New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>AFT Pharmaceuticals<br>Annual Meeting&nbsp;Check Up</h2>
<p></p>
<h3>RESEARCH&nbsp;INSIGHTS</h3>
<p>AFT Pharmaceuticals' (AFT) Annual Meeting saw FY21 guidance for strong profit growth reaffirmed and provided a reminder of the multitude of growth avenues being pursued. It appears to have navigated a challenging period well, no doubt with some monthly volatility. AFT trades on elevated forward multiples; albeit this does drop quickly assuming it executes on our strong near-term growth expectations. With the range of justifiable long-term outcomes wide, we expect AFT's share price to be driven by news flow in the near-term. The balance sheet is in good shape, with potential for a dividend from FY22E.&nbsp;</p>
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<li><strong>Earnings revisions</strong>:&nbsp;Small near-term&nbsp;EBIT&nbsp;downgrades (-2–4%) taking a slightly more conservative view on growth given some volatility from&nbsp;COVID-19 restrictions. We also incorporate the recent capital raise (where we had been restricted) and include a conservative dividend expectation from FY22E.</li>
</ul>
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<h3>No change to FY21 guidance for strong growth; albeit expect trading has been volatile from month to month</h3>
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<p>AFT reiterated FY21 EBIT guidance of NZ$14–18m (Forsyth Barr NZ$16.7m; +45% YoY), with upside risk from securing agreements in any new markets. ​​​​​​​COVID-19 is likely to have meant volatility in monthly trading (we expect lockdown saw weakness, while trading was strong pre and post) and mixed results across its various products. We also see risk of longer timelines for regulatory approval / new agreements. Nonetheless we expect AFT's product categories to remain resilient and its broad portfolio to mitigate risk.</p>
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<h3>Growth front and centre in the company's strategy</h3>
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<p>AFT is not one to sit still with multiple avenues targeted for revenue growth. This includes volume growth / market share in existing products &amp; markets, a large pipeline of new products at various stages of introduction in Australasia (including a target for 11 new approvals in FY21 and 38 in FY22) and further global expansion for Maxigesic and its line extensions. This, coupled with expected operating leverage, should support a strong near-term growth trajectory. Recent news flow has been supportive, including:</p>
</div>
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<ul>
<li><strong>Further distribution growth for&nbsp;Maxigesic&nbsp;IV</strong>:&nbsp;On 30 July 2020, AFT signed an exclusive licensing agreement for&nbsp;Maxigesic&nbsp;IV in six additional countries,​​​​&nbsp;with sales expected from CY21. It is now licensed in &gt;90 countries, at various stages of introduction.</li>
<li><strong>Rescheduling of codeine in NZ</strong>: From 5 November 2020, all medicines containing codeine will become prescription only in NZ. This is likely to provide a material boost to AFT's NZ Maxigesic tablet sales, although likely small in the context of the group.</li>
<li><strong>Focus on China</strong>:&nbsp;AFT is launching an NZ branded online&nbsp;Tmall&nbsp;store ("Kiwi Health") to target the Chinese market.</li>
</ul>
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<h3>Strengthening balance sheet; modest dividend appears feasible from FY22</h3>
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<div id="m_-4984648980752151013ind3j">
<p>Gearing has lowered (and will likely continue to) given the recent capital raise and AFT's improving free cashflow profile, even incorporating higher than usual inventory levels due to COVID-19. AFT reiterated that it will assess "potential for a dividend policy in FY22". Assuming a modest payout ratio (30–50%), our forecasts suggest a cash yield of c. 1–3% is feasible, with growth potential.&nbsp;</p>
</div>
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<div><strong>Chelsea Leadbetter CFA</strong></div>
<div><a href="mailto:chelsea.leadbetter@forsythbarr.co.nz" target="_blank" rel="noopener">chelsea.leadbetter@<wbr>forsythbarr.co.nz</a></div>
<div>+64 4 495 5262</div>
<div></div>
</div>
</div>
<div>
<div>
<div><strong>Matt Montgomerie</strong></div>
<div><a href="mailto:matt.montgomerie@forsythbarr.co.nz" target="_blank" rel="noopener">matt.montgomerie@forsythbarr.<wbr>co.nz</a></div>
<div>+64 9 368 0124</div>
</div>
</div>

AFT Pharmaceuticals Annual Meeting&nbsp;Check Up

RESEARCH&nbsp;INSIGHTS
AFT Pharmaceuticals' (AFT) Annual Meeting saw FY21 guidance for strong profit growth reaffirmed and provided a reminder of the multitude of growth avenues being pursued. It appears to have navigated a challenging period well, no doubt with some monthly volatility. AFT trades on elevated forward multiples; albeit this does drop quickly assuming it executes on our strong near-term growth expectations. With the range of justifiable long-term outcomes wide, we expect AFT's share price to be driven by news flow in the near-term. The balance sheet is in good shape, with potential for a dividend from FY22E.&nbsp;



Earnings revisions:&nbsp;Small near-term&nbsp;EBIT&nbsp;downgrades (-2–4%) taking a slightly more conservative view on growth given some volatility from&nbsp;COVID-19 restrictions. We also incorporate the recent capital raise (where we had been restricted) and include a conservative dividend expectation from FY22E.



No change to FY21 guidance for strong growth; albeit expect trading has been volatile from month to month


AFT reiterated FY21 EBIT guidance of NZ$14–18m (Forsyth Barr NZ$16.7m; +45% YoY), with upside risk from securing agreements in any new markets. ​​​​​​​COVID-19 is likely to have meant volatility in monthly trading (we expect lockdown saw weakness, while trading was strong pre and post) and mixed results across its various products. We also see risk of longer timelines for regulatory approval / new agreements. Nonetheless we expect AFT's product categories to remain resilient and its broad portfolio to mitigate risk.


Growth front and centre in the company's strategy


AFT is not one to sit still with multiple avenues targeted for revenue growth. This includes volume growth / market share in existing products &amp; markets, a large pipeline of new products at various stages of introduction in Australasia (including a target for 11 new approvals in FY21 and 38 in FY22) and further global expansion for Maxigesic and its line extensions. This, coupled with expected operating leverage, should support a strong near-term growth trajectory. Recent news flow has been supportive, including:



Further distribution growth for&nbsp;Maxigesic&nbsp;IV:&nbsp;On 30 July 2020, AFT signed an exclusive licensing agreement for&nbsp;Maxigesic&nbsp;IV in six additional countries,​​​​&nbsp;with sales expected from CY21. It is now licensed in &gt;90 countries, at various stages of introduction.
Rescheduling of codeine in NZ: From 5 November 2020, all medicines containing codeine will become prescription only in NZ. This is likely to provide a material boost to AFT's NZ Maxigesic tablet sales, although likely small in the context of the group.
Focus on China:&nbsp;AFT is launching an NZ branded online&nbsp;Tmall&nbsp;store ("Kiwi Health") to target the Chinese market.



Strengthening balance sheet; modest dividend appears feasible from FY22


Gearing has lowered (and will likely continue to) given the recent capital raise and AFT's improving free cashflow profile, even incorporating higher than usual inventory levels due to COVID-19. AFT reiterated that it will assess "potential for a dividend policy in FY22". Assuming a modest payout ratio (30–50%), our forecasts suggest a cash yield of c. 1–3% is feasible, with growth potential.&nbsp;



Chelsea Leadbetter CFA
chelsea.leadbetter@forsythbarr.co.nz
+64 4 495 5262





Matt Montgomerie
matt.montgomerie@forsythbarr.co.nz
+64 9 368 0124



AFT Pharmaceuticals: Annual Meeting Check Up