This report is an updated version of the report published on 17 July 2024 at 2:38 PM AEST.

Neuren Pharmaceuticals Ltd (ASX: NEU

Neuren Pharmaceuticals Ltd (ASX: NEU) is engaged in the development of new drug therapies targeting the treatment of neurological disorders.

Recommendation Rationale – SELL at AUD 22.13

• No Dividend Paid: NEU did not issue a dividend in FY23, despite an increase in revenues and net income. It's important to note that the company experienced net losses in FY21 with a slight recovery in FY22. Looking ahead, weaker financial performance or failure to meet expectations may result in a drop in stock value.
• Trading around Resistance: NEU’s share price has breached R1 level recommended on 10 July 2024; and therefore, there can be a possibility of decline from resistance levels.
• Overvalued Multiples: On a forward 12-month basis – key trading multiples such as EV/Sales, EV/EBITDA, Price/Earnings, and Price/Cash Flow are higher than the median of pharmaceuticals sector.
• Risks: The market sentiments can remain weak in the short-term due to the subdued consumer disposable income, geopolitical tensions, and political risks. Changes in regulatory requirements, unexpected feedback, or failure to meet regulatory standards can delay or prevent product approval, impacting the company's revenue potential.

NEU’s Daily Price Chart

(Source: Trading View)

Valuation Methodology: Price/Earnings Approach (FY Dec'25E) (Illustrative)

NEU is expected to trade at a slight premium of 1%, owing to its successful partnership with Acadia Pharmaceuticals in US. This collaboration has supported the guidance for FY24 net sales between USD 370mn to USD 420mn, reflecting Neuren royalties within AUD 61 to 70mn. For conducting the valuation, the following peers have been considered: Australian Clinical Labs Ltd (ASX: ACL), Ramsay Health Care Ltd (ASX: RHC), Sonic Healthcare Ltd (ASX: SHL), and Vita Life Sciences Ltd (ASX: VLS).

Given its current trading levels, recent rally in the share price, downside indicated by valuation, and risks associated, it is prudent to book profit at the current levels. Hence, a ‘Sell’ recommendation is given on the stock at the current price of AUD 22.13, at 10:15 AM AEST as of July 17, 2024.

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

Note 1: Past performance is neither an indicator nor a guarantee of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is 17 July 2024. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level at which 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 at which 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: In general, it is a level to protect further losses in case of any unfavourable movement in the stock prices.