Stocks’ Details

Estia Health Limited

Change of Director’s Interest: Estia Health Limited (ASX: EHE) provides medical care facilities in residential aged care homes in Australia. It operates 69 residential aged care homes. Recently, the company’s director, Karen Penrose, has undergone a change of interest and acquired 4,500 shares at a considered price of $2.365 per share.

FY21 Financial Performance:

• The company has recorded an improved total operating revenue and grants of $612.05 million in FY21, up 5.5% growth on the previous year. This reflects an increase in government temporary funding and grants.
• In FY21, it reported a decline in EBITDA (Mature homes) by 24.6% to $62.45 million vs $82.78 million in FY20, impacted due to increased employee benefit expenses and COVID-19 incremental expense.
• The company has incurred a profit of $6.0 million in FY21 against a loss of $116.90 million in FY20, driven by a decline in impairment expenses.
• At the end of the period, the company's cash position stood at $33.42 million as of 30 June 2021 vs $30.60 million as of 30 June 2020.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Impact of COVID-19 pandemic- The company has a significant effect on the residents and employees due to the COVID-19 pandemic. Therefore, it requires to educate people in infection prevention.
• Liquidity Risk- The company is exposed to liquidity risk to increase capacity, meet its financial obligations, operational activity and mitigate the working capital risks.

Outlook:

• The company continues to strengthen governance and focuses on delivering improved clinical policy and procedures for better resident care outcomes.
• It is actively pursuing an opportunity to collaborate with Primary Health Networks (PHNs) for government recognition and support until 2024.
• The company has partnered with HICMR to improve and meet the highest standards, and it will continue to audit during FY22.
• It targets to meet 100% from the Aged Care Quality and Safety Commission assessment visits by 2024, which might enhance the company's goodwill.
• The company will commence constructing two new homes at Aberglasslyn and St Ives, both in New South Wales, in FY22.

Valuation Methodology: EV/Sales 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 company has paid a fully franked dividend of $0.023 per shares on 17 September 2021. The stock of EHE is trading below its average 52-weeks' levels of $1.275-$2.750. The stock of EHE gave a negative return of ~7.72% in the past three months and a positive return of ~46.75% in the past one year. The stock has been valued using EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount to its peers, considering the impact of COVID-19 pandemic and a lower asset turnover ratio. For the purpose of valuation, peers such as Regis Healthcare Ltd (ASX: REG), Japara Healthcare Ltd (ASX: JHC), Ramsay Health Care Ltd (ASX: RHC) and others have been considered. Considering the current trading levels, indicative upside in valuation, improved financial performance, the opening of new homes, strategic collaborations, optimistic outlook, and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $2.130,down by ~0.931% as on 12 October 2021.

EHE Daily Technical Chart, Data Source: REFINITIV

Mayne Pharma Group Limited

FDA Update on NUVARING: Mayne Pharma Group Limited (ASX: MYX) manufactures and commercialises branded and generic pharmaceutical products globally. As per a recent announcement, the US Food and Drug Administration (FDA) has provided a complete response letter (CRL) for the company's abbreviated new drug application (ANDA) for its generic version of NUVARING. As a result, it expects to attract US$670 million of an addressable market with its two approved independent generics. The company has recently announced the appointed Carolyn Myers to serve as a new director.

FY21 Financial Performance:

• The company has posted a reported revenue of $8 million in FY21, down by 12% from $457.0 million in FY20. Notably, Metrics Control Services has delivered an improved revenue by 10% to US$61.3 million during the year.
• It has reported a decline in EBITDA performance by 18% to $66.1 million in FY21, compared to $80.6 million on a pcp basis, due to weakening USD and ongoing challenges in the US retail generic sector.
• Moreover, the company has increased its net loss to $208.4 million in FY21 against a loss of $92.8 million in FY20, driven by the intangible asset impairments which were incurred in the 1HFY21.
• The company's cash position stood at $0 million and net debt of $248.8 million as of 30 June 2021.

Borrowings (Source: Analysis by Kalkine Group)

Key Risks:

• Regulatory Risk- To distribute its product, the company requires certain approvals, and any delays could impact its financial operations.
• Foreign Currency Risk- The company’s operations are exposed to the global market, due to which the company could face the foreign currency risk.

Outlook:

• The company anticipates strong growth in commercial manufacturing and expects Metrics Contract Services (MCS) to file NDAs in FY22.
• It expects to commercialise NEXTSTELLIS in the US and Australia successfully and, further, target to launch a dozen dermatology and women's health products into the US market with IQVIA sales of US$1.5 billion.
• It focuses on accelerating the growth of Metrics Contract Services and enhancing its international services with continued cost optimisation.
• The company targets to launch up to 11 dermatology products which target US$500 million of addressable markets with its four new supply agreements.

Valuation Methodology: EV/Sales 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: Recently, the company has collaborated with a private label supply and distribution agreement with UpsherSmith Laboratories, LLC to distribute in non-retail channels isotretinoin capsules into the US market. The stock of MYX is trading below its average 52-weeks' levels of $0.260-$0.590. The stock of MYX gave a negative return of ~2.45% in the past one week and a negative return of ~14.99% in the past nine months. The stock has been valued using EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount to its peers, considering the uncertainty of the COVID-19 pandemic and a negative net margin. For the purpose of valuation, peers such as AFT Pharmaceuticals Ltd (ASX: AFP), Probiotic Ltd (ASX: PBP), Althea Group Holdings Ltd (ASX: AGH) and others have been considered. Considering the current trading levels, indicative upside in valuation, double-digit growth in USD terms in MCS, distribution agreement, optimistic outlook, and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $0.298, as on 12 October 2021, 11:05 AM (GMT+10), Sydney, Eastern Australia.

MYX Daily Technical Chart, Data Source: REFINITIV 

Opthea Limited

Business Update: Opthea Limited (ASX: OPT) is a biopharmaceutical company that develops novel therapies to treat highly prevalent and progressive retinal diseases. As per a recent announcement, the company has recruited patients to conduct its Pivotal Phase 3 ShORe and COAST Wet AMD Trials of OPT-302 in Europe. In addition, the FDA has awarded an OPT-302 Fast Track designation and received guidance from the FDA and EMA, which will support future filings for global marketing approval and commercial launches in the U.S. and Europe.

Cease its Substantial Holding: Bank of America Corporation and its related bodies, the substantial holder has ceased its holding in the company. Further, it decreases its shares to 18,318,561 with a voting power of 5.22%.

FY21 Financial Performance:

• The Group has recorded an improved revenue of US$68,613 in FY21, compared to US$59,061 in FY20, reflecting a strategic strengthening in clinical and commercialisation.
• In FY21, the company has reported an increase in receivable to US$565,286 vs US$195,573 on a pcp basis.
• However, there is an increase in a net loss to US$45.34 million in FY21 against a loss of US$11.12 million, impacted due to a rise in net foreign exchange loss.
• At the end of the period, the company’s cash position stood at US$118.19 million as of 30 June 2021 vs US$$42.65 million as of 30 June 2020.

Total Assets (Source: Analysis by Kalkine Group)

Key Risks:

• Impact of COVID-19 pandemic- The company caused a disruption in its clinical trial during the COVID-19 pandemic, and delays in trials could have an impact on its operations going forward.
• Interest Rate Risk- The company is exposed to fluctuations in interest rates that might impact its earnings and cash flow.

Outlook:

• The management focuses on recapitalising, advancing the clinical trial, and creating better company visibility in the international market.
• The company continues to enrol more patients and ensure to execute the pivotal registrational program with an objective to report Phase 3 topline data in 2H CY 2023.
• It continues to advance its clinical development of OPT-302 and progress towards effective manufacturing, commercialisation, and regulatory engagement.

Valuation Methodology: Price/Book 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 OPT is trading below its average 52-weeks' levels of $1.210-$3.280. The stock of OPT gave a negative return of ~1.53% in the past one week and a negative return of ~36.63% in the past nine months. The stock has been valued using Price/Book Value multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium to its peers, considering the economic recovery and increase in marketing expenses. For the purpose of valuation, peers such as Integral Diagnostics Ltd (ASX: IDX), Mesoblast Ltd (ASX: MSB), AVITA Medical Inc (ASX: AVH) and others have been considered. Considering the current trading levels, indicative upside in valuation, strategic commercialisation, awarded an OPT-302 Fast Track designation, optimistic outlook, and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $1.255, as on 12 October 2021, 1:05 PM (GMT+10), Sydney, Eastern Australia.

OPT Daily Technical Chart, Data Source: REFINITIV

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

Note 2: Investment decisions 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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