Mesoblast Limited

MSB Details

Positive Results from Rexlemestrocel-L: Mesoblast Limited (ASX: MSB) is involved in the development of innovative cell-based medicines and seeks to offer treatments for cardiovascular illness, inflammatory ailments, and back pain. On 6 December 2021, the company provided the latest studies from the DREAM-HF Phase 3 trial demonstrating the greatest treatment benefit from the usage of rexlemestrocel-L in HFrEF patients, suffering from diabetes or ischemia, and who are under high risk of cardiovascular mortality, heart attacks, or strokes. Notably, the studies revealed that Rexlemestrocel-L reduced the 3-point MACE (major cardiovascular adverse events) composite of heart attack or stroke by 37% across all HFrEF patients with diabetes.

Key Highlights of 1QFY22 for the Period Ended 30 September 2021:

• Total revenues for the period stood at US$3.6 million, as compared to US$1.3 million reported in the year-ago period, due to growth in royalties and US$1.2 million of milestone revenue.
• Loss before tax for the period came in at US$22.7 million, as compared to a loss of US$25.3 million reported in the year-ago period.
• During the quarter, the company realised $2.4 million in commercialisation revenue pertaining to royalty income earned on sales from TEMCELL® HS Inj.1 in Japan, up 22% on the previous quarter, and 90% on a year-over-year basis.
• Net operating cash outflow for the quarter stood at US$19.6 million. At the end of 30 September 2021, the company’s cash balance stood at US$116 million, with total debt amounting to ~US$107 million.

Top & Bottom-Line Highlight (Source: Analysis by Kalkine Group)

Key Risks: Delays in clinical trials may increase funding requirements and additional costs. Additionally, competition from peers, and the global threat environment add to the woes. Further, lower investment in generating working capital requirements exposes the company to liquidity risk.

Outlook: MSB continues to focus on cost control measures, while investing to support its growth objectives. Going forward, the company stands to benefit from the collaboration with Novartis to develop, manufacture and commercialise its key product Remestemcel-L. In the company quarter, MSB expects to obtain FDA’s feedback on the probable pathways to US regulatory approval for its rexlemestrocel-L technology platform.

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

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: Over the last six months, the stock has been corrected by ~15.14% and is trading close to its 52-weeks’ low level of $1.50. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a target price with an upside of low double-digit (in percentage terms). The company can trade at a slight premium to its peers, considering an increase in top-line, collaboration with Novartis, and cost-cutting initiatives, etc. For the valuation purpose, peers such as Telix Pharmaceuticals Ltd (ASX: TLX), Oncosil Medical Ltd (ASX: OSL), Paradigm Biopharmaceuticals Ltd (ASX: PAR), etc., have been considered. Considering the strategic alliances with cash management activities, decent long-term outlook, current trading levels, MSB’s rise in revenues from TEMCELL® HS Inj. Royalties, valuation, and key associated risks, we give a “Speculative Buy” rating on the stock at the current market price of $1.57, as on 06 December 2021, 12:30 PM (GMT+10), Sydney, Eastern Australia.

MSB Daily Technical Chart, Data Source: REFINITIV

Compumedics Limited

CMP Details

Annual General Meeting Update: Compumedics Limited (ASX: CMP) is engaged in the development, production, manufacturing, and marketing of medical devices used for the analysis of brain and sleep disorders, and to investigate ultrasonic blood-flow applications.

• Growth in To-Line: In FY21, the company’s revenue went up by 2% on pcp and came in at $35.7 million. On a constant currency basis, the top-line went up 9% year over year.
• NPAT Details: NPAT improved to ~$1 million, compared to a loss of $5.8 million in FY20. The company reported EPS of 0.6 cents as compared to a loss of 3.3 cents reported in FY20.
• A Turnaround in EBITDA: EBITDA stood at $2.6 million in FY21, compared to a loss of $5.4 million reported in FY20. The reported EBITDA in FY20 was after a non-cash adjustment in the value of the intangible asset by $7.7 million.
• Core Business Sales Order: In FY21, core business sales orders stood at $35.3 million, flat on a year over year basis. Nevertheless, on a constant currency basis, it went up by 8% on pcp, owing to diversified revenue streams and growth across France, Germany, and other parts of Europe.
• Other Key Developments: The company has come up with growth initiatives in eHealth and has expanded the NeXus 360 platform in Australia and the USA. The Nexus 360 platform generated A$1.1 million in revenue in FY21.

Cash Highlight (Source: Analysis by Kalkine Group)

Risk Analysis:  

• The company is exposed to a complicated regulatory landscape along with prevailing global uncertainties related to COVID-19 and other geopolitical tensions.
• CMP is exposed to forex headwinds and stiff rivalry from competitors developing similar product lines and services.
• The company has declared or distributed no dividends to its members, which might hurt the sentiments of the shareholders.

Outlook: The company reported continuous success across the core businesses, which positions it to garner additional revenue, going forward. The company is taking initiatives to roll out a new range of ambulatory products to significantly expand its addressable market. Notably, the company expects earnings initiatives to continue in FY22 – FY23. It remains on track to develop its neuro-diagnostic business in the US and China, as well as other key markets across the globe, and expects to unveil a new range of ambulatory products for sleep and neurology in FY22. 

Stock Recommendation: Currently, the stock is trading close to its 52-week low level of $0.31. The stock went down ~19.99% in the past three months. On a TTM basis, the stock of CMP is trading at an EV/Sales value multiple of 1.6x, lower than the industry (Healthcare Equipment & Supplies) median of 9.2x, thus seems undervalued. Considering the current trading level, increase in the cash balance, higher revenue base, turnaround in profits, geographical diversification, decent growth opportunities, valuation on TTM basis, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.355, as on 06 December 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

CMP 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 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 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.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website.

Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.