EUR 850.00 For Business Accounts Only

Morningstar | Sirtex FVE Unchanged After Full-Year Result; All Eyes on Upcoming Shareholder Vote

No-moat-rated Sirtex fell well short of our expectations in its fiscal-year results, with net profit after tax of AUD 41.5 million on revenue of AUD 218.8 million, compared with our forecast AUD 57 million and AUD 258 million, respectively, with management citing distractions associated with the various takeover bids in the second half for its underperformance. On a positive note, cash on the balance sheet grew a healthy 39% to AUD 69.9 million and no debt, reflecting disciplined control of costs by current management. Nonetheless, with the China-based takeover bid currently under way, we think the result is largely irrelevant to our valuation

Our fair value estimate reflects the offer and stands at AUD 33.60. We expect shareholders to follow the Sirtex Board's recommendation, and vote in favour of the proposed acquisition of Sirtex by China-based CDH Genetech Ltd and China Grand Pharmaceutical and Healthcare Holdings Ltd, or CDH-CGP, at AUD 33.60 per share, on Sept. 10, 2018. Similarly, management expects shareholders to say yes and thereafter complete the transaction on the targeted date of Sept. 20, 2018. We note CGP shareholders recently voted in favour of the deal.

Importantly, the CDH-CGP scheme includes a AUD 200 million break fee should the transaction not proceed. As such, we remain confident the deal will go ahead as planned, making today's result immaterial to our assessment of the company's intrinsic value. At current levels, shares are trading broadly in line with our fair value estimate.

On a stand-alone basis, our no-moat rating on Sirtex is intact and reflects its single product focus and prospects for its SIR-Spheres product, now largely confined to a last line salvage therapy setting following the spate of disappointing clinical trial results rendered in 2017.