Stocks’ Details

Volpara Health Technologies Limited

VHT Enters a 5-Year Contract with BreastScreen Queensland: Volpara Health Technologies Limited (ASX: VHT) is a developer of healthcare platform for the detection and diagnosis of breast cancer in patients. On 22 December 2020, VHT announced entering into a 5-year SaaS agreement with BreastScreen Queensland (BSQ) for the use of Volpara Enterprise platform (VEP) to 11 BSQ services in Brisbane and other locations. The contract terms have been held private. It is initially for 5 years and will be potentially expanded to Volpara Density and VolparaLIve platforms through subsequent contracts. Though VHT has already started the roll out of Volpara Enterprise to BSQ, it plans to go-live in early 2021. In another similar news update, VHT confirmed a major agreement renewal and extension for 5 years in Q2FY21 with the present client - US Radiology Group, a physician-led radiology group.

1HFY21 Result Highlights: The revenue of the health-technology player rose by 38% on pcp to NZ$9.46 million in 1HFY21. The revenue from subscription increased by 71% on pcp to NZ$8.8 million during 1H21. The gross profit registered went up by 43%, reflecting a 92% gross margin on NZ$8.68 million for 1H21. The company reported a net loss after tax of NZ$8.9 million for 1H21. The cash at bank balance at the end of Q2FY21 was NZ$64.3 million.

Revenue Trend (Source: Company Reports)

Outlook: The present roll out of Volpara Enterprise to BSQ will go-live in early 2021. It has plans to roll out refreshed branding over the upcoming period and grow multiple product sales into the present customer base.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of VHT gave a positive return of 3.84% in the past three months and a negative return of 2.87% in the past six months. The stock is currently trading lower than the average 52-weeks price level band, offering a decent opportunity for accumulation. The stock of VHT has a support level of ~$1.214 and a resistance level of ~$1.51. We have valued the stock using Enterprise Value to Sales multiple based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). For the purpose, we have taken peers like Nanosonics Ltd (ASX: NAN), Telix Pharmaceuticals Ltd (ASX: TLX), Cochlear Ltd (ASX: COH), etc. Considering the current trading levels, decent 1HFY21 results, growth of new customers for VHT’s platform, valuation, and decent outlook, we give a ‘Buy’ rating on the stock at the current market price of $1.380, down by 0.362% on 23^rd December 2020.

Japara Healthcare Limited

Business Update of Q1FY21: Japara Healthcare Limited (ASX: JHC) offers and develops residential aged care in 5 Australian states. It has 51 homes across 5 states as on 30 June 2020. As on 23^rd December 2020, the market capitalization of the company stood at ~$167.02 million. During Q1FY21, the revenue per resident was in line with the company’s expectations but due to the lower occupancy levels the overall revenue was impacted. From 1 July 2020 to 30 September 2020, the company generated Net Refundable Accommodation Deposit (RAD) and Independent Living Unit (ILU) inflows of $2.3 million. This included $2.6 million of net outflows from the shutdown of Japara Wyong. Based on the residents in June 2020, JHC received a sum of $4.5 million from the Federal Government to help providers with higher costs during October. Higher additional and incremental costs were incurred at the 5 outbreak homes mainly due to the provision of PPE kits to the tune of $6 million and $2 million respectively during Q1FY21. Portfolio occupancy stood at 87.6% with 3,902 occupied spaces as on 25 October 2020. The occupancy rate for Victorian homes was 85.4% while it averaged around 92.5% in other states.

FY20 Results Highlights: The revenue and other income stood at $427.5 million for FY20, up from $399.7 million in FY19.  The company reported a net loss to the members amounting to $294.7 million for FY20 versus net profit of $14.02 million in FY19.

FY20, Income Statement Highlights (Source: Company Reports)

Outlook: Given the COVID-19 uncertainty, the company has put greenfield and other construction projects on hold. Currently, it has opened a new place besides its Albury home. It has 2 greenfield developments at Newport and Belrose under construction that are slated to open in February 2021 and May 2021, respectively. In February 2021, JHC is expecting the release of the Final Report from the Royal Commission into Aged Care Quality and Safety to seek direction, support, and recommendations for suitable funding to offer high quality care. The company recently announced that it will declare results of 1HFY21 on 24^th February 2021.

Valuation Methodology: Price to Cash Flows Multiple Based Relative Valuation (Illustrative)

P/CF 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 stock of JHC gave a positive return of 74.64% in the past three months and a positive return of 16.98% in the past six months. The stock is trading lower than the average 52-weeks price level band, offering a decent opportunity for accumulation. The stock of JHC has a support level of ~$0.426 and a resistance level of ~$0.728.  We have valued the stock using the Price to Cash Flow based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). For the purpose, we have taken peers like Regis Healthcare Ltd (ASX: REG), Estia Health Limited (ASX: EHE), Virtus Health Limited (ASX: VRT) and others. Considering the current trading levels, rising top line, consistent operating cash flows, modest outlook and greenfield ventures planned for FY21, and valuation we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.615, down by 1.601% on 23^rd December 2020.

Compumedics Limited

Trading Update: Compumedics Limited (ASX: CMP) is engaged in the development of medical devices for diagnosing sleep disorders, monitoring neurological issues & blood flow through brain, and for brain research. It operates in Australia, Japan, China, and the US. The company has Diagnostic Medical Devices (core business) and Medical Innovation as its 2 key segments. As on 23^rd December 2020, the market capitalization of the company stood at ~$80.6 million. At the recently held AGM, the company’s Management confirmed that CMP’s current trading is in sync with the pre-COVID-19 levels. Currently, the company is working on a $1.5 million order for non-invasive ventilators in line with state government’s procurement strategy for COVID-19. During 1H21, Compumedics bagged a $1 million US contract for its OnSight ambulatory EEG system. The company is looking to expand the market for the MEG business. During FY20, the company had reported revenue of $35.1 million, down by 16% on pcp, because of COVID-19 restrictions globally. The company’s underlying NPAT stood at $1.8 million in FY20.

FY20 Results (Source: Company Reports)

Outlook: The company is planning the installation of II & III phase for its Neuro, brain imaging solution for the MEG business in the USA in early 2021. It is planning to transition to a complete sale system and looking for users/avenues. Similarly, it is looking for sales avenues above $1.5 million for its Nexus-360 sleep diagnostic solution and further developing Somfit technology. CMP plans to sell a line of new ambulatory devices for 2021 and continues to focus on neurology for core business growth in Asia, China, and the US.  For H1FY21, the company its new sales orders to be over $18 million.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

EV/EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of CMP gave a positive return of 18.98% in the past one month and a positive return of 9.30% in the past six months. The stock is inclined towards its 52-weeks’ low level of $0.250, offering a decent opportunity for accumulation. The stock of CMP has a support level of ~$0.432 and a resistance level of ~$0.523. We have valued the stock using an EV/EBITDA multiple based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). For the purpose, we have taken peers like Palla Pharma Ltd (ASX: PAL), Somnomed Limited (ASX: SOM), Universal Biosensors Inc (ASX: UBI) and others. Considering the current trading levels, decent trading performance in recent months, modest outlook, and valuation, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.485, up by 6.593% on 23^rd December 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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