Fisher & Paykel Healthcare Corporation Limited
FPH Details
Product Launch in the US: Fisher & Paykel Healthcare Corporation Limited (ASX: FPH) designs, manufactures, and sells products for usage in acute and chronic respiratory care, surgery, and the treatment of obstructive sleep apnea. As per a recent update, the company has announced the launch of F&P Visairo, which is a hospital under-nose mask for non-invasive ventilation, in the US market. The product allows for bridge-free non-invasive ventilation and eliminates pressure from the bridge of the nose and clears the way for an open field of vision.
H1FY22 Results Update:
The company has recently updated about its performance in the first half of FY22 and has demonstrated resilient performance during the period when compared to pcp when demand was high due to COVID-19 surge.
- The operating revenue declined by 2% on pcp to NZ$900 million in Q1FY22. Operating revenue from Hospitals declined by 2% on pcp to NZ$670.2 million.
- NPAT decreased by 2% on pcp to NZ$221.8 million during the period.
- Hospital operating revenue declined by ~2% year over year to NZ$670.2 million in 1HFY22.
- The company declared an interim dividend of NZD 0.17 in H1FY22, compared to NZD 0.16 in the pcp, with a payment date of 15 December 2021.
- The company exited the period with total cash and investments balance of NZ$288.4 million.
FY21 Performance Update:
- The company delivered decent performance during the year and reported operating revenue of NZ$1.97 billion, reflecting an increase of 56% on FY20. Sales have been driven by the Hospital product group, which comprises of its Optiflow and Airvo systems used to deliver nasal high flow therapy.
- Hospital operating revenue grew by ~87% to NZ$1.50 billion in FY21.
- NPAT also grew by ~82% to NZ$524 million in FY21.
- Investment in R&D stood at ~7% of revenue at NZ$136.7 million during the year.
- There has been an increase of ~42% in final dividend to 22 cps.
Revenue Trend (Source: Analysis by Kalkine Group)
Key Risks: The company has experienced high intensity of sales of its products during the COVID-19 peak during FY21 period. Therefore, it is faced with the risk of sales normalisation going forward, once the COVID-19 cases subside.
Outlook: The company expects its consumable revenues to be lower in H2FY22, owing to peak COVID-19 hospitalisations in North America and most European countries in the prior period.
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: As per ASX, the stock of FPH is trading above its 52-weeks’ average levels of $25.250-$34.330. The stock of FPH gave a positive return of ~19.44% in the past nine months. The stock has support level of $30.45 and resistance level of $33.31. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with a correction of high single-digit (in percentage terms). The company might trade at a slight premium to its peers, considering the resilient financial performance and decent balance sheet, etc. For the purpose of valuation, few peers like Resmed Inc (ASX: RMD), Cochlear Ltd (ASX: COH), CSL Ltd (ASX: CSL) and others have been considered. Considering the current high trading levels, recent rally in the stock price, expected correction in valuation and the key risks associated with the business, we suggest investors to book profits and give a ‘Sell’ rating on the stock at the current market price of $33.01, as on November 25, 2021, 10:32 AM (GMT+10), Sydney, Eastern Australia).
FPH Daily Technical Chart, Data Source: REFINITIV
Quantum Health Group Limited
QTM Details
Merger News: Quantum Health Group Limited (ASX: QTM) is a healthcare company and is engaged in the distribution of state-of-the-art medical imaging, patient treatment, and equipment services in Radiology, Oncology and Women’s Healthcare. As per a recent update on 8 November 2021, the company has announced that Paragon Care and Quantum have entered into a scheme implementation deed to combine the two companies through an all-scrip transaction.
- The merger will be implemented through a Quantum scheme of arrangement, and Paragon Care will be the ongoing ASX listed entity.
- The shareholders of Quantum will receive 0.243 Paragon Care shares for each Quantum share held at the scheme record date.
- The merged entity will create business synergy with geographical expansion across the Asia Pacific region, with proforma FY21 revenues of $291 million and EBITDA of $37 million.
FY21 Performance Update:
- The company has reported revenues of $55.67 million in FY21, compared to revenues of $59.39 million in FY20.
- EBITDA improved to $10.74 million in FY21, compared to $9.33 million in FY20 owing to higher ongoing service revenues and gross profit margin.
- NPAT grew by over 20% to $7.71 million in FY21, compared to $6.41 million in FY20.
Revenue Trend (Source: Analysis by Kalkine Group)
Key Risks: The company’s line of business makes it prone to stiff competition from peers in the same space. It is also faced with business integration risks with Paragon if the merger fructifies.
Outlook: If the merger proposal with Paragon Care is implemented, it will be owned ~56.17% by Paragon Care shareholders and ~43.83% by Quantum shareholders. It is expected that the shareholders of Quantum will vote on the scheme in late January 2022. If the scheme is approved by majority shareholders & the Court, the Scheme is expected to be implemented in February 2022 subject to fulfilment of conditions.
Stock Recommendation: The stock of QTM gave a positive return of ~10% in the past three months. The stock is currently trading lower than the 52-weeks’ average price level band of ~$0.044 -$0.105. On a TTM basis, the stock of QTM is trading at an EV/Sales multiple of 1.3x, lower than the industry median (Healthcare Equipment & Supplies) of 9.5x, and thus seems undervalued. Considering the current trading levels, valuation on TTM basis, merger proposal with Paragon Care, expected synergy from the merged entity, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.066, up by ~1.538% as of 25 November 2021.
QTM 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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