Opthea Limited

OPT Details

Change in Substantial holding: Opthea Limited (ASX: OPT) is a biotechnology company that develops, commercialises therapies for eye diseases in Australia. Recently, Bank of America Corporation and its related bodies corporate has reduced its holding to 18,318,561 ordinary shares with a voting power of 5.22%.

Other Shareholding Updated- UBS Group AG and its related corporate bodies have become substantial shareholding and hold 17,568,051 ordinary shares with a voting power of 5.01%. On 24 September, the holder ceased to be a substantial shareholder of the company.

FY21 Financial Performance:

• The company has recorded a decline in its revenue of 18.3% to US$440,615 in FY21, compared to US$539,514 in FY20, owing to the impact led by COVID-19 pandemic.
• The company has reported an increased net loss of 307.7% to US$45.34 million in FY21 against a loss of US$11.12 million in FY20, impacted by an increase in R&D expenses, cost in a clinical trial, and administrative expense.
• The company aims to expand its clinical trial for the Phase 3 ShORe and COAST wet AMD trials of OPT-302 in Canada.
• At the end of the period, the company’s cash position stood at US$118.19 million as of 30 June 2021 vs US$42.65 million as of 30 June 2020.

Total Current Assets (Source: Analysis by Kalkine Group)

Key Risks:

• Technology Risk- The company is exposed to technology risk and should invest in innovation to mitigate the risk of competition.
• Patent Risk: Any delay in patent rights could impact the expansion and commercialisation of medical devices that can directly affect the company's operations.

Outlook:

• The company focuses on recapitalising, advancement in clinical trials, better visibility of the global market.
• It focuses on building and strengthening the management team, advancing the clinical trials, and drawing the attention of potential OPT-302 product holds.
• Further, the company strategies involve global marketing of OPT-302 through Phase 3 registrational trials in the treatment of wet AMD and its commercial launch in the US and Europe.

Stock Recommendation: The stock of OPT is trading below its average 52-weeks' levels of $1.210-$3.280. The stock of OPT gave a positive return of ~5.88% in the past three months and a negative return of ~52.79% in the past one year. On a TTM basis, the stock of OPT is trading at a Price/Book Value multiple of 3.5x, lower than the industry average (Biotechnology & Medical Research) of 11.7x, thus seems undervalued. Considering the valuation on a TTM basis, current trading levels, R&D Tax Incentive Scheme incentive, strategic commercialisation of products in global market, optimistic outlook, and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $1.310, as on 1 October 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

OPT Daily Technical Chart, Data Source: REFINITIV 

Next Science Limited

NXS Details

Business Update: Next Science Limited (ASX: NXS) is a medical technology company that develops, commercialise technologies to eradicate issues in human health caused by biofilms. Recently, Dr Matthew Myntti, founder and Chief Technical Officer, announced to sell its shares and currently holds 14,068,000 shares with the company's voting power of 7.11%.

H1FY21 Financial Performance:

• The company has recorded robust revenue growth of 271% to US$3.91 million, compared to US$1.05 million in the year-ago period. This reflects the recovery of the US elective surgical market from the COVID-19 pandemic.
• The company has delivered a strong gross profit of 234% to US$3.07 million in 1HFY21 against US$0.92 million in 1HFY20, reflecting a change in the composition of revenue.
• It has reported a decline in operating loss from US$6.87 million reported in 1HFY20 to a loss of US$4.26 million in 1HFY21. However, there was an increase in selling, distribution expenses and administration expenses.
• The company has narrowed down its net loss by 37% to US$4.199 million against a loss of US$6.69 on a PCP basis, reflecting the strategic distribution channel for its products.
• At the end of the period, the cash position of the company stood at US$6.93 as of 30 June 2021 vs US$8.10 million as of 31 December 2020.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Liquidity Risk- The company requires sufficient liquidity to meet its financial obligations, operational activity and mitigate the working capital risks.
• Impact of COVID-19 pandemic- The company has a significant impact on the US surgical market due to COVID-19 disruption.

Outlook:

• The company remains on track to deliver on its growth strategies through a diversified product portfolio and expanding geographic reach.
• Growth also boosted as the company expanded its international revenue, on the heels of XPerience^TM, BlastX, and SurgX expansion and enhanced product distribution via a network of independent sales representatives.
• The group progresses towards expanding its addressable market opportunity and take direct control of distribution with the FDA approval of XPerience^TM No-Rinse Antimicrobial Solution.
• Further, it focuses on commercial sales by securing Value Assessment Committee approvals within the US hospitals.
  

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 NXS is trading below its average 52-weeks' levels of A$1.100-A$2.060. The stock of NXS gave a positive return of ~7.34% in the past one year and a negative return of ~4.01% in the past one month. The stock has been valued using EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium to its peers' average EV/Sales multiple, considering the rising top-line, economic recovery, and a lower debt-to-equity ratio. For the purpose of valuation, peers such as Cochlear Ltd (ASX: COH), Fisher & Paykel Healthcare Corporation Ltd (ASX: FPH), Imricor Medical Systems Inc (ASX: IMR) and others have been considered. Considering the current trading levels, indicative upside in valuation, strategic distribution, securing approvals for commercial sales, optimistic outlook, and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of A$1.300, down by ~2.986% as on 1 October 2021.

Investors with a high-risk appetite should evaluate this stock given the technical support and resistance levels and considering the associated risks of COVID-19, forex headwinds, fluctuation in interest rate changes, and strict regulatory approval.

NXS 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.

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