SRX 0.00% $33.55 sirtex medical limited

SRX: looking good again

  1. 31 Posts.
    Technically its looking very good today again. I had been in this stock because the chart was looking so good from a technical perspective (it was difficult to gauge any growth pattern in the accompanying fundamentals until now).

    I just had a go at some fundamental analysis based on the more detailed information historical info. available.

    The report shows that sales are increasing rapidly, with the July-August billings being the "quietest" back to back monthly period mentioned in the report.

    To be conservative I have used this "slow" 31% sales growth as my monthly sales growth assumption for the rest of this financial year, 2003. If this growth trend continues for the remainder of the year (not unreasonable given the now obvious high level of uptake and lack of competition) then the turnover for the year to June 2003 could rise to A$25.8mn, representing 1,017 treatments in total for the year. This in itself is not unreasonable as 1,017 represents less than 2% of the total number of SirTex's market (secondary cancers) in the US alone.

    The investor presentation shows that gross margins on product sales are historically 70%, so the free cash generated from sale of product treatments could reasonably be over A$18mn for the year. Economies of scale should actually increase the margin achievable!

    Let me assume that indirect overhead costs increase a whopping 50% on last year, to $6mn (hey , the guys will want, and deserve, some bonus for turning this research into a commercial income stream). After deducting A$4.1mn corporation tax, we, the shareholders, are left with is a maiden full year profit of $7.96mn.

    Based on today's 57mn shares on issue this would equate to 15c per share, or a p/e ratio of 16 based on the closing share price of $2.40. Speciality pharma companies typically trade on p/e's of 20-30. Given the small size and execution risk in the growth strategy, I think that the share is fairly valued today from a fundamental perspective. If they do execute and deliver the above results then expect to see $3-$4.50 this time next year. Bear in mind also that this analysis ignores upside in other markets and new treatment roll out.

    My gut feel is that the quarterly reports will be a joy to read over the next year or so, and that there will be significant price appreciation on each report.

    All IMHO and please do your own research

    Any other views on Sirtex out there?
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