Stocks’ Details

Regis Healthcare Limited

Rejection of Acquisition Proposal: Regis Healthcare Limited (ASX: REG) is engaged in the provisioning of residential aged care services. The market capitalisation of the company stood at ~$566.97 million as on 27^th January 2021. Recently, the company noted that Washington H. Soul Pattinson and Company Limited has withdrawn its a non-binding, indicative proposal to acquire all of its share capital for $1.85 per share through a scheme of arrangement. However, Regis Healthcare Limited has previously rejected the unsolicited, conditional, non-binding and indicative proposal as it materially undervalued the Company having regard to its medium to long term prospects. For the year ended 30^th June 2020, the company recorded revenue from services amounting to $677.9 million, reflecting a rise of 4.8% over pcp. In addition, REG witnessed a fall of 54.4% in underlying NPAT to $21.5 million against $47.2 million in FY19.

Key Financials (Source: Company Reports)

Outlook: Looking forward, the company continue to maintain excellent resident care standards and optimise business performance in spite of the difficult challenges faced by the industry. In addition, the company is also focused on occupancy and earnings uplift strategies.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: During FY20, the company recorded net cash flows from operating activities of $127.2 million and closed the year with a net debt position of $236.7 million, which indicates an improvement of $66.5 million from FY19. In the last three months, the stock of REG moved up by 87.81%. The 52-week low-high-range for the stock stands at 0.735 - 2.550, respectively. We have valued the stock using the price to earnings multiple based illustrative relative valuation method and arrived at a target price with correction of high single digit (in percentage terms). For the purpose, we have taken peers such as Cochlear Ltd (ASX: COH), Resmed Inc (ASX: RMD) and Pacific Smiles Group Ltd (ASX: PSQ). 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 ~$0.93 and a resistance level of ~$1.989. Hence, considering the price movement in the past months, RSI levels and key risks with the business, we advise investors to book profit and give a “Sell” rating on the stock at the current market price of $1.825 per share, down by 3.184% on 27^th January 2021.

1300 Smiles Limited

Decent Growth in OTC Revenue: 1300 Smiles Limited (ASX: ONT) is engaged in the provisioning of dental surgeries and practice management to self-employed dentists. The market capitalisation of the company stood at $164.80 million as on 27^th January 2021. On 14^th December 2020, the company announced that it has finished the acquisition of an established dental practice in Bundaberg, which is likely to expand its footprint even further in the Wide Bay region in Queensland. In a recent trading update for September 2020 and Q1 FY21, the company recorded positive revenue growth across its network since the easing of COVID-19 restrictions in May 2020.  ONT witnessed over the counter (OTC) revenue growth of 21.5% in September 2020 against September 2019. For Q1 FY21, the company recorded same practice OTC revenue growth across all practices of 15.5% against Q1 FY20. This growth was aided by a range of factors, which include increased patient demand for dental services and treatment acceptance rates/reappointments, growth in the number of dentists engaged by the Company and overall Hours Available, and operational efficiencies improving productivity and utilisation.

OTC Revenue (Source: Company Reports)

Outlook: The company’s objective for future developments revolves around increase profits and shareholder returns, which is likely to be supported by key drivers such as increasing profits by attracting more dentists to its existing facilities and expanding current facilities.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months 

Stock Recommendation: As on 30^th September 2020, the company’ net debt reduced to $7.1 million from $8.3 million as on 30^th June 2020. In the last nine months, the stock of ONT has moved up by 35.95%. Currently, the stock is trading above its 52-week low-high average of $5.920.  We have valued the stock using the price to earnings multiple based illustrative relative valuation method and arrived at a target price with 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 ~$6.245 and a resistance level of ~$7.08. Hence, considering the price movement in the past months, RSI levels and key risks with the business, we advise investors to book profit and give a “Sell” rating on the stock at the current market price of $6.920 per share, down by 0.575% on 27^th January 2021.

Battery Minerals Limited

Commencement of Exploration Program: Battery Minerals Limited (ASX: BAT) is a mining development and minerals exploration company. The market capitalisation of the company stood at $57.15 million as on 27th January 2021. Recently, the company has responded to ASX query with respect to the change of its securities prices from a low of $0.028 at the close of 25 January 2021 to an intra-day high price of $0.037 as on 27 January 2021. In respect to this, the company stated that it is aware of the recent increase in the market price of some grades of graphite. The company also added that it is in compliance with the ASX Listing Rules, which mainly consist of ASX Listing Rule 3.1. In another update, the company announced that it has commenced a multi-pronged exploration program at its Stavely-Stawell copper-gold project in Victoria. During Q3 FY20, the company finished the acquisition of Gippsland Prospecting, the owner of a copper-gold project next to Stavely in Victoria. The company recorded net cash outflow from operating activities of $736k and $3k from investing activities.

Cash Flow (Source: Company Reports)

Outlook: Looking forward, the company would continue to focus on finishing project finance to develop and bring the Montepuez Graphite Project successfully into commercial production. In addition, BAT is also focused on becoming a successful production company in the graphite market.

Stock Recommendation: The company closed the Q3 FY20 with a cash balance of $3.1 million. The stock of BAT has surged by 230% and 450% in the last six and nine months, respectively. As a result, the stock is inclined towards its 52-week high level of $0.040. In addition, the stock is trading at a price to book value multiple of 6.6x against the industry median (Metals & Mining) of 3.2x on TTM basis. We have also 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 ~$0.009 and a resistance level of ~$0.087. Hence, considering the steep price movement in the past months, RSI levels, valuation on TTM basis and key risks with the business, we give a “Sell” rating on the stock at the current market price of $0.039 per share, up by 39.285% on 27^th January 2021, owing to the response to ASX price query.

MGC Pharmaceuticals Ltd

Decent Growth in Unit Sales: MGC Pharmaceuticals Ltd (ASX: MXC) is engaged in the production and development of phytocannabinoid-derived medicines. The market capitalisation of the company stood at $46.49 million as on 27^th January 2021. During the December 2020 quarter, MXC experienced strong performance supported by sales revenue of $456,000 from 2,900 units of products sold, reflecting growth of 67% over the prior quarter. During the same quarter, the company was also qualified for the support for a non-dilutive cash grant and has started to receive the ~$5 million from Malta Enterprise to renovate and extend its existing Clinical Research Organisation (CRO) facility in Malta.

Unit Sales (Source: Company Reports)

Outlook: MXC would continue to carry out its policy of improving the prospect of greater returns to its investors via further strategic investments in future.

Stock Recommendation: MXC closed December 2020 quarter with a cash balance of $1.57 million along with access to $9.25 million undrawn from its $15 million financing facility with Mercer Street Opportunity Fund LLC. In the last three months, the stock of MXC has moved by 27.27%. The 52-week low-high-range for the stock stands at $0.015 - $0.043, respectively. In addition, the stock is trading at a price to book value multiple of 15x against the industry median (Pharmaceuticals) of 5.1x on TTM basis. We have also 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 ~$0.021 and a resistance level of ~$0.043. Hence, considering the price movement in the past months, RSI levels and key risks with the business, we advise investors to book profit and give a “Sell” rating on the stock at the current market price of $0.028 per share, up by 7.692% on 27^th January 2021.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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