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Why to buy McMillan Shakespeare Ltd and Mesoblast Ltd?

Oct 26, 2015 | Team Kalkine
Why to buy McMillan Shakespeare Ltd and Mesoblast Ltd?

McMillan Shakespeare Limited (ASX: MMS)


 
The company reported record results for FY 2015 with revenue growth of 12.1% to $389.6m; net profit after tax (npat) growth of 22.8% to $67.49m; underlying net profit after tax up 25.8% to $70.2m; earnings per share of 86.8 cents, up from 72.7 cents in the previous year; and total dividends of $0.52 per share (dividend yield of approximately 4% at current prices). The acquisition of automotive finance provider Presidian Holdings was completed during the year and excluding the acquisition, net profit grew 20.2%. The company had $80 .7 million in cash and a reasonable financial position with gearing (defined as net debt divided by net debt + equity) of 46% and interest cover of 12.5 X. The company saw significant growth and profitability within Group Remuneration Services where operating revenues grew by 12%, EBITDA by 25% and net profit after tax margins remained strong.


Earnings per Share (Source: Company Reports)

The company is also creating a new complimentary segment in Retail Financial Services and completed the acquisition of Presidian on 27 February 2015 and UFS after the end of FY 2015. This will provide scale across the customer value chain for new and used vehicles and synergies and new growth opportunities have been identified with integration well on track. Both these acquisitions look to be sensible by providing services such as car insurance and financing to broaden the range of products. The annual dividend yield is 4.13%. Despite the strong results, we observe that the company is trading at a reasonable P/E ratio of 14.46x and, because of the potential, rate the stock as a Buy at the current price of $12.7.


MMS Daily Chart (Source: Thomson Reuters)
 

Mesoblast Limited (ASX: MSB)


 
MSB recently reported that it has agreed with Celgene Corporation for the extension of Celgene’s right of first refusal for MSB’s mesenchymal lineage adult stem cell product candidates for a period of six months. With respect to operating highlights, the company reported another big loss for FY 2015 as it continues its quest to become the next big Biotech stock by spending cash. The expenses from ongoing operations jumped sharply to $ 161.9 million compared to $ 118.1 million in the previous year depleting the cash balances to $ 144.1 million as at 30 June 2015. However, despite the losses and the modest revenue streams, the company has a market capitalisation of more than $ 1.2 billion. This high valuation, which profit-making companies would be proud of, is because it is developing a series of treatments and therapies for common diseases and medical conditions based on stem cell therapies which are capable of regenerating malfunctioning body parts such as bone and muscle. There are several phase 3 clinical trials being conducted to generate the clinical data required to win regulatory approval to enter the market to launch its therapies. There are also several earlier stage trials in progress. The potential market is large but it remains to be seen how successful the company is.


% Responder Rate (Source: Company Reports)

As a result of these ongoing trials, the company spent $ 77.6 million during the year on research and development and a further $ 36.2 million on management and administrative expenses. The company still has a fair amount of cash to sustain the cash burn and is unlikely to be cash-strapped in the short-term in contrast to many other early drug development companies. We believe that the range of products in the trials represents a fair chance of at least one successful therapy and recommend that you buy provided you have the appetite for the investment risk at the current price of $3.44.


MSB Daily Chart (Source: Thomson Reuters)
Disclaimer
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people.Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376).The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation.Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product.The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd currently hold positions in:  BHP, BKY, KCN, PDN, and RIO. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.
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