Healius Limited

HLS Details

Mixed Business Performance: Healius Limited (ASX: HLS) is engaged in providing health technology, including diagnostic imaging services and pathology services. The company has reported higher revenues from its Pathology division. The company has registered a revenue growth of 22% YoY in its Pathology division, which came in at $711.4mn in 1HFY21. Similarly, EBIT from the segment has grown significantly to $126.9mn in 1HFY21. The growth in revenues and EBIT is a result of higher volumes of tests (>1.6mn) conducted for Covid-19, which includes including more than 800,000 tests in Victoria. Revenues from Imaging business have seen a slight decline in 1HFY21 at $200.4mn as compared with $201.8mn in 1HFY20. EBIT has registered a decline of 39.1% YoY in 1HFY21 at $14.2mn for Imaging business due to an extensive lockdown in Victoria, where HLS is largely present. HLS has registered a turnaround for its Day Hospitals/IVF business with a positive EBIT of $5.7mn in 1HFY21 from -$1.1mn in 1HFY20, despite lockdown in Victoria. 

Financial Highlights for 1HFY21: HLS has reported a growth in revenues to $943.8mn in 1HFY21 as compared with $815.9mn in 1HFY20, and an increase in EBIT to $141.9mn from $43.1mn during the same period. The operating cash flow has grown by 56.2% in 1HFY21 to $251.2mn, due to a 12.2% increase in customer receipts. The company has reported a marginal increase in its NPAT to $73.8mn in 1HFY21 as compared with $72.9mn in 1HFY20.

Financial Highlights 1HFY21 (Source: Company Reports)

Outlook: As per the company reports, HLS has plans for a buy-back of its share for a value of $200mn during CY21 and revising its dividend payout policy to 50%-70% of its registered NPAT.

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative)

Data Source: Refinitiv, Thomson Reuters, 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: In the last one month, HLS has decreased by 0.74% and increased by 20.7% in the last six months. The current market capitalisation of HLS stands at ~$2.50bn, as on 16 March 2021. The stock is currently trading above the average of its 52-weeks’ price level range of $1.925-$4.220. On the technical analysis front, the stock has a support level of ~$3.82 and a resistance of ~$4.13. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price with a correction of low double-digit (in % terms). We believe that the company can trade at a slight premium as compared to its peer median, considering a dividend payout in a range of 50%-70% to the investors, an increase in revenues in 1HFY21 and robust performance from its Pathology segment. For the purpose, we have taken peers Paragon Care Ltd (ASX: PGC), Ramsay Health Care Ltd (ASX: RHC), Sonic Healthcare Ltd (ASX: SHL). Considering the company’s mixed business performance, Covid-19 impacts on the business, valuation, decent returns in the past six months and current trading levels, we suggest investors to book profits at current levels and give a “Sell” rating on the stock at the current market price of $4.020 as of 16 March 2021.

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

88 Energy Limited

88E Details

Latest Operation Update: 88 Energy Limited (ASX: 88E) is engaged in oil and gas exploration. Its projects include Project Icewine, Yukon Leases and Project Peregrine. The company has recently reported on 10 March 2021 that Rig111 has started drilling activities at Merlin-1 well. The results for Merlin-1 drilling are expected within the next 4 weeks. Harrier-1 project is expected to be started by next season.

Projects Performance During FY20: Project Icewine got approval to drill Charlie-1 exploration well from Alaska Oil and Gas Conservation Commission (AOGCC) to spud the well on 2 March 2020. After an agreement with XCD energy on 17 August 2020, project Peregrine farm-out was immediately commenced, which was concluded with the implementation of farm-out contract with Alaska Peregrine Development Company LLC (APDC) in December 2020. 88E has entered into a sale and purchase agreement with Malamute Energy, Inc and Renaissance Umiat LLC through its wholly-owned subsidiary, Emerald House LLC. 88E will acquire Umiat oil field through this agreement.

Financial Highlights for FY20: 88E has reported a growth in revenues to $0.24mn in FY20 for the period ended 31 December 2020 as compared with $0.035mn in FY19. The company has registered a net loss after tax of $22.03mn in FY20.

Financial Performance in FY19-20 (Source: Company Reports)

Outlook: As per the company reports, 88E raised $15.075mn before cost by issuing securities. This will provide liquidity cushion to the company to meet its investment objectives. The company is targeting 645 mn barrels of output from drilling Merlin-1 well. Further, subject to regulatory approval, Harrier-1 well will be commenced immediately after the completion of Merlin-1 well, which is expecting an output of 417mn barrels.

Stock Recommendation: In the last one month, 88E has increased by 144.44% and by 175.0% in the last three months. The current market capitalisation of 88E stands at ~$218.90mn as on 16 March 2021. The stock is currently trading above the average of its 52-weeks’ price range of $0.004-$0.021. On the technical analysis front, the stock has a support level of ~$0.018 and a resistance of ~$0.026. On a TTM basis, the stock of 88E is trading at a P/BV multiple of 3.7x higher than the industry Median (Oil & Gas) of 1.8x. Considering 88E registering losses during FY20, higher valuation on TTM basis, current trading levels and high return in the past months, we give a “Sell” rating on the stock at the current market price of $0.022, up by 22.222% as of 16 March 2021. The rise in stock price can be attributed to the company’s announcement related to the commencement of drilling of the Merlin-1 exploration well in Alaska.

88E Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Note: 88 Energy Limited (Company) is a client of Kalkine Media Pty Ltd (Kalkine Media), an affiliate of Kalkine. However, under no circumstances have Kalkine or its related entities been, directly or indirectly influenced in making any related insights concerning Company as contained in this report, and no form of compensation is or will be received by Kalkine, Kalkine Media or Kalkine’s other related entities for the publication of this report.

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