Stocks’ Details

Ramsay Health Care Limited

Decent Increase in Revenue: Ramsay Health Care Limited (ASX: RHC) is a global hospital group owning and operating a comprehensive range of healthcare facilities across Australia, France, Indonesia, Malaysia, and the United Kingdom. As on 27 August 2020, the market capitalization of the company stood at ~$15.02 billion. The company has recently released its results for FY20 wherein it reported an increase of 7.3% in revenue to $12.4 billion but a decline of 7% in core EBITDAR to $2.0 billion. In the same time span, core NPAT went down by 43% to $336.9 million. Core NPAT delivered core EPS of 155.9 cents for the year, reflecting a decrease of 44.5% on the pcp. The company raised $1.5 billion of equity, which strengthened the balance sheet and enhanced financial flexibility.

FY20 Financial Highlights (Source: Company Reports)

Outlook: Despite the current situation posed by the COVID-19 pandemic, the company retains a positive outlook about the longer term. It has developed a decent relationship with governments and hence is in a strong position to continue to support the public sector in dealing with the backlog of work into the future. In addition to the increased demand for healthcare, the company is also witnessing longer public waiting lists in each of its markets.

Key Risks: The Group manages its exposure to key financial risks, including market risk (interest rate and foreign currency risk), credit risk and liquidity risk. The company expects the uncertainties to remain in the coming period.

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company retains a decent balance sheet with the financial flexibility to continue to fund the pipeline of brownfield capacity expansion and future acquisitions. It is developing new growth platforms and is working on building a more sustainable organization. As per ASX, the stock of RHC is trading above the average of its 52-week trading range and gave a return of 4.71% in the past one month. We have valued the stock using the P/CF multiple based illustrative relative valuation method and arrived at a target upside of lower single-digit (in percentage terms). On a technical analysis front, the stock of RHC has a support level of ~$61.76 and a resistance level of ~$68.7. Considering the valuation, long term growth in the business and a decent relationship with governments, we recommend a ‘Hold’ rating on the stock at the current market price of $65.27, down by 0.518% on 27 August 2020.

Starpharma Holdings Limited

Significant Increase in Revenue: Starpharma Holdings Limited (ASX: SPL) is a biotechnology company that is engaged in the development of dendrimer technology for pharmaceutical, life science and other applications. As on 27 August 2020, the market capitalization of the company stood at ~$495.51 million. The company has recently released its annual report for FY20 wherein it reported a significant increase of 142% in revenue to $6.5 million. The increase in revenue reflects the development of AstraZeneca milestone achieved during the year for the first dose of AZD0466 administered in the phase 1 trial of its first DEP® product. During the year, the company reported a cash burn of $11.2 million and retained a cash balance of $30.1 million. During the year, the internal clinical DEP® trials for DEP® docetaxel, DEP® cabazitaxel and DEP® irinotecan well progressed with assets in phase 2 trials. This encouraged efficacy signals in each trial.

FY20 Financial Highlights (Source: Company Reports)

Outlook: Despite the challenges posed by a global pandemic, the company navigated through the COVID-19 environment with unwavering commitment, dedication and agility. It achieved important milestones and did not experience any material disruptions to its R&D output or supply chain. The company is planning to leverage its existing regulatory approvals, production, and commercialization expertise and relationships to progress on its products.

Key Risks: The company is exposed to a variety of risks including the risks related to the unexpected trial results, additional analysis of existing data and new data; unexpected regulatory actions or delays; its ability to obtain or maintain patents; competition; government, industry, and general public pricing pressure.

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

EV/Sales Flow Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company is progressing on the development, regulatory and manufacturing activities associated with a nasal spray for protection against COVID-19. As per ASX, the stock of SPL gave a return of 15.11% in the past six months and a return of 8.82% in the past one month. It is also trading very close to its 52-week high level of $1.510 and retains the potential for further growth. We have valued the stock using the EV/Sales multiple based illustrative relative valuation method and arrived at a target upside of lower single-digit (in percentage terms). For the said purposes, we have considered Paradigm Biopharmaceuticals Ltd (ASX: PAR), Telix Pharmaceuticals Ltd (ASX: TLX) and Medical Developments International Ltd (ASX: MVP) as peers. On the technical analysis front, the stock of SPL has a support level of ~$0.91 and a resistance level of ~$1.65. Considering the current trading levels, growth potential, resilience in the times of the pandemic and decent financial performance, we recommend a ‘Hold’ rating on the stock at the current market price of $1.47, up by 10.526% on 27 August 2020, owing to its recent release of FY20 results.

Capitol Health Limited

Decent Increase in EBITDA and NPAT: Capitol Health Limited (ASX: CAJ) is a leading provider of diagnostic imaging and related services to the Australian healthcare market. As on 27 August 2020, the market capitalization of the company stood at ~$235.2 million. The company has recently released its results for FY20 and reported an increase of 3% in revenue to $153.8 million and a growth of 21.8% in operating EBITDA $27.8 million. In the same time span, the company reported a profit after tax of $1.1 million and earnings per share of 0.11 cents. The group retained a healthy balance sheet with cash of $13.8 million and unused funding facilities of $131.4 million. The decent financial and operational performance of the company enabled the Board to declare a dividend of 1.0 cent per share. 

FY20 Financial Highlights (Source: Company Reports)

Outlook: The company is making progress for future organic growth and is focused on delivering operating EBITDA organic growth in FY21. It will continue to improve its cost to serve the business and is targeting investment in the front end of the business operations systems. 

Key Risks: The company is exposed to a variety of risks including the risks related to the estimation of the future cash flows, risks specific to the asset, the risk of cost and the service delivery to patients, economic risks, credit risks, etc. 

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company is continuing to build the BDM function and the go-to market approach with a consumer value proposition. The portfolio approach to clinic review will ensure proper community coverage and diagnostic modalities. As per ASX, the stock of CAJ is trading slightly above the average 52-weeks’ levels and gave a return of 9.52% in the past one month. We have valued the stock using the P/CF multiple based illustrative relative valuation and arrived at a target upside of higher single-digit (in percentage terms). On the technical analysis front, the stock of CAJ has a support level of ~$0.19 and a resistance level of ~$0.30. Considering the valuation, current trading levels, long-term outlook and decent financial performance, we recommend a ‘Hold’ rating on the stock at the current market price of $0.25, up by 8.696% on 27 August 2020, owing to the decent FY20 results.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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