Fisher & Paykel Healthcare Corporation Limited

FPH Details

Spotlight on 1HFY22 Numbers: Fisher & Paykel Healthcare Corporation Limited (ASX: FPH) is engaged in designing, manufacturing, and marketing products and systems for utilisation in surgery, respiratory care, acute care, and the therapy of disruptive sleep apnea.

• For the six months ended 30 September 2021, FPH reported operating revenue of NZ$900 million, down by 1% on pcp. On a constant currency basis, revenue was up 2% on pcp basis. The company is taking the necessary measures to strengthen its position worldwide, with a continuous expansion in its installed base of hardware in hospitals.
• Gross margin during the period stood at 63.1%, up 135 basis points from the prior corresponding period, owing to higher demand during the initial surges of COVID-19.
• The company exited the period with total cash and investments balance of NZ$288.4 million. At the end of 30 September 2021, net cash stood at ~NZ$216.1 million. Cash inflow from operating activities clocked at NZ$127.5 million in 1HFY22. The company declared an interim dividend of NZD 0.17 in H1FY22, up from NZD 0.16 reported in 1HFY21.

Segmental Performance; Analysis by Kalkine Group

Risk Analysis:  FPH has experienced a high intensity of sales of its products during the COVID-19 peak in FY21 period. Therefore, it is faced with the risk of sales normalisation once the COVID-19 cases subside. Moreover, higher air freight volumes and elevated freight costs add to the woes.

Outlook: FPH remains on track to add further three more manufacturing facilities located outside New Zealand, the first of which is presently under construction in Tijuana, Mexico. For FY22, the company anticipates reporting operating revenue in the ambit of NZ$1.675 billion to NZ$1.70 billion. The company intends to release its FY22 results on 25 May 2022 and hold an investors’ day on 26 May 2022.

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 the company has been corrected by ~30% in the past three months. Currently, the stock is trading near its 52-week low level of A$18.94. The stock of the company 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 some discount compared to its peers, considering the risks related to COVID-19, foreign currency risk, strict regulatory approval, etc. For the purpose of valuation, peers such as Cochlear Ltd (ASX: COH), Nanosonics Ltd (ASX: NAN), Sonic Healthcare Ltd (ASX: SHL), and others have been considered. Considering the above-mentioned factors, stable dividend policy, geographical diversification, modest long-term outlook, current trading levels, indicative upside in valuation, and key risks associated with the business, we recommend a “Speculative Buy” rating on the stock at the closing market price of A$19.19, down by ~0.156% as on 10 May 2022.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

FPH Daily Technical Chart, Data Source: REFINITIV  

Volpara Health Technologies Limited

VHT Details 

Recent Updates: Volpara Health Technologies Limited (ASX: VHT) is engaged in offering an integrated platform for the delivery of customised breast care through breast imaging analytics. Recently, the company announced that Ralph Highnam has ceased to be a director in the company, effective from 21 April 2022.

Q4FY22 Key Highlights:

• Higher Annual Recurring Revenue: VHT recorded an ARR of ~NZ$31.8 million (~US$22.2 million) in Q4FY22, up more than US$700k from 3QFY22, owing to continued growth in SaaS metrics. The average revenue per unit (ARPU) for the installed base came in at US$1.51 at the end of 4QFY22, compared to US$1.47 in 3QFY22.
• Usage of Software Product: In Q4FY22, the company reported a minimum of one software product, which was availed for the screening of ~35.5% safer and more relaxed breast cancer screening facility for women in the US, up from ~35% at the end of the 3QFY22.
• Liquidity Position: The company witnessed robust cash receipts from customers of NZ$8 million in the running 4Q, depicting a rise of 48% year over year. Notably, subscription-based receipts grew ~39% year on year, and around 41% on a constant currency basis. Net operating and investing cash outflow stood at NZ$2.9 million, an improvement of 20% from the prior quarter.

Cash Highlight; Analysis by Kalkine Group

Risk Analysis: The company is exposed to stiff competition risk in lungs and breast contracts space with minimal product differentiation. It is worth mentioning that the company remains cautious regarding its declining cash balance, which might hinder it from pursuing its long-term objectives. 

Outlook: VHT has made two significant acquisitions, namely MRS Systems, Inc. and CRA Health, LLC. With the ability to carry out additional acquisitions, it is pursuing to discover the next set of quality businesses for future growth. The company is witnessing enormous impetus for its Breast Health platform and remains focused on building an improved patient experience, clinical software, quality management, and personalised care systems.

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 the company has been corrected by ~34.33% in the past six months. Currently, the stock has a 52-week’s high and low levels of A$1.33 and A$0.66, respectively. 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 upside (in % terms). The company might trade at a slight discount compared to its peers, considering integration risk, declining cash balance, negative ROE, etc. For the purpose of valuation, peers such as Nanosonics Ltd (ASX: NAN), Pro Medicus Ltd (ASX: PME), Polynovo Ltd (ASX: PNV) and others have been considered. Considering current trading levels, indicative upside in valuation, higher ARR, optimistic outlook, acquisition synergies, a strong foothold in lung cancer screening space, and key risks related with the business, we recommend a “Speculative Buy” rating on the stock at the closing market price of A$0.74, down by ~4.516% as on 10 May 2022.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

VHT 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.

Disclaimer

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