AFT Pharmaceuticals Limited

 AFP Details

Partnership with New Firms: AFT Pharmaceuticals Limited (ASX: AFP) is engaged in the pharmaceutical business. The market capitalisation of the company as on 08 April 2021 stood at ~$410.63 million. As per a recent update, the company has announced that it has secured new partners for the commercialisation of Maxigesic in Poland and Greece, after agreements with Polish company Mercapharm and the Greek company Vianex. The said agreement covers a territory with a total population of more than 48.5 million people.

H1FY21 Financial Update: The company reported an increase in revenue to NZ$48.82 million during the period, compared to NZ$46.94 million in the previous corresponding period. The net profit stood at NZ$1.19 million during the same period under consideration. It ended the period with a cash position of NZ$5.87 million as of 30 September 2020.

H1FY21 Financial Performance (Source: Company Reports)

Outlook: AFP expects revenue for FY21 to be around NZ$110 million, reflecting an increase on the prior year’s revenue of NZ$105.6 million. It is anticipating the operating profit to be between NZ$9 million and NZ$11 million, lower than the last affirmed guidance in November 2020 owing to delays in licensing negotiations. However, the revised outlook seems to impact the company temporarily due to the pandemic-related disruptions, and the long-term fundamentals seems to be intact.

Key Risks: The company is exposed to credit risk as it has one significant concentration of credit risk as of 30 September 2020. The onset of COVID-19 has also impacted AFP’s operation and may pose a threat in the near future also.

Valuation Methodology: P/E Multiple Based Relative Valuation

(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: The company has announced on 17 March 2021 that it has signed a new commercialisation and development agreement in regards to its drug Pascomer, which encompasses 27 countries within the European Union. As per ASX, the stock of AFP is trading below its average 52-weeks’ levels of $3.430-$5.250. The stock of AFP gave a positive return of ~3.94% in the past nine months and a negative return of ~1.49 % in the past one month. On a technical analysis front, the stock of AFP has a support level of ~$3.634 and a resistance level of ~$4.394. We have valued the stock using a P/E multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe the company can trade at a slight premium to its peer average P/E (NTM Trading multiple), considering the increase in top-line and on securing new partners in Poland & Greece. For the purpose, have taken peers such as Mayne Pharma Group Limited (ASX: MYX), Australian Pharmaceutical Industries Limited (ASX: API), Probiotec Limited (ASX: PBP), to name a few. Considering the expected upside in valuation, current trading levels, increase in top-line in H1FY21 and on the back of new agreements and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $3.950, down by 0.253% as on April 08, 2021.

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

Pharmaust Limited

 PAA Details

Tax Rebate on R&D Activities: Pharmaust Limited (ASX: PAA) is involved in the development of drug for the treatment of cancers in humans and animals. The market capitalisation of the company as on 08 April 2021 stood at ~$33.25 million. As per a recent update, the company has announced that it has received $755,594.57 through the R&D tax refund in 2020. It had previously filed an application that the R&D may qualify for a research and development tax rebate on its 2020 tax return.

As per an announcement on 7 April 2021, the company has said that Leiden University Medical Center (LUMC) has provided indicative data that MPL and MPLS demonstrate antiviral activity in non-human primate systems.  

H1FY21 Results Update: The company has reported a revenue of $1.10 million during the period. The loss stood at $832,000 during the same period under consideration. The cash position of the company improved to $3.59 million as of 31 December 2020, from a level of $2.88 million on 30 June 2020. The total borrowing of the Group stood at $109,898 as of 31 December 2020.

H1FY21 Financial Performance (Source: Company Reports)

Outlook: The company has achieved key milestones during the first half of FY21 that has aided its purpose of clinical trials in 2021. PAA is also looking to build on the contract sales and income activities of its wholly-owned subsidiary, Epichem Pty Ltd.

Key Risks: The Group is prone to cash flow interest rate risk, liquidity risk and foreign exchange risk, arising out of its financial instruments.

Stock Recommendation: Epichem Pty Ltd, through its subsidiary Epichem OHD Pty Ltd, has entered into a licensing agreement with Illinois-based Thermaquatica Inc to research and develop an innovative waste to fuels technology. As per ASX, the stock of PAA is trading below its average 52-weeks’ levels of $0.070-$0.275. The stock of PAA gave a positive return of ~10.52% in the past one month and a positive return of ~7.14% in the past one week. On a technical analysis front, the stock of PAA has a support level of ~$0.098 and a resistance level of ~$0.115. On a TTM basis, the stock of PAA is trading at an EV/Sales multiple of 8.4x, lower than the industry median (Healthcare) of 14.7x. Considering the current trading levels and the valuation on TTM basis, grant of tax rebate on R&D activities, positive indicative data for MPL and MPLS study and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.105 as on April 08, 2021.

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

Note: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine do not hold interests in any of the securities or other financial products covered on the Kalkine website.