Aroa Biosurgery Limited

ARX Details

Large Total Addressable Market: Aroa Biosurgery Limited (ASX: ARX) is engaged in the designing and selling of regenerative healing products. As on 17 September 2020, the market capitalization of the company stood at ~$393.1 million.

Decent Recovery From COVID-19 Pandemic: The company has witnessed a recovery in its sales which were impacted by the COVID-19 pandemic, which has exceeded its internal expectations, with CY20 YTD product revenue at the end of August only 9% lower than the same stage in CY2019. With the ease in restrictions, sales are expected to strengthen in the United States because of improving momentum with all products and increased penetration within existing accounts. The company has a large addressable market of over US$1.5 billion.

Decent Financial Performance: During FY20, product revenue of the company stood at NZ$22 million and was EBITDA positive despite the significant market uncertainty. The company has a gross margin of over 70% wherein new and high margin products are likely to contribute to growth margin expansion.

FY20 Financial Highlights (Source: Company Reports)

Outlook: The company is well-positioned to execute on its strategy over the coming years and deliver growth in the long run.

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

EV/Sales 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 working on improving its investment in Sales and Marketing for future growth and retains modest capital expenditure to date with existing manufacturing capacity. It seems well-positioned to continue its growth trajectory. As per ASX, the stock of ARX is inclined towards its 52-weeks’ low level of A$1.225, proffering a decent opportunity for accumulation. On the technical analysis front, the stock of ARX has a support level of ~A$1.257 and a resistance level of ~A$1.472. We have valued the stock using the EV/Sales multiple based illustrative relative valuation method and arrived at a target upside of lower double-digit (in percentage terms). Considering the attractive trading levels, decent financial position despite the COVID-19 crisis and modest long-term outlook, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of A$1.360, up by 3.817% on 17 September 2020.

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

Rhinomed Limited

RNO Details

Decent Increase in Top-Line: Rhinomed Limited (ASX: RNO) is engaged in the licensing, distribution, and manufacturing of pharmaceutical and healthcare products. As on 17 September 2020, the market capitalisation of the company stood at ~$30.46 million.

Development of New Nasal Swab: The company is developing a new nasal swab that can collect samples from the nose to test for the presence of influenza and coronavirus strains. The new nasal swab is less invasive and unique, which is likely to reduce the risk of infection.

FY20 Financial Highlights (For the Period ended 30 June 2020): During FY20, the company remained focused on increasing its overall footprint through high-value grocery and retail pharmacy networks. During the year, it reported a decent increase of 8.5% in revenues to $3.56 million. In the same time span, RNO reported a healthy balance sheet with cash reserves of $7.75 million and net assets of $10.85 million. The company used $5.74 million of cash from operating activities and reported a net loss of $7.26 million.

FY20 Financial Highlights (Source: Company Reports)

Outlook: The distribution network of the company is increasing amongst the existing key accounts and is leveraging its significant intellectual property to create high value products. The company is also focused on delivering high margin revenue growth. The Company will hold its AGM on 27 November 2020.

Stock Recommendation: Despite the lockdowns across the key markets of the company, it was able to deliver on its key objectives of reaching 20,000 stores. It remains on track to deliver two new products to market in the coming year. As per ASX, the stock of RNO gave a return of 9.09% in the past six months and a return of 42.86% in the last one month. The stock is inclined towards its 52-weeks’ low level, proffering a decent opportunity for the investors to enter the market. On the technical analysis front, the stock of RNO has a support level of ~$0.1 and a resistance level of ~$0.209. On a TTM basis, the stock of RNO is trading at an EV/Sales multiple of 9.4x, lower than the industry median (Healthcare) of 11.5x. Considering the current trading levels, attractive returns in the past one month, decent long term outlook and healthy balance sheet, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of ~$0.130, up by 8.33% on 17 September 2020.

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

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