecting a fall of 0.2% over pcp.

Revenue (Source: Company Reports)

Outlook: The company is expecting FY21 to prove another successful year. This is likely to be supported by new revenue streams from RapidID, more integrations and the introduction of additional Xref products.

Stock Recommendation: During Q1 FY21, the company reported cash receipts from sales of $2.5 million and cash expenses of $2.8 million. In the last three and six months, the stock has moved up by 151.72% and 114.70%, respectively. As a result, the stock is inclined towards its 52-week high level of $0.400. On a TTM basis, XF1 has EV/Sales multiple of 8.3x, which is higher than the industry median (Professional & Commercial Services) of 3.3x. In addition, we have considered 14-day RSI, and it was observed that the stock is currently in the overbought zone and may witness some correction, going forward. On a technical analysis front, the stock has a support level of ~$0.126 and a resistance level of ~$0.400. Considering the steep price movement in the few months, current trading levels, higher valuation, RSI level and key investment risks, we suggest investors to book profit and give a “Sell” rating on the stock at the current market price of $0.365 per share, down by 1.352% on 23^rd December 2020.

XF1 Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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