Stocks’ Details

Bega Cheese Limited

Bega Acquires Lion Dairy & Drinks: Bega Cheese Limited (ASX: BGA) is engaged in receiving, processing, manufacturing, and distributing dairy, and other food-related products. As on 27 November 2020, the market capitalisation of the company stood at ~$1.08 billion. The company has recently entered a binding share sale and purchase agreement to acquire 100% shares in Lion Dairy & Drinks for a consideration of $534 million. The acquisition is to be funded by a combination of debt facilities and the proceeds from a $401 million underwritten entitlement offer and placement. The transaction is likely to be completed by the end of January 2021.

Acquisition Rationale and Outlook: The acquisition is likely to expand the company’s product range, manufacturing, and distribution infrastructure. The combined business is likely to generate revenue of over $3 billion and base case synergies of ~$41 million p.a. primarily from optimization of milk network, indirect procurement, and a corporate reorganization. The company is likely to witness double-digit accretion in FY22 and is committed to report a leverage ratio of below 2.0x in the medium term.

Retail Entitlement Offer: The company has recently completed an institutional entitlement offer, wherein it issued ~39 million shares to raise ~$181 million. The new shares are expected to settle on 2 December 2020 and will start trading on ASX on 3 December 2020.

FY20 Financial Highlights: During FY20, the company reported a rise of 15% in export sales to $523 million and an increase of 5% in revenue to $1.5 billion. At the end of the same period, the company generated $138 million from operating cash flow, reflecting an increase of 37% in the pcp. However, the company reported a decline of 7% in normalized EBITDA to $103.0 million.

FY20 Financial Highlights (Source: Company Reports)

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

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

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

Stock Recommendation: The company is strengthening its dairy footprint and is expanding into new regions including the strategic region of Gippsland. As per ASX, the stock of BGA is trading close to its 52-week high of $5.630 but retains a potential for further growth. The stock of BGA gave a return of 5.43% in the past three months and a return of 5.84% in the last one month. On a technical front, the stock of BGA has a support level of ~$4.2 and a resistance level of ~$5.6. We have valued the stock using the price to earnings multiple based illustrative relative valuation and have arrived at a target upside of higher single-digit (in % terms). Considering the current trading levels, modest long-term outlook, acquisition of Lion Dairy & Drinks, and decent financial position, we recommend a ‘Hold’ rating on the stock at the current market price of $5.420, up by 7.114% on 27 November 2020.

Paradigm Biopharmaceuticals Limited

Quarterly Update (For the Period Ended 30 September 2020): Paradigm Biopharmaceuticals Limited (ASX: PAR) is a bio-pharmaceutical company, focused on repurposing the drug, pentosan polysulphate sodium, for the lead clinical indication of bone marrow edema. As on 27 November 2020, the market capitalisation of the company stood at ~$684.05 million. During the quarter ended 30 September 2020, the company signed a supply term of 25 years with Bene pharmaChem. The company has got a clear path to registration for Zilosul® in Europe post the feedback from an EMA scientific advice. As on 30 September 2020, the company expended $5.5 million on research & development and reported a cash balance of $98.8 million.

Cash Flows from Operating Activities (Source: Company Reports)

Outlook: The company expects a written response from the FDA with respect to its questions for the clinical trial design and has started a research program, investigating the safety and efficacy of iPPS in a viral induced respiratory disease model.

Stock Recommendation: PAR achieved several milestones in 2020 and seems well-positioned for initiation of its global pivotal clinical programs in 2021. However, the stock is trading close to its 52-weeks’ high level of $4.5 and retains limited potential for further growth. The stock of PAR gave a return of 10.1% in the past three months and a return of 4.2% in the last one month. On a technical front, the stock of PAR has a support level of ~$2.1 and a resistance level of ~$3.3. On a TTM basis, the stock of PAR is trading at a P/BV multiple of 6.3x, higher than the industry median (Healthcare) of 4.4x, and thus seems overvalued. Considering the current trading levels, volatile market conditions, negative operating cash flow and key investment risks, we suggest investors to wait for a better entry level and give an ‘Expensive’ rating on the stock at the current market price of $2.94, down by 2.001% on 27 November 2020.

Starpharma Holdings Limited

Quarterly Update (For the Period Ended 30 September 2020): Starpharma Holdings Limited (ASX: SPL) is a bio-technology company, which is engaged in the development of dendrimer technology for pharmaceutical, life sciences, and other applications. As on 27 November 2020, the market capitalization of the company stood at ~$527.81 million. During the quarter ended 30 September 2020, the company completed the key development activities for SPL7013 COVID-19 nasal spray and has developed and patented an improved version of Gilead’s remdesivir, DEP® remdesivir. This was recently approved by the FDA for the treatment of COVID-19 patients with severe disease. At the end of the quarter, the company used $4.71 million from operating activities and reported a cash balance of $24.9 million.

Cash Flows from Operating Activities (Source: Company Reports)

SPL7013 Shows Potent Antiviral Activity in RSV: The company has recently completed additional testing showing the potent antiviral activity of SPL7013 against the human respiratory syncytial virus. The company is also testing SPL7013 against other respiratory viruses and expects to launch VIRALEZE™ in Europe in 1H21.

Stock Recommendation: Notwithstanding the challenges of the pandemic, SPL continued to expand its global footprint with launches in Europe and Asia. As per ASX, the stock of SPL is inclined towards its 52-week high of $1.95 but retains potential for further growth. On a technical front, the stock of SPL has a support level of ~$1.0 and a resistance level of ~$1.5. Considering the current trading levels, decent returns in the past three months, expansion of global footprint and key investment risks, we recommend a ‘Hold’ rating on the stock at the current market price of $1.28, down by 1.539% on 27 November 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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