With the Market Cooling Off, A Glance at Two ASX Growth Stocks - Mesoblast, Ansell

Summary

• Though the COVID-19 pandemic harmed most of the companies, also created opportunities for a few industries to grow amid the challenging scenario.
• Many companies whose shares improved with a strong performance were seen trending downward last week because of tech-driven fall on ASX. However, the indices have recovered in the first two days of this week.
• Biotechnology company, Mesoblast reported a massive 92% growth in its FY2020 revenue to US$32.2 million.
• Data Safety Monitoring Board recommended Mesoblast to continue Phase III trial for patients with ARDS due to COVID-19.
• Gloves and PPE manufacturer Ansell Limited reported impressive results in FY2020 with EPS at the top end of the guidance range. The Company is well placed to respond and adapt to the prevailing challenges.

The week ended 4 September 2020 was a challenging one for indices around the globe, including ASX, due to the significant drop in the index values as a result of tech-driven fall seen on Wall Street. However, there has been an improvement, albeit marginal, in the first couple of days this week. By the closure of the market on 8 September 2020, multiple ASX-listed indices closed in the green zone. The banking sector led the way during the day while consumer staples could not do well on ASX with a marginal drop of 0.07% in the index value.

ALSO READ: Why NASDAQ Composite index plunged 5%?

Information Technology, which was the worst-performing sector the previous week, has shown slight improvement of 0.03%.

There have been some bright spots in the current environment with the pandemic creating opportunities for industries including healthcare and technology. The stocks from such sectors improved considerably during the period. However, as the market cooled down, these stocks followed a downward trend.

INTERESTING READ: COVID-19: A Catastrophe For Most But A Boon For Some; Biotech Players Relishing The Boom

In this article, we would look at two such growth stocks, which started moving south this past week.

Mesoblast Limited (ASX:MSB)

Biotechnology company, Mesoblast Limited reported significant corporate progress as compared to the previous final year. The most remarkable achievement made by the Company was the successful FDA Advisory Committee meeting that was held during August 2020. It resulted in a positive vote in support of the efficacy of MSB’s lead product candidate remestemcel-L (RYONCIL™) for children with steroid-refractory severe graft against host disease (aGVHD).

Simultaneously, as per its anti-inflammatory effects in aGVHD, the Company has positioned remestemcel-L to tackle the most major inflammatory difficulties in children and adults infected with COVID-19.

Also, the Company reported a 92% growth in its revenue to US$32.2 million for FY2020. There was a 13% reduction in the loss after tax despite US$13.8 million boosted investment in commercial readiness for the possible US launch of RYONCIL. As on 30 June 2020, the Company had net cash and cash equivalent of US$129.3 million, after US$90 million capital raise from global institutional investors in May 2020.

The capital raised by the Company would be used for the commercial launch of RYONCIL for acute GVHD. It would support the Company to scale up manufacturing for an estimated rise in capacity requirements for the maturing pipeline. It comprises of GVHD label extensions and COVID-19 ARDS.

DO READ: Has the ASX 200 Healthcare Stock Mesoblast Touched a new 52-week high?

DSMB Recommends Mesoblast to Continue Phase 3 of COVID-19 Trial:

On 04 September 2020, Mesoblast announced that the independent Data Safety Monitoring Board recommended continuing the phase 3 trial of remestemcel-L in COVID-19 patients with moderate to severe acute respiratory distress syndrome. The announcement was made post the completion of the trial’s first interim analysis on the first 30% of the total target of randomised patients.

Stock Performance:

The achievements made by the Company during FY2020, supported its share price to zoom up on ASX. If we see the performance of MSB shares in the last six months, the shares have delivered excellent growth of 155.74% and over 24.47% growth in the past three months. However, since last week, the shares have moved in the opposite direction with a negative return of 10.69%. By the end of the day’s trade on 8 September 2020, MSB share price was up 0.641% settling at A$4.710. The Company has a market capitalisation of A$2.74 billion and 584.89 million outstanding shares.

Ansell Limited (ASX:ANN)

Ansell Limited is a world leader in delivering superior health and safety protection solutions that improve human well-being. Despite the operational challenges imposed by COVID-19, the Company was able to deliver a high-quality financial result with strong growth in the sales and earnings. Ansell also witnessed strong growth in sales and earnings coupled with strong cash flow generation and improved return on capital employed.

The Company’s EPS was at the top end of the guidance range. It shows that the Company successfully executed its business strategy and also the resilience of the business.

Ansell’s balance sheet was strong with the liquidity of ~US$605 million in the form of cash and committed undrawn bank facilities available at 30 June 2020. Because of the uncertainty prevailing at present, the Company decided to pause its share buyback program at the end of March 2020.

FY2021 Outlook:

At present, Ansell is well placed, and it is in a position to continue to respond and adapt to the prevailing challenges. In FY2020, the Company’s well-balanced portfolio with strong brands supported it nicely. The Company expect similar support in the upcoming period as well. The Exam/Single Use industry is anticipated to continue to witness considerable supply shortages which are expected to result in improved costs from outsourced suppliers.

The outlook for the Strategic Business Units is likely to stay mixed during FY2021, with considerable growth in Exam/Single Use, Chemical, Surgical and Life Science, negated by weakness in Mechanical.

Ansell expects its organic growth to be significantly more than 3% to 5% long term target levels propelled by price and volume increases. Looking at the increased demand for several products offered by the Company, Ansell would continue to invest further to increase capacity but also remain focussed on automation to drive proficiencies.

In FY2021, the capital expenses are expected to be in the range US$95 million - US$105 million. The net interest expense anticipated to be in between US$19.5 million and US$20.5 million. The range is higher than the previous year because of the lower rates on cash invested.

Stock Performance:

Ansell’s strong performance aided its share price movement with a growth of nearly 34% in the last six months. However, the price was down 4.46% in the previous five days. By the end of the day’s trade on 8 September 2020, ANN shares settled flat on ASX. The Company has a market cap of A$4.66 billion and 128.57 million outstanding shares.

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