Estia Health Limited

EHE Details

 $330 Million Sustainability Linked Refinancing Facility: Estia Health Limited (ASX: EHE) provides services to residential aged care homes in Australia. On 28 October 2021, EHE refinanced its existing loan facilities with a new Sustainability Linked Syndicated Financing Agreement (SLSFA) of ~$330 million through its existing lenders. EHE will receive margin adjustments upon realising sustainability targets regarding reduction in greenhouse gas emissions, aid to employee wellbeing, improved environmental performance, etc.

FY21 Highlights:

• The total Operating revenue and grants increased to ~$612.05 million in FY21 versus ~$579.88 million in FY20.
• The net profit after tax stood at ~$5.99 million in FY21 compared to a net loss of ~$116.90 million in FY20.
• EHE had ~$81.1 million net bank debt, ~$33.42 million cash and cash equivalents, and ~$615.7 net assets as of 30 June 2021.
• The total capital investment stood at ~$49.0 million in FY21 versus ~$80.6 million in FY20 as major capital projects were paused during the year.
• During FY21, EHE divested its three surplus land sites at Mona Vale & Wollongong in New South Wales (NSW), and Grovedale in Victoria, resulting in ~$9.4 million of pre-tax profit.

Operational Places Highlights; (Analysis by Kalkine Group)

Key Risks: The company faced the COVID-19 impact via increased costs, reduced occupancy, and lower revenue. EHE also faced input cost inflation, margin compression as resident care and service levels increased.

Outlook:

• The company has invested ~$49 million in home refurbishments, asset life-cycle replacements, IT, and systems improvements, etc. in FY21 to increase the future capacity.
• The Government has announced ~$17.7 billion increased funding in the next four years for the aged care sector. The removal of the Aged Care Approvals Round (ACAR) licensing system will ease the current supply restrictions, improve competitiveness, and the possibility to expand sites with larger-sized homes.
• IDT will hold a virtual AGM (Annual General Meeting) 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 EHE gave a negative return of ~14.22% in the past three months and a positive return of ~7.89% in the past nine months. The stock is currently trading slightly above its 52-weeks’ average price level band of $1.275 - $2.750. The stock has been valued using the P/E multiple 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 premium than its peers’ average P/E multiple, considering its lower debt-to-equity ratio, higher cash & cash equivalents in FY21, and Government support to the sector via reforms and increased spending, etc. For this purpose of valuation, few peers like Regis Healthcare Limited (ASX: REG), Integral Diagnostics Limited (ASX: IDX), Capitol Health Limited (ASX: CAJ), and others have been considered. Considering the rising revenue, improved bottom-line in FY21, valuation upside, decent liquidity position, Government support to the sector, and key associated business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $2.050, down by ~1.443%, as of 2 November 2021.

EHE Daily Technical Chart, Data Source: REFINITIV  

IDT Australia Limited

IDT Details

Upcoming AGM: IDT Australia Limited (ASX: IDT) supplies products and provides R&D and other technical services to the Pharmaceutical and related industries. Director, Ms. Mary Sontrop, has expressed intention to retire and not contest for re-election at the upcoming virtual AGM to be held 16 November 2021.

Contract Manufacturing Agreement with Monash University: On 13 October 2021, IDT signed a Master Service Agreement and Services Order (together referred to as Agreement) with Monash University. As agreed, IDT will provide cGMP contract manufacturing services to MIPS’ (Monash Institute of Pharmaceutical Sciences) to locally develop and produce the mRNA (vaccine candidate) COVID-19 receptor binding domain vaccine.

FY21 Highlights:

• The company reported ~$16.92 million total revenue for FY21, up by ~$2.75 million on FY20.
• The NPAT increased by 6% YoY to ~$2.10 million during FY21, owing to improved revenue and stringent procurement and manufacturing controls.
• IDT held cash reserves of ~$6.9 million and an unused facility of ~$2.5 million with the National Australia Bank Limited as of 30 June 2021. The facility will be renewed on 31 July 2022 and available to fund growth strategies, expand production & manufacturing capabilities.
• IDT made good progress executing on its Medicinal Cannabis Manufacturing Plan and has developed & commercialised multiple proprietary medicinal cannabis API and finished dose form products.

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

Key Risks: The company faces the risk of environmental regulations and other licenses concerning its manufacturing facilities in Victoria. It faces the COVID-19 impact on its earnings and adequate funding for production and expansion.

Outlook:

• IDT engages consistently with the industry and Government to facilitate the production of a sovereign vaccine in Australia. The company made submissions to multiple Government Committees in FY21 and continues to progress discussions with these authorities to accelerate the process to develop a local vaccine candidate for COVID-19.
• The company has collaborated with Clever Leaves Holding Inc. to develop two varieties of cGMP flower-in-bottle products (Medicinal Cannabis) and plans to launch the same in Australia after completing stability trials.

Stock Recommendation: The stock of IDT gave a positive return of ~17.50% in the past three months and a negative return of ~26.56% in the past one month. The stock is currently trading slightly above its 52-weeks’ average price level band of $0.165 - $0.755. On a TTM basis, the stock of IDT is trading at a price to book value multiple of ~4.6x, compared to the industry (Healthcare) average of ~8.0x, and thus seems undervalued. Considering the current trading levels, the recent agreement with MIPS to provide contract manufacturing services and plans to produce mRNA candidate, commercialisation of medicinal cannabis products, valuation on a TTM basis, strategic collaborations, and key associated business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.470, as of 2 November 2021, 12:52 PM (GMT+10), Sydney, Eastern Australia.

IDT 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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