OncoSil Medical Ltd

OSL Details

ESOP Shares Cancelled: OncoSil Medical Ltd (ASX: OSL) is an Australian-based medical device company with an emphasis on treating patients with pancreatic and liver cancer. The company, on 11 August 2021, informed about the cancelation of shares that were earlier issued under its Employee Share Plan (ESOP) due to non-fulfilment of vesting criteria as well as owing to the expiry of the loan.

FY21 Key Results Highlights:

• During the year ended 30 June 2021, the company has generated modest inaugural revenue of $213k through the sale of the OncoSil™ device in Australia and New Zealand.
• Further, it has generated income from an R&D tax incentive of $1.08 million compared to $2.76 million in FY20 due to the impact of lower R&D expenses and a higher mix of commercial activities.
• The company has a cash balance of $12.2 million at the end of June 2021.

Other Income Trend (Source: Analysis by Kalkine Group)

Key Risks:

• OSL is yet to report operating revenues and is dependent on incentives to fund its expenses.
• The company’s operations are exposed to the risks associated with Covid-19 uncertainties.
• Further, it is prone to regulatory risks due to its requirements of approval from health regulatory authorities.
• Also, the group’s operations are susceptible to several financial risks that include foreign currency risk, price risk, interest rate risk, credit risk, and liquidity risk.

Outlook: The commencement of first revenues generated through the first commercial sale of its OncoSil device in New Zealand marked a stepping stone towards becoming a revenue-generating medical devices company. The company is making continuous strides towards undertaking the required activities and approvals in Europe post the bagging of CE Mark approval to enable commercialisation. Additionally, it continues to proactively involve with the U.S Food and Drug Administration with respect to the Humanitarian Device Exemption submission.

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 OSL is trading below its average 52-weeks’ levels of $0.046-0.180. The stock of OSL gave a negative return of ~53.33% in the past six months. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at some discount to its peers’ average, considering declining profitability, and negative return ratios. For the purpose of valuation, peers like Anteotech Ltd (ASX: ADO), Genetic Signatures Ltd (ASX: GSS), Trajan Group Holdings Ltd (ASX: TRJ), among others have been considered. Considering the start of revenue generation, along with strides on further commercial sales across different geographies, and the associated business risks, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.048 as on 24 August 2021, 1.22 PM (GMT+10), Sydney, Eastern Australia.

OSL Daily Technical Chart, Data Source: REFINITIV  

Nanosonics Ltd

NAN Details

FY21 Key Results Highlights: Nanosonics Limited (ASX: NAN) is a leading provider of innovative solutions used to prevent the transmission of potentially life-altering infections.

• The company has generated revenue of $103.1 million in FY21 an increase of 3.0% over FY20 and in constant currency, the revenue grew by 12% with significant recovery witnessed in H2FY21 with revenue growth of 39% YoY to $60.0 million.
• The operating profit before tax was reduced to $11.0 million from $12.4 million in the pcp.
• The free cash flow stood at $5.9 million as it generated a free cash flow of $8.3 million in H2FY21 that offsets the net cash outflow of $2.4 million in H1FY21. The company has a decent liquidity position with cash and cash equivalents of $96.0 million at the end of June 2021.

FY21 Revenue Growth (Analysis by Kalkine Group)

Launched New Digital Product Platform: The company has launched a new digital product platform, Nanosonics AuditProTM in June 2021 for the purpose of traceability, reporting, and compliance purpose. Further, it is planning to launch the same product in other key markets throughout FY22.

Key Risks:  

• The company is exposed to the risk of uncertainties associated with COVID-19 that would extend the timeline for adoption of trophon by some customers and could be led to disruption in the global supply chain.
• Further, it relies on key distribution customer that accounts for around 60% of revenue. It operates in a highly competitive market and is prone to the risk of losing existing and new market share.

Outlook: Looking forward, a decent liquidity position will enable the company towards making continued investments in growth strategies. Taking into consideration the sustenance of positive market recovery trends, NAN is expecting to achieve double-digit growth in overall revenue in FY22. This will be supported by constant growth in installed base globally as well as higher usage of consumables across all regions. However, it forecasts a gross margin of over 75% in FY22 although it is expected to stay lower compared to FY21 owing to the impact of the expected rise in capital from new installed base growth and upgrades and change in mix. Further, it is aiming at sustained acceleration in the trophon installed base and associated ecosystem across all regions as well as growth in upgrades of trophon EPR to trophon2 beyond 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: As per ASX, the stock of NAN is trading higher than its average 52-weeks’ levels of $4.885-$8.250.   The stock of NAN gave a positive return of ~18.68% in the past six months. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price with a correction of low single-digit (in % terms). The company can trade at some discount to its peers’ average, considering the decline in net profit in FY21, higher operating expenses, and uncertainties associated with COVID-19. For the purpose of valuation, peers like Cochlear Ltd (ASX: COH), Polynovo Ltd (ASX: PNV), Universal Biosensors Inc (ASX: UBI), among others have been considered. Considering the aforementioned factors, the current trading levels, valuation, and the associated business risks, we advise the investors to book profits. We give a “Sell” recommendation on the stock at the market price of $7.43 per share, as on 24 August 2021, 12.20 PM (GMT+10), Sydney, Eastern Australia.

NAN 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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