Ansell Limited

ANN Details

Manufacturing Facility in India: Ansell Limited (ASX: ANN) undertakes manufacturing, development, sourcing, distribution and sale of personal protective equipment and gloves in the healthcare and industrial markets. ANN operates Industrial & and Healthcare segments. Recently, ANN declared to invest ~$80 million in India (Tamil Nadu) to construct a new manufacturing facility over the next three years.

Though initially, the facility will focus on producing surgical and life science gloves for the Indian market, ANN will construct the facility to expand the production capability across a range of products to facilitate growth in the future.

Dividend Declaration: On 16 September 2021, ANN announced US$0.436 of the final dividend (AUD 0.5944) for the period ending 30 June 2021. The company paid a dividend on 16/9/2021 and had set the record date as 30/8/2021.

FY21 Highlights:

• Revenue Growth: ANN delivered US$2,027.0 million revenue and 22.5% YoY of robust organic growth across businesses and regions. Healthcare Global Business Unit (HGBU) and Industrial Global Business Unit (IGBU) delivered 34.8% YoY and 7.1% YoY growth in FY21.
• Higher Capex: The capex rose by 36.5% YoY to US$82.7 million in a strategic move to develop more differentiated products and aid growth in FY22 and further.
• Lower Operating Cash flows: The operating cashflows stood lower at US$49.2 million, down by 74.3% YoY in FY21 due to higher capex investment and working capital requirements to aid revenue growth.
• Increase in ROCE & ROE: Post-tax ROE in FY21 was 16.8% compared to 11.3% in FY20. The pre-tax ROCE was up to 19.8% in FY21 from 13.9% in FY20, mainly due to robust EBIT growth. The company reported strong balance sheet with 0.7x leverage lower than target leverage.

Total Revenue & Net Income Trend from FY18-FY21; (Analysis by Kalkine Group)

Key Risks: The company faces COVID-19 disruptions in manufacturing geographies of Malaysia and Sri Lanka, impact on the sea freight imbalances due to sudden shortages of inputs and consumables emerges.

Outlook:

• ANN expects demand for Surgical, Mechanical, Life Sciences, and single-use gloves to continue and capacity investments to aid demand continuity. The company anticipates lower demand in undifferentiated Exam/SU gloves and Chemical Body Protection.
• ANN is developing smart gloves with sensors to signal the user the potential risk of chemical permeation to a glove or suit.
• ANN expects 1HFY22 sales might be impacted due to closure or reduced operations of a few suppliers and factories in South-East Asia due to COVID-19.
• The company expects increased freight costs and shipping delays to remain during FY22.
• ANN forecasts the net interest expense between $20.0-$21.0 million and the effective tax rate between 22.0-23.0%.
• The company expects FY22 EPS between 175¢ - 195¢ after factoring in the estimated negative impact of 5¢-6¢ as ANN plans to expense and amortise a portion of software investments in FY22.
• ANN will hold an Annual General Meeting (AGM) on 11 November 2021.

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 stock of ANN gave a negative return of ~18.04 % in the past three months and a negative return of ~16.24% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $32.00 - $44.07. The stock has been valued using the Price to Earnings multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount than its peers, considering its lower net cash inflows from operations, higher net debt, lower cash & cash equivalents in FY21 and the expected increase in freight costs and shipping delays, forecast of mixed pricing, the estimated adverse impact on EPS in FY22. For this purpose of valuation, few peers like Sonic Healthcare Limited (ASX: SHL), Cochlear Limited (ASX: COH), Paragon Care Limited (ASX: PGC) have been considered. Considering the current trading levels, growth in revenue & NPAT, increase in manufacturing and sales capabilities and production with new glove lines in FY21, doubling of Body Protection capacity, valuation, we give a ‘Buy’ rating on the stock at the current market price of $32.110 as on 15 October 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

ANN Daily Technical Chart, Data Source: REFINITIV 

Mesoblast Limited

MSB Details

Phase 3 Trial Results Chosen as Late Breaking Presentation at AHA: Mesoblast Limited (ASX: MSB) Mesoblast is a developer of a range of late-stage product candidates (Remestemcel-L & Rexlemestrocel-L) derived from the company’s proprietary mesenchymal lineage cell therapy technology platforms.

• On 6 October 2021, MSB declared the Phase- 3 trial results of Rexlemestrocel-L in 565 patients with NYHA (New York Heart Association) low ejection fraction (HFrEF) and class II and class III CHF (chronic heart failure).
• As a result, these patients have been selected for late-breaking presentations at the American Heart Association annual meeting (AHA) during 13-15 November.

 FY21 Key Takeaways:

• Improved Liquidity Position: MSB held US$136.9 million cash and cash equivalents as of 30 June 2021 versus US$129.32 million as of 30 June 2020.
• Increase in Royalty Revenue: The company posted an increase of 10% YoY to US$7.2 million from the royalty revenues on the sales of TEMCELL® HS Inj. in Japan in FY21. MSB has been witnessed a steady growth trajectory in the TEMCELL sales in Japan via its licensee JCR Pharmaceuticals.
• Decline in R&D Expenses: The company reported a decrease in the R&D expenses from US$56.2 million in FY20 to US$53.0 million in FY2021 due to a reduction in third-party clinical trial costs.
• Reduced Finance Costs: The finance costs from the borrowing arrangements with NovaQuest and Hercules stood at US$10.7 million during FY21 versus US$14.1 million in FY20.

Annual Revenue Royalties Trend from FY16-FY21; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of intellectual property development, commercialisation of lead candidates, regulatory delays, and adequate funding for clinical trials.  

Outlook:

• In August 2021, MSB sought a contractual extension in the interest-specific period of the current senior debt facility to January 2022. The company is engaged in discussions to refinance the debt facility.
• Post the grant of FDA approval, MSB estimates to realise US$21.9 million remestemcel-L inventory before launch on its balance sheet.
• MSB is investing in the remestemcel-L platform to facilitate regulatory approval, potential manufacturing scale-up and life cycle management of the candidate.

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 MSB gave a negative return of ~17.06% in the past three months and a negative return of ~31.89% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $1.500 - $5.050. 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 slight discount than its peers, considering its higher net loss, fall in revenue FY21 and business risks of COVID-19, regulatory delays, and commercialisation risk. For this purpose of valuation, few peers like Paradigm Biopharmaceuticals Limited (ASX: PAR), Clarity Pharmaceuticals Ltd (ASX: CU6), Clinuvel Pharmaceuticals Limited (ASX: CUV), and others have been considered. Considering the current trading levels, growth in annual sales from TEMCELL royalties in Japan, license collaboration agreement with Novartis in FY21, improved cash position, expected FDA approval, demand for Remestemcel-L, valuation upside, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $1.575, as on 15 October 2021, 1:56 PM (GMT+10), Sydney, Eastern Australia.

MSB 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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