Stocks’ Details

Sonic Healthcare Limited

FY21 Performance Update: Sonic Healthcare Limited (ASX: SHL) is a medical diagnostic company and provides laboratory and radiology services. As per a recent announcement, the company has declared its financial results for the year ended 30 June 2021.

• Revenue grew by ~28% to ~$8.8 billion in FY21, compared to the prior corresponding year.
• EBITDA increased by ~81% to $2.6 billion, and there was a growth of ~149% in the NPAT to $1.3 billion.
• COVID-19 testing contributed substantially to the top-line and bottom-line of the company during the year.
• ~$1.5 billion of liquidity is available to the Group, which positions the balance sheet for growth through acquisition.
• The management declared a final dividend of 55 cents per share for FY21

Trend in Revenue (Source: Analysis by Kalkine Group)

Key Risks: The company has reported growth in revenue aided by the surge in COVID-19 testing measures. However, if the pandemic recedes from its present levels, then the company might face a challenge to maintain its earnings momentum.

Outlook: The company continues to focus on synergistic acquisitions and other growth opportunities along with organic growth. The management is also considering bidding for a number of outsourcing contracts. Moreover, the increase in the ongoing Delta variant has been driving the testing volumes substantially.

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 company ended FY21 with cash and equivalents of $899.82 million as of 30 June 2021, compared to $1,230.14 million in the prior year-end. As per ASX, the stock of SHL is trading close to its 52-weeks’ high levels of $43.950. The stock of SHL gave a positive return of ~36.67% in the past one year and a positive return of ~36.28% in the past six months. It has a support level of $34.79 and resistance level of $43.40. The stock has been valued using a P/E multiple-based illustrative relative valuation method and arrived at a target price with a correction of low single digit (in percentage terms). The company might trade at a slight premium to its peers' average, considering the impressive growth in top-line and bottom-line performance. For the purpose of valuation, few peers like Ansell Ltd (ASX: ANN), Capitol Health Ltd (ASX: CAJ), Healius Ltd (ASX: HLS) have been considered. Considering the current high trading levels, recent rally in the stock price, decrease in cash equivalents and the key risks associated with the business, we suggest investors to book profits and give a ‘Sell’ rating on the stock at the current market price of $43.38 as on 01 September 2021, 01:12 PM (GMT+10), Sydney, Eastern Australia.

SHL Daily Technical Chart, Data Source: REFINITIV 

Mach7 Technologies Limited

FY21 Results Update: Mach7 Technologies Limited (ASX: M7T) provides enterprise imaging solutions for healthcare companies. The company has recently declared its FY21 results and has reported an improvement in sales.

• Sales orders grew by ~95% to $25.6 million in FY21. SAAS contributed to 20% of the sales mix during the year, up from 3% in FY20.
• Revenue grew by ~1% to ~$19 million in FY21, compared to FY20.
• Gross margin increased to 97% in FY21, compared to 87% in the prior year.
• The Group reported EBITDA loss of $1.8 million during the period owing to foreign exchange losses and share based payments expense.

Trend in Revenue (Source: Analysis by Kalkine Group)

Key Risks: The company faces stiff competition in the sector from its peers, and this may lead to margin pressure in the sale of its products.

Outlook: The company expects a recovery in the economic environment going forward and anticipates hospital spending to be back on track. It is planning a revenue target of $27 million for CY21. It also expects a minimum revenue of $23.1 million in FY22 and is anticipates positive EBITDA during the year.

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: As per a recent announcement, the company has updated that it has licensed the eUnity universal viewing solution to St. Luke’s Health System. As per ASX, the stock of M7T is trading below its average 52-weeks’ levels of $0.875-$1.590.   The stock of M7T gave a positive return of ~0.5155% in the past one week and a negative return of ~6.24% in the past three months. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at a slight discount to its peers’ average, considering the EBITDA loss during FY21 and presence of stiff competition in the sector. For the purpose of valuation, few peers like Nanosonics Ltd (ASX: NAN), Adherium Ltd (ASX: ADR), Resmed Inc (ASX: RMD) have been considered. Considering the expected upside in valuation & current trading levels, impressive increase in sales, improvement in gross margin, 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 $0.930 as on 01 September 2021, 09:55 AM (GMT+10), Sydney, Eastern Australia.

M7T Daily Technical Chart, Data Source: REFINITIV

Cann Group Limited

FY21 Results Update: Cann Group Limited (ASX: CAN) is engaged in the cultivation of medicinal cannabis for medicinal and research purposes. It also develops and manufactures finished product formulations through third party arrangements. The Group has recently updated about its FY21 performance.

• It progressed with the start of the commissioning of the Mildura facility during the year and has also successfully acquired and integrated the Satipharm business.
• The company reported an increase in sales revenue to $4.29 million in FY21, compared to $0.65 million in FY20.
• The Group reported a loss of $25.10 million during the year.
• Net assets of the company stood at $91.87 million as of 30 June 2021, compared to $61.07 million in the prior year-end.
• It ended the period with a cash position of $3.105 million as of 30 June 2021.

Trend in Revenue (Source: Analysis by Kalkine Group)

Key Risks: The company’s line of business makes its prone to the risk of under the watch of prudent regulatory purview, which can have an impact on its operations.

Outlook: The company expects to generate value over the acquired assets going forward. This comprise of the new cultivation and manufacturing facility at Mildura and purchase of the Satipharm business.

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: On 25 August 2021, the company has announced that Deborah Ambrosini has been appointed as the CFO of the firm with effect from 1 September 2021. As per ASX, the stock of CAN is trading below its average 52-weeks’ levels of $0.275-$0.915. The stock of CAN gave a positive return of ~3.50% in the past one month and a negative return of ~25.31% in the past one year. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at a slight discount to its peers’ average, considering the net loss and lower asset turnover compared to industry median. For the purpose of valuation, few peers like Mayne Pharma Group Ltd (ASX: MYX), AFT Pharmaceuticals Ltd (ASX: AFP), Probiotec Ltd (ASX: PBP) have been considered. Considering the expected upside in valuation & current trading levels, increase in sales revenue, progress on the Mildura facility, increase in cash position and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.290, down by ~3.334% as on 01 September 2021.

CAN 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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