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</h2>
<p><strong>Our First Prescription</strong></p>
<h3><strong>RESEARCH&nbsp;INSIGHTS</strong></h3>
<p>We add AFT Pharmaceuticals (AFT) to our Research Insights series — a multi-national pharmaceutical business still in the early stages of its growth journey. AFT has a surprisingly diversified product offering, albeit global expansion hinges on its marquee Maxigesic product family. The company has a strong track record of revenue growth since inception, with a runway of opportunities for this to continue. This, coupled with expected operating leverage and lower interest costs, should support near-term earnings growth and an improving free cashflow profile. AFT trades on elevated forward multiples, however, this drops quickly (PE of 38x/26x/17x in FY21/22/23E), assuming it executes on our 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.&nbsp;</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/138/787/original/image_30456436121591661516516.png?1591661518" class="editor-image img-responsive" data-smartkarma-image-id="138787"></figure>
<h3><strong>Digging into the current value drivers</strong></h3>
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<li><strong>​​​​​​​Australasia&nbsp;— the core base</strong>:&nbsp;AFT has had an impressive track record of revenue growth since inception, supported by a large and diversified product offering. Visibility is low, particularly on specific drivers;&nbsp;however, AFT has a large pipeline of products at various stages of introduction which, coupled with likely operating leverage, should&nbsp;support a strong near-term growth trajectory.</li>
<li><strong>Rest of World — the growth engine</strong>:&nbsp;This is anchored by&nbsp;AFT's&nbsp;marquee Maxigesic&nbsp;tablet offering in the analgesic (pain killer) market. The market opportunity is extensive and&nbsp;AFT is making steady progress with&nbsp;agreements to sell Maxigesic&nbsp;in various markets globally. Success is highly dependent on third parties,&nbsp;with delays commonplace (with AFT tracking behind original timing expectations). AFT is also building out the Maxigesic offering through various line extensions which could materially increase the addressable market.</li>
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<h3>'Blue sky' growth options add&nbsp;optionality&nbsp;— hard work mostly done, with the risk/reward positively skewed from here</h3>
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<div id="m_-1450317236097651366irkhh-2">
<p>AFT has two key areas of&nbsp;optionality: (1) Pascomer&nbsp;— AFT has an agreement with Timber Pharmaceuticals which sees AFT participate in any upside, while remaining commercialisation costs are funded by its partner; and (2) NasoSURF&nbsp;— a promising medical device still in development. With development cost largely sunk and&nbsp;limited additional investment required, any progress in licensing and/or registration milestones provides material potential upside. However,&nbsp;timeframes&nbsp;are likely long and success is contingent on third parties including regulators. We view these as encouraging areas of&nbsp;optionality, albeit are cautious to place too much value on them at this stage, given there are still substantial unknowns and risks, particularly around the earnings potential and&nbsp;timelines.</p>
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<h3>Attractive industry backdrop,&nbsp;with AFT exposed to a number of favourable&nbsp;thematics</h3>
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<div id="m_-1450317236097651366i6fsh-2-2-2-2-2-2-2-2-2-2">
<p>The global pharmaceutical market is immense, growing, and largely immune to the economic cycle. AFT has navigated COVID-19 largely unscathed, aside from some temporary delays, with its products experiencing strong demand. If AFT could capture even a small share of the global pharmaceutical market this would be highly lucrative for shareholders. However, intense competition and various regulatory challenges to navigate mean it is unlikely to be smooth sailing, with delays commonplace.</p>
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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>
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<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>
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AFT Pharmaceuticals
Our First Prescription
RESEARCH&nbsp;INSIGHTS
We add AFT Pharmaceuticals (AFT) to our Research Insights series — a multi-national pharmaceutical business still in the early stages of its growth journey. AFT has a surprisingly diversified product offering, albeit global expansion hinges on its marquee Maxigesic product family. The company has a strong track record of revenue growth since inception, with a runway of opportunities for this to continue. This, coupled with expected operating leverage and lower interest costs, should support near-term earnings growth and an improving free cashflow profile. AFT trades on elevated forward multiples, however, this drops quickly (PE of 38x/26x/17x in FY21/22/23E), assuming it executes on our 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.&nbsp;

Digging into the current value drivers


​​​​​​​Australasia&nbsp;— the core base:&nbsp;AFT has had an impressive track record of revenue growth since inception, supported by a large and diversified product offering. Visibility is low, particularly on specific drivers;&nbsp;however, AFT has a large pipeline of products at various stages of introduction which, coupled with likely operating leverage, should&nbsp;support a strong near-term growth trajectory.
Rest of World — the growth engine:&nbsp;This is anchored by&nbsp;AFT's&nbsp;marquee Maxigesic&nbsp;tablet offering in the analgesic (pain killer) market. The market opportunity is extensive and&nbsp;AFT is making steady progress with&nbsp;agreements to sell Maxigesic&nbsp;in various markets globally. Success is highly dependent on third parties,&nbsp;with delays commonplace (with AFT tracking behind original timing expectations). AFT is also building out the Maxigesic offering through various line extensions which could materially increase the addressable market.



'Blue sky' growth options add&nbsp;optionality&nbsp;— hard work mostly done, with the risk/reward positively skewed from here


AFT has two key areas of&nbsp;optionality: (1) Pascomer&nbsp;— AFT has an agreement with Timber Pharmaceuticals which sees AFT participate in any upside, while remaining commercialisation costs are funded by its partner; and (2) NasoSURF&nbsp;— a promising medical device still in development. With development cost largely sunk and&nbsp;limited additional investment required, any progress in licensing and/or registration milestones provides material potential upside. However,&nbsp;timeframes&nbsp;are likely long and success is contingent on third parties including regulators. We view these as encouraging areas of&nbsp;optionality, albeit are cautious to place too much value on them at this stage, given there are still substantial unknowns and risks, particularly around the earnings potential and&nbsp;timelines.


Attractive industry backdrop,&nbsp;with AFT exposed to a number of favourable&nbsp;thematics


The global pharmaceutical market is immense, growing, and largely immune to the economic cycle. AFT has navigated COVID-19 largely unscathed, aside from some temporary delays, with its products experiencing strong demand. If AFT could capture even a small share of the global pharmaceutical market this would be highly lucrative for shareholders. However, intense competition and various regulatory challenges to navigate mean it is unlikely to be smooth sailing, with delays commonplace.



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: Our First Prescription