ConvaTec Group PLC

ConvaTec Group PLC (LON: CTEC) is an FTSE 250 index listed technology and medical products Company that specializes in wound treatment, continence and critical care, infusion devices, and ostomy care.

CTEC will release full-year FY21 results on 08 March 2022.

Investment Rationale – BUY at GBX 168.05

• Acquisition Benefits: The Company will strengthen its Wound Care business in the US with the acquisition of Triad Life Sciences Inc.
• New Launches: CTEC remained on track regarding the launch of new products such as MioAdvance Extended Wear Infusion Sets and the GentleCathTM Air male catheters 2022.
• Strong Financial Performance: The operating profit remained USD 136 million during H1 FY21, 19.9% growth on a YoY basis. On the liquidity front, the current ratio of CTEC remained significantly ahead of the industry median during H1 FY21.
• Technical Indicator: From a technical standpoint, the stock price is hovering between the lower Bollinger band and the middle Bollinger band, reflecting a bullish price momentum. Moreover, the 14-days RSI of ~29.05 approaches oversold territory.

Key Risks

• Federal Reserve Meeting: The latest Federal Reserve Meeting indicated an interest rate hike by March 2022. Thus, it may cause a significant decline in Global Equities.
• Compliance Risk: The Company operates in a highly regulated market, and any non-compliance with rules and laws could lead to penalties and loss of reputation.

Recent Developments

Acquisition: On 28 January 2022, the Company updated that it would acquire Triad Life Sciences Inc. for an initial consideration of USD 125 million with potential USD 50 million for short-term milestones. The transaction is expected to get completed by Q1 FY22.

Q3 FY21 Trading Update (for the three months ended 30 September 2021, as of 29 October 2021)

(Source: Company Results)

• Decent Revenue Growth: The Company posted decent revenue growth of around 5.4% on an organic and constant currency basis during 9M FY21, whereas revenues for Q3 FY21 was up 2.7% in constant currency and 2.2% on an organic basis.
• Balance Sheet: CTEC had strengthened the balance sheet with the successful issuance of USD 500 million 2029 senior unsecured notes.

One Year Share Price Chart

 (Data Source: REFINITIV, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21E) (Illustrative)

Conclusion

CTEC expected organic revenue growth to remain towards the upper end of guidance ranging from 3.5% to 5%. Meanwhile, the Company had forecasted adjusted EBIT margin to be between 18.0-19.0% on a constant currency. CTEC has appointed Jonny Mason as a CFO with effect from 31 January 2022. He has an extensive track record in publicly listed and international businesses. Overall, CTEC had maintained strong business momentum and made further strategic progress implementing key transformation initiatives and improving execution. The stock made a 52-week High and Low of GBX 265.00 and GBX 165.30, respectively.

Based on a decent financial performance during H1 FY21, new product launches, and support from the valuation conducted above, we have given a “BUY” recommendation on ConvaTec Group PLC at the closing market price of GBX 168.05 (as on 27 January 2022), with lower double-digit upside potential based on 20.08 Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

Oncimmune Holdings PLC

Oncimmune Holdings PLC (LON: ONC) is a FTSE AIM All-Share listed Company that develops immunodiagnostics, focusing on immuno-oncology, infectious diseases, and autoimmune disease.

Investment Rationale – Speculative Buy at GBX 152.00

• Commercialization: ONC had recently signed a master service agreement with the top 5 global pharma companies regarding the commercialization of ImmunoINSIGHTS autoantibody biomarker service.
• Acquisition: The strong commercial foundation following the acquisition of Protagen Diagnostics AG holds long-term revenue potential.
• Strong Top-Line Business: During FY21, Oncimmune Holdings reported over six times increase in revenue on FY20 to £3.7 million.
• Technical Indicator: From a technical standpoint, the momentum oscillator 14-days RSI (~38.29) is around the oversold zone, while the stock price is hovering close to the lower Bollinger Band.

Key Risks

• Loss-Making Entity: The Company has a history of operating losses, which can take some time to be profitable amid the rising level of supply chain disruption and market inflation.
• Macroeconomic Uncertainty: As the Federal Meeting has signalled the interest rates hike and monetary policy tightening, it can keep the equity market under pressure.

Financial Highlights (for the 12 months ended 31 May 2021, as on 2 November 2021)

(Source: Company Website)

• Top-line Growth: During FY21, revenue jumped over six times when compared with FY20.
• Liquidity: It ended FY21 with a cash balance of £8.6 million and net debt of £0.8 million, including lease liabilities.

One Year Share Price Chart

(Data Source: REFINITIV, Analysis done by Kalkine Group)

Valuation Methodology: EV/Sales Approach (FY22) (Illustrative)

Conclusion

ONC has demonstrated excellent top-line growth in FY21 despite the Covid-19 challenges. Considering the penny nature of the stock, investors should review their risk-return profile before punting on this stock amid rising market volatilities. Notwithstanding, the outlook for FY22 seems promising with ImmunoINSIGHTS service contracts, which can lead to strategic commercial partnerships. The stock made a 52-week High and Low of GBX 261.63 and GBX 141.00, respectively.

Based on the recent commercial partnerships, outstanding top-line growth, , and support from the valuation conducted above, we have given a “Speculative Buy” recommendation on Oncimmune Holdings PLC at the closing market price of GBX 152.00 (as on 27 January 2022), with lower double-digit upside potential based on 9.73x EV/NTM Sales (approx.) on FY22E sales (approx.).

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.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

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

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332. Kalkine Limited is authorised and regulated by the Financial Conduct Authority under reference number 579414.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation.

Kalkine does not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation. Kalkine’s non-personalised advice does not in any way endorse or recommend individuals, investment products or services for your personal financial situation. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional authorised financial planner and adviser. You should be aware that the value of any investment and the income from it can go down as well as up and you may not get back the amount invested.

Kalkine Media Limited, an affiliate of Kalkine Limited, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.