ImpediMed Limited

IPD Details

Business Update: ImpediMed Limited (ASX: IPD) develops and commercialise medical software technology that offers bioimpedance spectroscopy (BIS) devices to diagnose and monitor human disorder and disease in Australia. As per a recent announcement, the company’s director Donald Williams has undergone a change of interest in the company and has acquired 245,536 ordinary shares on 1 July 2021.  

Demonstration of SOZO in ACC Abstract: The abstract publications on Clinical Utility of Fluid Volume Assessment in Heart Failure Patients using Bioimpedance Spectroscopy at the American College of Cardiology (ACC) 70th Virtual Annual Scientific Session.

• The analysis conveys the potential of SOZO with HF-Dex to identify patients with fluid overload.
• Richard Carreon, the Managing Director and CEO of ImpediMed, has mentioned the ACC session is the leading scientific session for US cardiology and has a global reach and provides essential validation to the technology.

Release of SOZO Version 4.0: The company has recently released the next generation Version 4.0 software for the SOZO Digital Health Platform, which has significant enhancements around usability, new applications and security. The improvement in SOZO offering is a significant competitive advantage and allows to expand of the company’s footprint.

Q3FY21 Financial Performance:

• The company has recorded revenue of $2.3 million in Q3FY21, up by over 35% year on year basis. The major contribution in the revenue was due to SOZO news contracts signed and device revenue during the period.
• IPD has reported an uptick in ARR by over 49% to $8.2 million in Q3FY21, compared to a year-on-year basis.
• ImpediMed has recorded cash receipts from customers at $2.1 million and posted an operating cash outflow of ~$3.2 million in Q3FY21.
• The company strengthened the balance sheet during the period, with the cash balance at $23.9 million as of 31 March 2021.

Revenue Trend (Source: Analysis by Kalkine Group)

Outlook: The company is focused on key areas of growth: Lymphoedema, Heart Failure and Renal Failure. The technological advancement of SOZO gave a significant opportunity to the company to accelerate the growth in the near-term future.

Key Risks: The company is exposed to the risk of technological advancement that could impact its operations directly. Therefore, the company should invest in its R&D to create an advancement in the value proposition for customers and stay in tune with the latest technological trends.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (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: As per a recent announcement, the company has issued 2,317,961 new fully paid ordinary shares to its executives and non-executive directors. The stock of IPD is trading below its average 52-weeks' levels of $0.060-$0.185. The stock of IPD gave a positive return of ~44.92% in the past one year and a negative return of ~23.07% in the past six months. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight premium to its peer average EV/Sales (NTM Trading multiple), considering the economic recovery and release of the SOZO next-generation version. For this purpose, we have taken peers such as Mayne Pharma Group Ltd (ASX: MYX), Paragon Care Ltd (ASX: PGC), Healius Ltd (ASX: HLS), to name a few. Considering the current trading levels and expected upside in valuation levels, demonstration of SOZO in ACC, healthy cash balance, resilient financial performance, low debt-to-equity ratio and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $0.100, down by 4.762% (as on 16 July 2021, 10:52 AM (GMT+10), Sydney, Eastern Australia).

IPD Daily Technical Chart, Data Source: REFINITIV

Epsilon Healthcare Limited 

EPN Details

Appointment of Company Secretary: Epsilon Healthcare Limited (ASX: EPN) engages in the manufacture and commercialisation of hydroponics equipment, medicinal cannabis and provides turnkey cultivation solutions in Australia and Canada. As per a recent announcement, the company has appointed Louisa Ho as the company secretary effective 18 June 2021, as Philip Leighfield has resigned from the company.

Supply for Clinical Study Agreement: The company has recently commenced supplying drugs for clinical studies for the treatment of severe behavioural problems in youth with intellectual disabilities using cannabidiol medicines. The trial is conducted by Murdoch Children’s Research Institute (MCRI).

Appointment of Divisional Manager: The company has appointed Edward Jones to serve as Divisional Manager of Cannabis Operations and will look towards the expansion of the Cannabis production capabilities.

FY20 Financial Performance:

• The company has recorded revenue of $6.95 million in FY20, compared to $4.79 million in FY19.
• EPN reported an increase in gross profit to $2.38 million in FY20 against $1.13 million in FY19.
• The company has recorded a reduction in loss to $10.53 million in FY20, compared to $11.70 million in FY19.
• It ended the year with an increase in cash position to $6.96 million as of 31 December 2020, compared to $3.55 million as of 31 December 2019.

Revenue Trend (Source: Analysis by Kalkine Group)

Outlook: The management has a primary focus on revenue-generating activity that includes the onboarding of local and international partners who seeks access to the company production activity and pursue corporate and strategic initiatives.

Key Risks: The company is exposed to the risk of capital management that could impact the stakeholders return, opportunity to invest in the business. Therefore, the company should optimally maintain its capital structure by reducing the cost of capital.

Stock Recommendation: As per a recent announcement, the company has received $1.02 million in R&D Tax Incentives from the Australian Taxation Office for FY19-20. The stock of EPN is trading below its average 52-weeks' levels of $0.120-$0.325. The stock of EPN gave a positive return of ~7.40% in the past one week and a negative return of ~27.49% in the past three months. On a TTM basis, the stock of EPN is trading at an EV/Sales multiple of 4.0x, lower than the industry average (Pharmaceuticals) of 13.7x. Considering the current trading levels and valuation on a TTM basis, receipt of incentive from Australian Taxation Office, healthy cash position, and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.145, (as on 16 July 2021, 11:00 AM (GMT+10), Sydney, Eastern Australia).

EPN Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices

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