ABIOMED Inc.

ABIOMED Inc. (NASDAQ: ABMD) is a provider of medical devices. It also offers support to heart and lung failure patients. It is engaged in the research, development and sale of medical devices.

Investment Rationale for Valuation – Buy at USD 280.28

• ABMD recently acquired preCARDIA, a leading medical device company. It would expand ABMD’s product portfolio to heart failure patients.
• ABMD in 2020 acquired Breethe, which would complement ABMD’s offerings for lungs failure patients.
• The Company has strong liquidity to make further investments. Its cash position surged by ~30.2% YoY in FY2021.
• On the profitability front, ABMD’s net margin is consistently higher than the industry median of 0.4% since FY2014. On the liquidity front, ABMD’s current ratio since FY2014 is higher than the industry median of 3.46x.
• On the leverage front, the debt/equity ratio is zero, which is below the industry median of 0.27x. Hence, ABMD could raise adequate liquidity at a lower rate.
• From a technical standpoint, 14-day RSI at ~40.61 is close to the oversold zone, indicating a potential uptick in the stock price in the near term.

Key Risks

• In Europe, ABMD’s products are subject to high regulatory requirements. In the US, it is exposed to FDA regulations.
• ABMD is subject to risks associated with public health concerns and epidemics. Epidemics affect ABMD’s operations as well as the operations of its suppliers, customers and business partners.
• The business is also subject to risks due to worldwide economic conditions and volatility in the markets.
• Quarterly sales are affected by new product introductions, acquisitions, physician holidays and regulatory approvals, among others.

Financial Highlights (for the year ended 31 March 2021 (FY2021), as of 29 April 2021)

(Source: Company Website)

• Mainly due to a decline in the number of patients in Q1 FY2021 and restrictions in many countries, Impella product revenue in FY2021 was down by USD 0.5 million YoY to USD 806.3 million.
• Driven by an increase in preventive maintenance service contracts, Service and other revenues for FY2021 was up 21% YoY.
• Overall, the rise in Service and other revenue more than offset the fall in the Impella product revenue. Hence, total revenue rose by USD 6.6 million YoY in FY2021.
• This resulted in net income surging ~11.1% YoY in FY2021.
• Driven by ABMD’s cash accretive operations, cash position surged by ~30.2% YoY in FY2021.

One Year Share Price Chart

(Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

The Company has made several acquisitions that complement and enhance its operations. It currently has a solid liquidity position to make further investments. Driven by vaccinations, the US market is gradually coming back on track, and the situation in international locations is also expected to improve. For FY2022, the Company would continue to invest in research and development and innovate the best heart and lung support technologies. With zero debt and substantial liquidity, the Company is ready for growth and weather any further adverse impacts. The stock made a 52-week low and high of USD 230.66 and USD 387.40, respectively.

Based on recent acquisitions of the Company, its favourable profitability, liquidity and leverage profile than the industry, its continued investment in best-in-class innovation, and support from valuation as done using the above method, we have given a “BUY” recommendation on ABIOMED Inc. at the closing market price of USD 280.28 (as of 2 June 2021), with a lower double-digit upside potential based on 78.69x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Endeavour Silver Corp.

Endeavour Silver Corp. (NYSE: EXK) is a precious metal mining company from Canada. The Company owns silver-gold mines in Mexico.

Investment Rationale for Valuation – Expensive at USD 7.49

• The gold market is cyclical with significant price volatility. Hence, the financial performance of EXK is also uncertain to some extent as it has gold-silver mines.
• EXK’s operating costs in Q1 FY2021 are higher than planned. It could go further up due to adverse conditions.
• The Company had to sell its EI Cubo assets to boost its earnings in Q1 FY2021.
• On the profitability front, EXK’s EBITDA margin in Q1 FY2021 is lower than the industry median of 38.9%.
• The stock is trading very near its 52-week high price of USD 7.76. It reflects serious doubts regarding the upside potential of the stock.
• From a technical standpoint, 14-day RSI stood at around 70.52 in the overbought zone, which means the stock price could move downwards in the short term.

Key Risks

• The Covid-19 pandemic could lead to suspension of operations, labour absenteeism and hence, higher operational costs.
• There are stringent environmental and compliance guidance. Failure to comply with these could impact output and also lead to legal actions.
• There are technical and operational risks related to mineral exploration, development and mining.
• There are financial risks due to the prices of precious metals. Lower prices could affect margins.

Financial Highlights (for three months ended 31 March 2021 (Q1 FY2021), as of 11 May 2021)

(Source: Company Website)

• Driven by increased production and higher metal prices, revenue in Q1 FY2021 surged by 58% YoY to USD 34.5 million.
• Due to higher royalty costs and labour costs, the cost of sales rose by 16% YoY.
• However, the increase in costs was significantly lower than the surge in revenues. Hence, EXK achieved a net income of USD 12.2 million in Q1 FY2021 compared to a net loss in Q1 FY2020.
• The Company raised USD 30.1 million in equity financing in Q1 FY2021. The liquidity injection coupled with the profitability of EXK led to cash position rising 473% YoY in Q1 FY2021.

One Year Share Price Chart

(Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

The Company did not provide detailed guidance for FY2021 due to uncertainty in the market and volatility in the prices of precious metals. However, so far in FY2021, mining operations are meeting expectations. EXK plans to develop its next core asset at Terronera. Also, exploration is going on in all of its mines. The stock is currently trading very near its 52-week high price. The stock made a 52-week low and high of USD 1.76 and USD 7.76, respectively

Considering the lack of detailed guidance, continued macroeconomic uncertainties and price volatility of precious metals, and the stretched valuation of the Company, we have given an “Expensive” recommendation on Endeavour Silver Corp. at the closing market price of USD 7.49 (as of 2 June 2021), while we look forward to reinvesting when precious metal prices rise further, and there is clarity regarding the guidance.

*The reference data in this report has been partly sourced from REFINITIV.