Two Companies Primed for Impressive Growth: AVITA Medical, Southern Cross Media Group

Summary

• The coronavirus pandemic has seen stock values plummet to new lows. Companies have struggled to stay afloat with stalled business activities and limited revenue generation.
• Some businesses have shown resilience and are primed for impressive performance as the Australian economy is on its recovery path.
• AVITA’s recently filed a supplement to the US FDA to assess RECELL® System for vitiligo to benefit; approval likely to boost the top-line of the Company.
• SXL completed the equity raising worth ~$169 million to lower debt and improve its liquidity position; advertising revenues expected to pick up as businesses become fully operational.

The market mayhem caused due to the COVID-19 pandemic is having an extended impact with economies expected to take a considerable amount of time to get as close to the pre-COVID-19 era as possible.

The Australian securities market is in a recovery phase after the ease in restrictions imposed due to the pandemic. Businesses have resumed their operations and are aiming for 100% operational activity as the situation improves further. Investors, who have had an elongated heartbreak, are actively seeking stocks that have shown resilience and are set to grow as things get back on track.

In this article, we will look at two such stocks that look likely to perform well going forward.

AVITA Medical Limited (ASX:AVH)

A regenerative medicine player, AVITA Medical Limited, manufactures products that treat burns, traumatic wounds, vitiligo, and scar revision.

The Company recently announced that it has scheduled to conduct its general meeting on 15 June 2020 to contemplate a motion authorising the planned scheme of arrangement to effect the Company’s and its subsidiaries’ a re-domiciliation to the US from Australia. AVITA, on 5 June 2020, received approval from the Foreign Investment Review Board for the same.

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On 2 June 2020, AVITA announced that in order to initiate a pivotal clinical trial to investigate the RECELL® System for the treatment of vitiligo, an Investigational Device Exemption supplement had been submitted with the US Food and Drug Administration.

With around 6.5 million vitiligo patients in the US and limited options available for treatment, AVITA could have a significant opportunity to tap if the device is approved.

Decent growth in Q3 FY20

• For the third quarter ended 31 March 2020, the Company reported total revenue amounting to $8,065 million, as compared to Q3 FY19 revenue of $4,822 million.
• During Q3 FY20, the Company experienced impressive growth in commercial efforts with growth surpassing 20% in the US RECELL System revenue and procedural volume.
• The Company also added certified additional 21 surgeons and nine new customers. This brought its total customers and certified burn surgeons to 69 and 205, respectively.
• The quarter proved to be the first for the RECELL System, where it was utilised in over 400 procedures demonstrating continued strong endorsement of the exceptional benefits of the RECELL System.
• During Q3 FY20, total cash receipts stood at $5,743, reflecting a decline of $1,946 against the quarter ended 31 December 2019. Cash receipts from customers went up by 7% to $5,254 as compared to the previous quarter because of the increased sales.
• During FY20, AVITA would continue to target new account initiation. However, the rate of progression is expected to be impaired by the current operating environment.
• The Company was well-capitalised and did not require additional funding.

Stock Performance

The stock of AVH ended the day’s trade at $0.430 per share on 12 June 2020, reflecting a fall of 6.522% against its previous closing price. The Company has a market capitalisation of $987.34 million, with approximately 2.15 billion outstanding shares. The stock delivered returns of -2.13% and -14.81% in the last three months and last six months, respectively.

Southern Cross Media Group Limited (ASX:SXL)

Southern Cross Media Group Limited develops and broadcasts content on television, free-to-air commercial radio, and online media platforms across Australia.

The Company has seen major shareholders selling their stake in a time that has seen SXL impacted by the coronavirus. However, last month’s returns on the Company stock have been impressive, giving a ray of hope to all the stakeholders involved.

Capital Structure and Operational Initiatives

In May, the Company announced the completion of the capital raising it had initiated on 6 April 2020 to lower debt and improve liquidity position.

• The Company has generated around $169 million via a placement to institutional and sophisticated investors and pro-rata non-renounceable entitlement offer.
• The Company experienced a take up rate of around 92% by institutional shareholders in entitlement offer. The Company would use the proceeds to decrease net debt and to fund transaction costs.
• SXL had cancelled its FY20 interim dividend and decided to pay no dividend. Moreover, the Company forecast to pay no dividend during FY21.
• The Company has also deferred non-essential capex via decreasing its anticipated capex for FY20 to $17 million – $18 million and its expected capex in FY21 to $15 million – $16 million.

DO READ: How these median stocks are performing amid pandemic?

On the operational front, the Company stated that the recent advertising markets have been challenging, while the audio audiences are strong and growing.

• For the nine months ended 31 March 2020, SXL reported a decline of 10% in advertising revenue against pcp.
• Digital audio was rising via original and catch-up radio podcasting and live streaming of broadcast radio.
• In the month of April 2020, the Company achieved positive EBITDA. As on 4 May 2020, the net debt position of the Company stood at $161.8 million.

Stock Performance

The stock of SXL ended the day’s trade at $0.200 per share on 12 June 2020, reflecting a fall of 9.091% against its previous closing price. The Company has a market capitalisation of $581.26 million, with approximately 2.64 billion outstanding shares. The stock delivered returns of -44.72% and -65.41% in the last three months and last six months, respectively. However, an impressive 37.50% return in the last month indicates the stock is on the right track with improved investor sentiment.

NOTE: $ denotes Australian Dollar unless stated otherwise.