Australian Pharmaceutical Industries Limited

API Details

Results of 1HFY21 Announced: Australian Pharmaceutical Industries Limited (ASX: API) is engaged in distributing medical, pharmaceutical, beauty, health, and lifestyle products and retail services to pharmacies in Australia (ANZ). API also manufactures and distributes pharmaceutical medicines and consumer toiletries in New Zealand (NZ). As of 23 April 2021, the market capitalisation of the company stood at ~$660.15 million. The company reported revenue of $2 billion, down by 2.6% YoY due to the impact of the pandemic restrictions spanning NZ and ANZ during 1HFY21. It reported an NPAT of $15.9 million, down by 29.3% YoY during 1HFY21. The Board declared a fully franked interim dividend of 1.5 cents per share payable on 4 June 2021, a 47% pay-out of the NPAT. API paid a fully franked final dividend of 2 cents per share for FY20 in December 2020. API held a cash and cash equivalents balance of $55.27 million as of 28 February 2021.  

API’s Clear Skincare business reported revenue growth of 11% YoY to $27.3 million. During 1HFY21, the Consumer Brands division expanded its private label and over the counter product range. During the period, API invested $50.5 million in retail digital assets and opened new Clear Skincare clinics.

Key Highlights (Source: Company Reports)

Key Risks: The company faces the risk of growth of its network of pharmacies, increase in production and sales volume, uncertainty due to COVID-19 resurgence, and global supply chain disruptions. 

Outlook: Given no further major economic setbacks, API forecasts FY21 profit to be broadly in sync with the current market expectation. API will continue to make digital investments in Priceline Pharmacy and Clear Skincare divisions. It is advancing with the construction of the NSW distribution centre on time and within budget.

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

Data Source: Refinitiv, Thomson Reuters, 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 API gave a positive return of ~21.59% in the past six months and a positive return of ~15.62% in the past nine months. The stock is currently trading higher than the 52-weeks’ average price level of $0.995-$1.375. The stock of API has a support level of ~$1.252 and a resistance level of ~$1.338. We have valued the stock using the EV to sales multiple based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at some discount than its peer median, considering its lower revenue, decline in NPAT for 1HFY21, increase in net debt position, risks associated with the pandemic restrictions and supply chain challenges in the operating markets. For this purpose, we have taken peers like Sigma Healthcare Limited (ASX: SIG), Paragon Care Limited (ASX: PGC), Compumedics Limited (ASX: CMP).  Considering the reduced CODB, faster cash cycle, and growth of Clear Skincare division in 1HFY21, enhancement of shareholder’s value, decent outlook, continued expansion in digital retail assets, and valuation, we give a ‘Hold’ rating on the stock at the current market price of $1.295, down by ~3.359% on 23 April 2021.

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

ImpediMed Limited

IPD Details

SOZO® Heart Failure Index Clearance, USFDA: Impedimed Limited (ASX: IPD) is a medical technology company utilising non-invasive bioimpedance spectroscopy (BIS) technology to capture data maximizing patient’s health. As of 23 April 2021, the market capitalisation of the company stood at ~$186.45 million. On 22 April 2021, IPD announced the approval of its device (SOZO®) by USFDA 510(k) to incorporate (HF-DexTM), a heart failure index, as a monitoring tool for patients surviving with heart failure.

Exercise of Options: On 7 April 2021, IPD notified the results of the final Entitlement Offer Option Exercise and the lapse of all remaining Entitlement Offer Options. IPD received $8.8 million in exercise of options for Q3FY21. In total, $17.9 million funds out of a feasible $18.2 million in an Option exercise was received by IPD. This amount is for the four exercise periods, amounting to 98% exercise rate.

Release of Preliminary Q3FY21 Results: IPD has notified the Q3FY21 net operating cash outflow to be less than $3.5 million as compared to the forecasted $4 million net operating cash outflow declared on 28 January 2021. It provided a $23.9 million estimates of its cash balance as of 31 March 2021, comprising the March Option exercise funds.

1HFY21 Financial Highlights: The company reported the highest revenue of $3.6 million, up by 26% YoY due to the record revenue registered for SOZO® (up 54% YoY) for 1HFY21. It also reported the highest revenue for SOZO SaaS to $2.3 million, up by 48% YoY during 1HFY21. IPD has a contracted revenue pipeline of $14.8 million, up by 54% YoY for 1HFY21. SOZO® has been selected by AstraZeneca for two phase II trials to measure fluid volume in patients with kidney disease and heart failure.

1HFY21 Key Highlights (Source: Company Reports)

Key Risks: IPD is exposed to the risk of technological innovations, pandemic restrictions globally, growth and availability of patients and data, technological glitches on the platform.  

Outlook: IPD remains on track to supply 200 SOZO devices to AstraZeneca for its second Phase II trial in patients suffering from chronic kidney pain issues. In total, IPD will lease ~375 SOZO devices under the two studies and estimates revenue generation of greater than $4.5 million.

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

Data Source: Refinitiv, Thomson Reuters, 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 IPD gave a positive return of 48.14% in the past six months and a positive return of 60% in the past nine months. The stock is currently trading slightly higher than the 52-weeks’ average price level of $0.037-$0.185. The stock of IPD has a support level of ~$0.0512 and a resistance level of ~$0.1791. We have valued the stock using the EV to sales multiple based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a some premium than its peer median, decent liquidity position, record revenue growth and record increase in patients for 1HFY21. Considering the current trading levels, record growth of SOZO® revenue, improving net operating cash flows in 1HFY21, trial with AstraZeneca, valuation, and key risks associated with the business, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.120, down by ~4.001% on 23 April 2021.

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

Note: 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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