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blue-chip

How the Needle is Moving on these Interesting Global Plays - BTI, BPMC

Jun 11, 2021 | Team Kalkine
How the Needle is Moving on these Interesting Global Plays - BTI, BPMC

 

 

British American Tobacco p.l.c.

BTI Details

British American Tobacco p.l.c. (NYSE: BTI) is a British multinational company focused on manufacturing and selling cigarettes, tobacco, and other nicotine products. The company’s key brands in its Combustible segment include Dunhill, Kent, Lucky Strike, Pall Mall, and Rothmans. Vuse, one of the brands under its New Category segment (which offers affordable alternatives to traditional nicotine consumption), was declared the world's first global carbon-neutral vaping brand in May 2021. The company distributes its products to retail outlets across Europe and North Africa (ENA), United States, Sub-Saharan Africa, Asia Pacific, and Middle East regions. As of June 11, 2021, BTI’s market capitalization stood at USD 91.26 billion, with 2.29 billion American Depository Shares (ADS) listed and outstanding (each ADS representing one ordinary share).

Acquisition of Additional Non-Combustible Product Consumers: On June 08, 2021, in its H1FY21 pre-close trading update, the company announced that it added over 1.4 million non-combustible product consumers in Q1FY21, with the total number increasing to 14.9 million. BTI also stated that its New Category products are now sold in 74 markets across 53 countries.

Exploration Growth Opportunities in the Cannabis Business: On March 11, 2021, BTI signed a strategic collaboration agreement with Organigram Inc., which is focused on research and product development activities of next-gen adult cannabis products. This move augments BTI's expansion plans to move beyond nicotine and will provide it with access to cutting-edge R&D technologies and cannabis expertise.

FY20 Results: The company’s total revenue of GBP 25.78 million for FY20 (ending December 31, 2020) was largely at par with GBP 25.88 million reported in FY19, with revenue from the Combustibles segment comprising 88.27% of the total revenue in FY20. Net profit for FY20 amounted to GBP 6.56 million, higher than GBP 5.85 million in FY19.

Key Risks: The tobacco industry is amongst the most highly regulated in the world, with manufacturers required to comply with various regulatory regimes. These restrictions could affect BTI’s ability to commercially market its products, thus harming its business and financial position. In addition, BTI is also exposed to unexpected and significant increases or structural changes in tobacco and nicotine-related taxes in its key markets, which can adversely affect its revenues and results of operations.

Outlook: In its H1FY21 pre-close trading update, BTI stated that for FY21, it expects revenue growth of above 5% (ahead of its previous guidance of 3-5%). EPS is expected to grow in the mid-single digits and the leverage ratio (Adjusted Net Debt / Adjusted EBITDA) will reduce to ~3.0x.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

BTI Daily Technical Chart

Stock Recommendation: BTI’s share price has been largely stable over the past 12 months, increasing only by 6.48%. It is currently leaning towards the higher end of the 52-week range of USD 31.50 to USD 41.14. The stock is currently trading above its 200 DMA level. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 46.69. Considering the company’s expansion to new categories, robust dividend yield, decent fundamentals, and current valuation, we recommend a “Buy” rating on the stock at the closing price of USD 40.09, down by 0.05% as of June 11, 2021.

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

* All forecasted figures and industry information have been taken from REFINITIV.

 

Blueprint Medicines Corporation

BPMC Details

Blueprint Medicines Corporation (NASDAQ: BPMC) is a global precision therapy company focused on inventing life-changing therapies for people with cancer and hematologic disorders. The company is currently delivering AYVAKIT/AYVAKYT (avapritinib) for the treatment of patients with PDGFRA exon 18 mutant gastrointestinal stromal tumors (GIST), and GAVRETO (pralsetinib) for the treatment of metastatic RET fusion-positive non-small cell lung cancer (NSCLC), advanced or metastatic RET-mutant medullary thyroid cancer (MTC), and advanced or metastatic RET fusion-positive thyroid cancer. BPMC delivers approved medicines directly to patients in the United States and Europe and is also globally advancing multiple programs for genomically defined cancers, systemic mastocytosis, and cancer immunotherapy. As of June 11, 2021, the company’s market capitalization stood at USD 4.91 billion.

Novel Precision Therapy Targeting Systemic Mastocytosis: In December 2020, BPMC submitted a supplemental New Drug Application (NDA) to the US Food & Drug Administration (FDA) for AYVAKIT, which was accepted by the FDA in February 2021. FDA then set a Prescription Drug User Fee Act (PDUFA) action date of June 16, 2021 to deliver their decision to approve the NDA. If approved, the precision therapy will be the first one targeting the underlying cause of systemic mastocytosis.

Rapidly Advancing Pipeline (Source: Pipeline Report, April 12, 2021)

Q1FY21 Results: The company reported a sharp uptick of 249.86% in total revenue to USD 21.57 million in Q1FY21 (ending March 31, 2021) compared to USD 6.17 million in Q1FY20. The collaboration revenue, under collaborations with F. Hoffmann-LaRoche Ltd. and Genentech, Inc. (collectively, Roche) and CStone Pharmaceuticals, was USD 12.62 million in Q1FY21, 3.66x of USD 2.71 million generated in Q1FY20. Net loss for Q1FY21 was USD 99.71 million, lower than USD 110.96 million in Q1FY20.

Key Risks: The company has two approved precision therapies (AYVAKIT/AYVAKYT and GAVRETO). While it has initiated the commercial launch of both the therapies in the US and of AYVAKYT in Europe, it has limited experience as a commercial company. Should it fail to successfully commercialize its current or future approved drugs, its operations and financial state of affairs could be seriously affected. Further, the company is dependent on third-party suppliers for the production of its drugs and does not have a manufacturing facility of its own. This may hamper its ability to meet product demand and hence, the business as a whole.

Outlook: In its Q1FY21 Report, the company stated that it expects to obtain regulatory approval from the FDA and launch AYVAKIT for the treatment of patients with advanced SM and initiate a global Phase 1 trial of BLU-945 in Q2FY21.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

BPMC Daily Technical Chart

Stock Recommendation: BPMC has declined by 19.06% and 24.24% in the past 3 and 6 months, respectively, and is currently leaning towards the lower end of the 52-week range of USD 66.20 to USD 125.61. The stock is currently trading below its 200 DMA level. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 105.70. Considering the correction in the stock price, promising drug developments, and successful collaborations with Roche and CStone, we recommend a “Buy” rating on the stock at the closing price of USD 86.90, up by 3.32% as of June 11, 2021.

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

* All forecasted figures and industry information have been taken from REFINITIV.