MESOBLAST LIMITED

MSB Details

The report is the full version of the report published on 6^th June 2022 at ~3:55 PM GMT.

3QFY22 Updates: Mesoblast Limited (ASX: MSB) operates in the biotechnology & medical research sector, and the company's business is related to the development of regenerative medicine products.

• The company has recently announced the quarterly earnings, period ended 31^st March 2022 (Q3FY22) and reports a surge in revenue by 5% in the comparative quarter and 46% in the nine months to US$8.0 million.
• The key highlight from this quarter has been the significant reduction in net cash burn. Cash from the operating activity was reduced by 36% to US$54.8 million, compared to US$86.0 million on pcp basis.
• Net cash usage reported for operating activities except inventory planned for remestemcel-L product launch has declined by 50% to US$11.2 million in Q3FY22 from US$22.2 million in Q3FY21.  

The chart shows the information on the reduction of net operating cash burn over the past five quarters

Net Operating Cash Burn, (Source: Analysis by Kalkine Group)

Key Risks: MSB operates in the sector where it is exposed to regulatory risk from US FDA and legal actions.  The company's cash flow is also sensitive to change in currency price, exposing it to currency risk.

Outlook: Mesoblast receives a positive response from FDA, that if the company provides additional updates on a clinical study in COVID ARDS with significant results, then it will have sufficient data to support emergency use authorization. Further, MSB obtains considerable new data and is set to share this data with FDA and address all requirements to plan BLA resubmission in the coming quarter.

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

Source: Analysis by Kalkine Group

Stock Recommendation: The stock of MSB is trading near its 52-week low level of $0.840, offering a decent opportunity for accumulation. The stock has been corrected by ~15.76% in the past one month. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a discount to its peers’ average, considering the regulatory risk, ongoing legal actions, and competitive landscape. For the purpose of this valuation, a few peers like Paradigm Biopharmaceuticals Ltd (ASX: PAR), Oncosil Medical Ltd (ASX: OSL), Clarity Pharmaceuticals Ltd (ASX: CU6), and others have been considered. Considering the expected upside in valuation, better Q3FY22 results, increase in revenue, reduction in net operating cash burn, current trading level, and key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $0.845, as on 6^th June 2022, 1:00 PM (GMT+10), Sydney, Eastern Australia.

Markets are trading in a highly volatile zone currently due to certain macroeconomic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

MSB 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 a 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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