Cellmid Limited (CDY): Initiation of coverage. BUY. Target Price...

Cellmid Limited (CDY): Initiation of coverage. BUY. Target Price A$1.06

https://crm.boeq.com.au/files/CDY-2018-Sep-13-1846.pdf

Growth Trifecta. New geographies. New channels. New products.CDY’s pioneering haircare range is set for their global expansion into China and the USA. Both markets are expected to deliver strong growth driven by premium retailer adoption, pharma distribution agreements, television shopping and strong industry tailwinds. Revenue growth of 62%/56% in FY19/FY20Market entry into China alone expected to deliver at least 3x FY18 revenue on a 5-Yr view.US market penetration has commenced in FY19 in top-tier premium retailers with significant store rollout expected over 5-Yr horizon to deliver continued growth.A further 4x increase in product range should boost utilisation in existing Australian and Japanese channels, bolstering existing markets.Near term profit & cash generation.We expect CDY to commence recording positive NPAT in FY20. We estimate EPS growth of 66%/225% in FY19/FY20 and FCF generation in FY20 following significant inventory investment in FY19 to meet demand. CDY has carry forward tax loss credits of A$24M and we estimate no tax expenses until FY23.Target Price $1.06. Implied return 165%.We value CDY at $1.06/s based on a DCF valuation of $0.75/s for the Advangen subsidiary and at $0.31/s for the midkine asset based on market comparables.We note our strategic TP is $1.35 based on successful approval by the Chinese FDA in FY19 for the évolis® brand.We believe risk is to the upside with further retail partnerships likely to materialise.https://crm.boeq.com.au/files/CDY-2018-Sep-13-1846.pdf