Starpharma Holdings Limited

SPL Details

Business Update: Starpharma Holdings Limited (ASX: SPL) is engaged in the research, development and commercialisation of dendrimer products for pharmaceutical and other applications. The market capitalisation of the company as on 03 March 2021 stood at ~$872.98 million. As per a recent update, the company has announced that further antiviral testing of SPL7013 (VIRALEZE) has confirmed that it is active in two additional pandemic coronaviruses- SARS-CoV and MERS-CoV. The product helps in blocking the spike proteins of the given viruses in the same manner as it does for SARS-CoV-2.

H1FY21 Results Update: The company reported receipts of $5.7 million during the period. The net operating cash outflows stood at $5.4 million. There was a significant improvement in the cash position of the company to $70.3 million as on 31 December 2020, from $30.1 million on June 2020. During H1FY21, SPL completed the development of its antiviral nasal spray- VIRALEZE. It reported a loss of $10.4 million during the period, compared to a loss of $5.9 million in H1FY20.

H1FY21 Financial Performance (Source: Company Reports)

Outlook: On 23 February 2021, the company has announced that its product VIRALEZE has been successfully registered for sale in Europe and is scheduled to launch during the first quarter of CY21. It plans to make it initially accessible to consumers through an online platform in the UK and Europe, followed by sale from pharmacies. 

Stock Recommendation: On 12 February 2021, the company signed a research agreement with Merck& Co., Inc (MSD), under which MSD will conduct a preclinical research evaluation of dendrimer-based Antibody Drug Conjugates. As per ASX, the stock of SPL is trading above its average 52-weeks’ levels of $0.615-$2.520. The stock of SPL gave a positive return of ~60.30% in the past three months and a positive return of ~37.70% in the past one month. On a technical analysis front, the stock of SPL has a support level of ~$2.019 and a resistance level of ~$2.241. On a TTM basis, the stock of SPL is trading at a P/BV multiple of 12.2x, higher than the industry median (Pharmaceuticals) of 5.8x. Considering the current high trading levels, recent rally in the stock price in the past few months, a decline in revenue & increase in net loss of the company, and the 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 $2.10 as on 03 March 03 2021.

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

Pacific Smiles Group Limited

PSQ Details

Successful Completion of Placement: Pacific Smiles Group Limited (ASX: PSQ) is engaged in the operation of dental centres. The market capitalisation of the company as on 03 March 2021 stood at ~$445.19 million. As per a recent update, the company has successfully completed a ~$15 million placement round, issuing approximately 5.8 million new shares at the offer price of $2.60 per share. It plans to use the proceeds for the increase in the dental centre rollout to greater than 20 centres per annum.

H1FY21 Results Update: The company delivered decent half-year results with patent fees up by 15.5% to $121.7 million in H1FY21 as compared to the previous corresponding period. The number of dental centres grew by 9.7% to 102. There was significant growth in underlying EBITDA to $21.2 million, an increase of 64.7% on the previous corresponding period. The underlying NPAT stood at $10.4 million. PSQ declared ordinary dividends of 2.4 cents per share for the period. The borrowings were at $3 million as on 31 December 2020, down from $20.5 million during the previous corresponding period.

H1FY21 Financial Performance (Source: Company Reports)

Outlook: The company plans to grow the number of dental centres to more than 250 in the long-term, along with an increase in dental chairs to over 800. It is aiming for an EBITDA to patient fees margin of ~15% and grow its market share over 5% in the future. PSQ expects patient fees growth of 25-30% and EBITDA growth of 35-45% in FY21.

Valuation Methodology: P/CF 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 company has witnessed an uptick in patient fees during H1FY21 due to decent growth in average fees per appointment. As per ASX, the stock of PSQ is trading above its average 52-weeks’ levels of $0.705-$2.950. The stock of PSQ gave a positive return of ~33.66% in the past three months and a positive return of ~3.84% in the past one month. On a technical analysis front, the stock of PSQ has a support level of ~$2.646 and a resistance level of ~$2.899. We have valued the stock using the P/CF 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 might trade at a slight premium to its peer median P/CF (NTM Trading multiple), considering the impressive financial performance and robust outlook. For the purpose, we have taken peers such as Monash IVF Group Limited (ASX: MVF), Japara Healthcare Limited (ASX: JHC), Oceania Healthcare Limited (ASX: OCA) to name a few. Considering the current trading levels, expected upside in valuation, decent financial performance in H1FY21, successful raise of capital and optimistic outlook, we recommend a ‘Hold’ rating on the stock at the current market price of $2.70 as on 03 March 2021.

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

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