Ramsay Health Care Limited

RHC Details

Update on Operating Restrictions: Ramsay Health Care Limited (ASX: RHC) owns and operates health care services in Australia and other parts of the world. As per a recent update, the company has noted the announcement made by the NSW Ministry of Health.

• The ministry has announced that it has lifted restrictions on non-urgent elective surgery at all facilities in the Greater Sydney region, effective 25 October 2021.
• RHC has also made note of the changes made by the Victorian Department of Health and Human Services to the surgical restrictions imposed. As per the Department, only Category 1 and Category 2 elective surgeries have been allowed across hospitals and day surgeries in Melbourne.

FY21 Results Update:

• The company reported total revenues and other income of $13.33 billion in FY21, compared to $12.42 billion in the prior year.
• The net profit stood at $511.5 million in FY21, an uptick from a level of $309.2 million reported in FY20. The earnings were driven by strong growth in surgical admissions in the pre-lock down restriction phase.
• It ended the period with cash & equivalents of $1.004 billion as of 30 June 2021.
• Despite the impact of COVID-19 on its business, the board declared a fully franked final dividend of 103 cents per share and paid on 30 September 2021.

Revenue Highlights (Source: Analysis by Kalkine Group)

Key Risks: The onset of COVID-19 pandemic is having a profound impact on the company's business and the uncertainty of lockdown & restrictions still prevails.

Outlook: The company on self-analysis of the business, has decided to increase its development pipeline in FY22 and expects investments to be on the higher side over the next few years. As per the management, its FY22 results will be impacted by the response to the COVID-19 pandemic and success of the vaccination programs. However, it anticipates volumes of surgical backlogs and demand for non-surgical services to continue going forward.

Valuation Methodology: P/E 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: The stock of RHC gave a positive return of ~14.60% in the past one year and a positive return of ~6.56% in the past one month. The stock is currently trading above the 52-weeks’ average price level band of $58.610 - $72.990. The stock has a support level of ~$67.68 and a resistance level of ~$73.67. The stock has been valued using a P/E based illustrative relative valuation method and arrived at a target price with a correction of high single-digit (in % terms). The company might trade at a slight discount than its peers’ average P/E multiple, considering the uncertain trading conditions, lingering impacts of COVID-19 pandemic, and an increase in debt-to-equity ratio. For this purpose of valuation, few peers like Estia Health Ltd (ASX: EHE), Japara Healthcare Ltd (ASX: JHC), Capitol Health Ltd (ASX: CAJ), and others have been considered. Considering the high trading levels, recent rally in stock price, valuation, increase in leverage levels and key business risks, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the current market price of $72.99 on 3 November 2021, 11:50 AM (GMT+10), Sydney, Eastern Australia.

RHC Daily Technical Chart, Data Source: REFINITIV  

Paradigm Biopharmaceuticals Limited

PAR Details

Clearance from FDA: Paradigm Biopharmaceuticals Limited (ASX: PAR) is a clinical-stage biopharma company and is focused on repurposing existing molecules for new indications with unmet clinical needs. As per a recent new release, the company has reported that the US FDA has approved its IND application to proceed with a phase 3 trial to evaluate injectable pentosan polysulfate sodium for the treatment of pain associated with knee osteoarthritis.

September 2021 Quarterly Update:

• During the period, the company’s preclinical data was peer-reviewed and published in the scientific journal, PLoS ONE.
• PAR received the approval of Australian ethics for its pivotal Phase 3 clinical trial, PARA_OA_002 in order to evaluate the treatment effects of PPS against placebo on participants with knee osteoarthritis pain.
• It reported cash outflows of $6.31 million during the quarter.
• R&D expenses stood at $6.18 million, compared to $8.04 million reported in the previous quarter.
• The company ended the period with a cash balance of $64.8 million as of 30 September 2021.

Trend in Revenue (Source: Analysis by Kalkine Group)

Key Risks: The company is in its clinical phase of operations and requires regulatory approvals for the advancement of its product candidates. Any adverse decision from the regulatory bodies might impact its operations. 

Outlook: The company is ready to commence its Phase 3 clinical trial after the receipt of clearance to proceed by the FDA. The pre-clinical proof -of-concept study for PAR’s pipeline indication in chronic heart failure has been completed, and the company expects to provide some analysis and commentary on the studies in Q4CY2021.

Stock Recommendation: The stock of PAR gave a positive return of ~37.93% in the past one week and a positive return of ~35.41% in the past three months. The stock is currently trading above the 52-weeks’ average price level band of $1.760 - $3.190. The stock has a support level of ~$2.29 and a resistance level of ~$2.79. On a TTM basis, the stock of PAR is trading at a P/BV multiple of 6x, higher than the industry median (Healthcare) of 3.8x, and thus seems overvalued. Considering the high trading levels, recent rally in stock price, valuation on TTM basis, negative profitability, and key business risks, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the current market price of $2.65 on 3 November 2021, 12.23 PM (GMT+10), Sydney, Eastern Australia.

PAR Daily Technical Chart, Data Source: REFINITIV  

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

Note 2: 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.

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