AFT Pharmaceuticals Limited

AFP Details

Regulatory Approval by FDA: AFT Pharmaceuticals Limited (ASX: AFP) develops, manufactures, and commercialises pharmaceutical products.

• As per a recent announcement, the company has achieved regulatory approval from the US Food and Drug Administration (FDA) for its pain relief medicine, Maxigesic IV®. The acceptance of the New Drug Application (NDA) for Maxigesic IV®, was filed in August 2021.
• Notably, the US regulator filing triggers milestone payment in aggregate of US$3.6 million to AFP from its US licensee Hikma Pharmaceuticals, which is expected to be recognised in 1HFY22.
• The NDA acceptance is a key step towards providing innovations in non-opioid, post-operative pain management, which is accountable for several fatalities in the U.S. each year.
• The company is expanding its geographical footprint for Maxigesic IV®, which is now registered in 28 countries and released in five countries. This also depicts a key milestone towards AFP’s goal of selling the medicine in more than 50 countries by the end of FY22, up from 43 at the end of the FY21.

Digging into FY21 Results:

• Rise in Total Operating Revenues & Underlying Profit After Tax: In FY21, the company’s total revenues rose by 7% year over year and came in at ~NZ$113.1 million, owing to expansion across business segments, growth in the key Australian market and a rise in product sales to the Rest of the World. In FY21, the company’s underlying profit after tax more than doubled year over year to NZ$7.8 million.
• Balance Sheet Details: At the end of FY21, total assets came in at NZ$105 million, up from NZ$87.1 million at the end of FY20, owing to NZ$10.9 million boosts in inventories to protect supply disruptions. Net debt at the end of FY21 reduced to NZ$35.2 million from NZ$37.1 million at the end of FY20.
• Capital Raising Program: In FY21, the company raised ~NZ$12 million capital in order to remain well funded to expand the product development and invest higher in expanding its geographical footprints.
  

Profit After Tax Highlights; Analysis by Kalkine Group

Key Risks: The company is exposed to the prevailing global uncertainties related to COVID-19 and other geopolitical tensions. A highly leveraged balance sheet might weigh on the company’s financial performance.

Outlook: AFP is targeting to reduce its net debt by $25 million - $30 million. The company is targeting continuing operating profit between NZ$18–23 million in FY22, depicting a rise of 40.5%-53.43% over FY21. Further, it remains on track to witness continuous future growth opportunities in operating earnings and cashflow, given new product developments, licencing deals, and geographical expansion. The company is set to release its 1HFY22 results on November 18, 2021. 

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 the company went up by ~7.8% in the past one month and ~13.1% in the past one week. Currently, the stock has a 52-week high and low level of $5.25 and $3.64, respectively. The stock has a resistance level of $4.59 and support level of $3.5. The stock of the company has been valued using the P/E multiple-based illustrative relative valuation method and arrived at a target price with a correction of mid-single digit (in % terms). The company might trade at a slight discount compared to its peers, considering the challenging global environment, stringent regulatory requirements, supply chain disruptions, etc. For this purpose of valuation, peers such as Clinuvel Pharmaceuticals Ltd (ASX: CUV), Australian Pharmaceutical Industries Limited (ASX: API), Probiotec Limited (ASX: PBP), and others have been considered. Considering recent rally in the stock price, leveraged balance sheet, indicative downside in the valuation, current trading level, and the other key risks associated with the business, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the current market price of $4.41, as on 1 November 2021, 11:00 AM (GMT+10), Sydney, Eastern Australia.

AFP 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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