Virtus Health Limited

VRT Details

FY21 Financial and Operational Highlights: Virtus Health Limited (ASX: VRT) is in the provisioning of fertility services, medical day procedure services and medical diagnostic services in Australia, Denmark, the UK, Ireland and Singapore. During FY21, the company recorded strong performance throughout all its services - internationally and in Australia. During the year, VRT witnessed a rise of 68.1% in EBITDA from the international segment.

• Increase in Revenue: Backed by robust performance in Australian and International operations with ARS recovery and progressive market growth, VRT witnessed growth in revenue to $324.6 million as compared to $258.9 million in FY20.
• Growth in Earnings: Reported EBITDA and NPAT attributable to equity holders for the year amounted to $93.4 million and $43.1 million against $46.2 million and $0.5 million in FY20, respectively.
• Returns to Shareholders: VRT declared a fully franked final dividend of 12.0 cents per share, which took the final dividend for the year to 24.0 cents per share.

Revenue Trend (Source: Analysis by Kalkine Group)

Decision by Federal Court:

• As announced on 25 October 2021, the Federal Court of Australia has given judgement in favour of ACCC in relation to the application filed for an interlocutory injunction to restrain the acquisition of Adora Fertility by VRT.
• However, the company has decided to continue to defend the proceedings.

Key Risks:

• Stiff Competition from Peers: The company’s operational and financial performance could be impacted by the rising market share of competitors as it operates in a very competitive environment.
• Regulatory Risk: VRT is exposed to a more complex regulatory environment as it is currently surviving a legal case filed by ACCC in relation to the proposed acquisition of Adora Fertility and three-day hospitals (Acquisition). Any failure in receiving approval could impact the operational health of the business.

Outlook:

• For FY22 and FY23, the company would be focused on numerous growth investments, which mainly include developing the Precision Fertility™ Digital Platform and building Reproductive Genetics capability. VRT anticipates incremental EBITDA from these investments in the range of $5-10 million p.a. from FY23.
• Looking forward, the company believes that it is well-placed to deliver on its growth strategy. This would be underpinned by the rising demand for ARS in FY22.
  

Valuation Methodology: P/E 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: The company closed FY21 with an improved net debt position of $107.1 million against $126.0 million as on 30 June 2020. The stock of VRT is trading below its 52-week low-high average of $4.740 - $7.470, respectively. The stock of VRT has been corrected by ~20.52% and ~10.63% in the past three and six months, respectively. The stock has been valued using the P/E multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers’ average P/E multiple, considering the COVID-19 led Uncertainties and ACCC’s legal case. For the purpose of valuation, peers such as Monash IVF Group Ltd (ASX: MVF), Healius Ltd (ASX: HLS), Regis Healthcare Ltd (ASX: REG) and others have been considered. Considering the expected upside in valuation, decent performance in the international segment, growing topline and bottom line, decent outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $5.400 as on 23 November 2021, 3:55 PM (GMT+10), Sydney, Eastern Australia.

VRT Daily Technical Chart, Data Source: REFINITIV  

Mayne Pharma Group Limited

MYX Details

Update on Generic NUVARING: Mayne Pharma Group Limited (ASX: MYX) develops, manufactures and markets branded and generic pharmaceutical products globally. As announced on 7 October 2021, the company has received a complete response letter (CRL) from the US-FDA with respect to its abbreviated new drug application (ANDA) for a generic version of NUVARING. The company believes that the market opportunity continues to be attractive with two independent generics approved and an addressable market of US$670 million.

FY21 Financial and Operational Highlights:

• During the year ended 30 June 2021, the company recorded revenue and EBITDA of $400.8 million and $66.1 million, reflecting a fall of 12% and 18%, respectively, over FY20 on a reported basis.
• Due to intangible asset impairments, MYX posted a net loss after tax of $208.4 million. In addition, the financials were impacted due to numerous external factors, including the global pandemic, ongoing competitive pressure in the retail generic market and increasing demands from payors for insurance coverage in its brand portfolio.
• MYX attained a reduction of $18 million in operating expense on a constant currency basis excluding NEXTSTELLIS set up costs, and it would continue to optimise its cost base through the realignment of its supply chain with raw material suppliers and contract manufacturing organisations.

Revenue & EBITDA Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Product Cost Inflation: The company’s operational and financial performance could be impacted by the rising cost of active pharmaceutical ingredients and other components.
• Competitive Intensity: MYX is exposed to a risk arising from the entry of new competitors and rising market share of peers.

Outlook

• In the near term, the company will be focused on strengthening its dermatology and women’s health portfolios and evolving its go-to-market distribution model.
• Looking forward, the company is also focused on evolving its business model via leveraging new technologies, capitalising on disruption across the entire US pharma value chain, and removing inefficiencies for prescribers and patients.
• The company notified that the year-to-date trading has been mixed with a strong performance from Metrics Contract Services and International while softer start by US Products segment due to delays in launching key new products. As a result, the company is not in a position to provide any guidance for the near future.
  

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: During FY21, MYX generated net operating cashflow of $58.9 million and reduced net debt by $11 million to ~$249 million as on 30 June 2021. The stock has 52-week low and high level of $0.260 - $0.590, respectively. The stock has given a positive return of ~5.26% in the past three months, and a negative return of ~15.49% in the past six months. The stock has support and resistance levels of $0.290 and $0.320, respectively. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a target price with a correction of high-single-digit (in % terms). The company can trade at a slight discount to its peers’ median EV/Sales multiple, considering the disrupting financials and subdued outlook. For the purpose of valuation, peers such as Probiotec Ltd (ASX: PBP), Vita Life Sciences Ltd (ASX: VLS), Pharmaxis Ltd (ASX: PXS), and others have been considered. Considering the expected correction, falling earnings and key risks associated with the business, we give a ‘Sell’ rating on the stock at the current market price of $0.310 as on 23 November 2021, 12:10 PM (GMT+10), Sydney, Eastern Australia.

MYX Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: 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.

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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