Sirtex Medical: Interim result 2018
Recommendation
It was a big year for Sirtex Medical: the end of all clinical trials and non-core research, a new chief executive, and last month an all-cash $28 per share takeover offer from US-based radiotherapy maker Varian Medical Systems.
Six months to 31 Dec | 2017 | 2016 | /(–) (%) |
---|---|---|---|
Revenue ($m) | 109.3 | 112.8 | (3) |
EBITDA ($m) | 34.1 | 29.2 | 17 |
NPAT ($m) | 23.5 | 20.8 | 13 |
EPS (c) | 42.0 | 36.1 | 16 |
The company's ongoing cost-cutting program had a dramatic effect on margins for the six months to December, with earnings before interest, tax, depreciation and amortisation (EBITDA) rising 17% to $34m despite flat dose sales. Revenue fell 3% to $109m, mainly due to unfavourable currency movements and more sales occurring in lower-priced markets.
Operating expenses fell 16% due to cuts in research and development (R&D) spending and the completion of all clinical trials. The company remains debt free with $93m in the bank.
Management maintained previous guidance for EBITDA of $75m–85m for the 2018 financial year and said it is making progress with the Scheme of Arrangement documentation, which shareholders are due to receive in April.
The stock rose almost fivefold from when we first upgraded it on 8 Nov 10 (Speculative Buy – $5.90) to our Sell recommendation a few weeks ago – an annualised return of 24% including dividends. You can read a full account of our history with the stock – and lesson's learned – in James Greenhalgh's recent blog: Sirtex: story of a lucrative investment.
The stock trades on a forward price-earnings ratio of 27 based on consensus estimates for 2018 and is hovering just below Varian's offer price of $28. As we explained in last month's Sell recommendation, we don't think it's worth holding out for an extra few cents, nor a superior bid, and recommend you forgo the takeover offer and sell your holding on the market instead. You'll get cash in the bank within a few days, rather than potentially wait months, and avoid any pain if the deal falls through. We're sticking with SELL.