Daily Brief Australia: Downer EDI Ltd, Mayne Pharma, Respiri Ltd, Schrole Group Ltd and more

• As per Downer (DOW AU)‘s website: “Our purpose is to create and sustain the modern environment by building trusted relationships with our customers“. They should extend that trust to shareholders.
• Having already announced accounting irregularities back in December, Downer further cut profit forecasts – and interim dividend – this week. After shares cratered 24%, Downer’s CFO promptly tendered his resignation.
• Allan Grey, which holds 6% in Downer, reckons the company has been inept and that a “culture reset” was in order. 

• Downer EDI Ltd (DOW AU) shares are battered on the back of two quick successive profit warnings, accounting restatements and dividend cuts.
• A worrying deterioration in cash generation and an increase in leverage add to the nervousness. Management flux adds to the uncertainty and the chance of a third profit warning.
• While Downer’s multiples are in line with peers, momentum is against it and there are question marks if the earnings have been flattered by the misuse of exceptional items.

• Mayne Pharma (MYX AU) reported triple-digit revenue growth in branded products division in H1FY23, driven by oral contraceptive Nexstellis, which contributes ~80% of segment sales.
• The company had an encouraging start to H2FY23. Both Nexstellis and dermatology are expected to exit FY23 with a positive run-rate contribution.
• The company has decided to cancel the previously proposed pro rata capital return and intends to use its cash in a better and productive way.

Respiri’s H123 report summarised an eventful period, marked by commercial traction (six client wins; patient onboarding commenced at four centres) and recognition of the first remote patient monitoring (RPM) revenue from the Centers for Medicare & Medicaid Services (CMS). H123 revenues were A$0.6m (primarily R&D tax credits), lower than A$0.7m in H122, but we expect (wheezo-related) product sales to ramp up with increased patient onboarding and associated annuity income. The partnership-based US commercial strategy, along with tight checks on expenses, benefited operating performance, with the adjusted EBITDA loss improving 15% y-o-y to A$2.3m. The end-H123 cash balance of A$0.2m was bolstered by the A$1.9m post-period equity raise, which we estimate will provide runway into Q124. We adjust our estimates to reflect H123 performance and FX changes, which resulting in revising our valuation to A$165.5m or A$0.20/share (from A$189.1m or A$0.24/share previously).