Genetic Signatures Limited

GSS Details

Business Update: Genetic Signatures Limited (ASX: GSS) is a molecular diagnostic (MDx) and research company that manufactures and commercialises technology to detect infectious diseases in North America and Australia.

4QFY21 Financial Metrics:

• During the quarter, the company recorded revenue growth of 27% to ~$5.4 million from prior quarter, driven by the demand for the company’s EasyScreen SARS-CoV-2 Detection Kit.
• GSS reported receipt from customers of ~$5.1 million in 4QFY21.
• The company has reported improved operating cash outflow to $502k, compared to $3.4 million cash outflow in 3QFY21.
• For June quarter, the R&D expenses reported as ~$1.03 million, higher than the previous quarter, due to clinical trial in the US.

FY21 Financial Performance:

• The company has recorded a robust growth in its revenue by 151% on a year-on-year bases to $28.3 million in FY21, supported by the international sales, which recorded 21% of total revenue in FY21. The pandemic and strong demand for Australian diagnostic technology has lifted the company’s revenue.
• The cash position of the company stood at $30.12 million as of 30 June 2021 and with no debt.

Financial Performance (Source: Analysis by Kalkine Group)

Key Risks:

• Forex Headwinds:Any adverse movement in foreign exchange price may impact the financial performance of the company.
• Failure of Clinical Trials: The clinical trial process is designed to assess the safety and efficacy of a medical device before commercialisation and a failure to achieve the desired results may hamper the financial performance of the company.

Outlook:

• The company is aiming to expand 40% of the enteric protozoan testing market within five years, once attaining FDA clearance.
• To meet its rising demand, the company has increased its manufacturing capacity and intends to further expand its footprint by targeting the major market, which includes the US, Europe, and Australia.
  

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 a recent update, the company has received an order in July FY21 is exceeding $4.0 million to date, which increases the trade confidence in FY22. The stock of GSS is trading below its average 52-weeks' levels of $1.040-$2.650. The stock of GSS gave a positive return of ~3.73% in the past one month and a negative return of ~50.98% in the past one year. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight premium to its peer average EV/Sales (NTM trading multiple), considering the increase in manufacturing capacity and higher demand for GSS’ EasyScreen SARS-CoV-2 Detection Kit. For this purpose, we have taken peers such as Palla Pharma Ltd (ASX: PAL), ImpediMed Ltd (ASX: IPD), Medical Developments International Ltd (ASX: MVP), to name a few. Considering the healthy balance sheet, robust revenue growth and expansion strategies, increasing demand in global market and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $1.250, as on 03 August 2021, 10:44 AM (GMT+10), Sydney, Eastern Australia.

GSS Daily Technical Chart, Data Source: REFINITIV

Micro-X Limited

MX1 Details

Change in Substantial Holdings: Micro-X Limited (ASX: MX1) develops and manufacture ultra-lightweight carbon nano tube-based X-ray products, such as Carestream DRX Revolution Nano, Rover and Mobile Backscatter in Australia. As per a recent update, Perennial Value Management Limited (PVM), a substantial holder of the company, has increased its voting power from 12.24% to 13.50%. In another update, Regal Funds Management Pty Ltd (RFM) has decreased its voting power from 10.9% to 8.93%.

Q4FY21 Financial Performance:

• During the quarter, the company has recorded cash receipt from customer for Mobile DR range of $0.8 million and $5.3 million for FY21.
• The company’s Rover medical has received FDA clearance in 4QFY21, to be launched in the US market. Notably, the company unveiled Rover Veterinary in FY21 and commenced its first sale in Australian market.
• MX1 was granted total of $0.93 million from the Australian government manufacturing funds.
• MX1 has successfully tested new x-ray tube and high voltage generator for Rover Mark II.
• The company existed the quarter, with cash balance of $30.1 million. Also, the company’s balance sheet became debt free following the repayment of SAFA facility.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to patent risk and regulatory risk, to commercialise the product in the market. Therefore, any delays could impact the company’s financial operations.

Outlook: Looking ahead, MX1 remains focused to expand its channel, partners, and strategic collaborations.         The company has an aim to launch IED X-RAY camera and expand to $1.8 billion total addressable market by 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: The stock of MX1 is trading above its average 52-weeks' levels of $0.155-$0.450. The stock of MX1 gave a positive return of ~80.00% in the past one year and a negative return of ~4.54% in the past three months. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight discount to its peer average EV/Sales (NTM trading multiple), considering the uncertainty due to COVID-19 impact and technology advancement risk. For this purpose, we have taken peers such as ImpediMed Ltd (ASX: IPD), Atomo Diagnostics Ltd (ASX: AT1), Cleanspace Holdings Ltd. (ASX: CSX), to name a few. Considering the healthy balance sheet, optimistic outlook and strategic expansion in new market, debt free balance sheet and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.310, as on 3 August 2021, 10:45 AM (GMT+10), Sydney, Eastern Australia.

MX1 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 for 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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