Daily notes

Daily notes – Myer, Class, Medical Developments

Myer (MYR) – Sales still declining, but by less than before… Class (CL1) – Invests in managed account provider Philo… Medical Development (MVP) – Cash in the bank and ready for global rollout…

Myer (MYR) – Sales still declining, but by less than before

Sales are still declining at Myer, but the rate of decline seems to be abating driven by growth in online sales, which still only account for 9% of total sales. Online sales grew by 18.6% to $151.2m, while total sales were down 2.8% to $1,671.4m during H1 19. Sales during the second quarter were down 1.4% which represented an improvement on the 4.8% decline in the first quarter.  

Gross profit margin was up from 37.5% to 38.5%, which resulted in growth in EBIT of 2.8% to $63.8m. The higher gross profit margin was in part due to the Myer exclusive brands (MEBs) which grew by 3.7% during the half. MEBs account for 17% of total sales and were the only segment to show growth during the half. In contrast, concession sales were down 5.7%, and National brands, which account for 62% of sales showed negative sales growth of 3.5%.

It’s clear where Myers focus needs to be – online and exclusive brands. To successfully turn the business around, Myer desperately needs sales to grow, and this is likely only going to be achieved by offering more  (and better) exclusive brands and by providing a vastly improved retail experience, both online and instore.

Class (CL1) – Invests in managed account provider Philo

Class announced a $4m investment in Philo Capital Advisers, a service provider to the managed discretionary account (MDA) sector. The MDA sector is proliferating as advisers look to adjust their business models and to justify their position in the value chain.

It makes sense for Class to explore how they can become a part of this new sector, and a small investment in Philo is a relatively risk-free way of doing this.

It’s not altogether clear how the Class technology platform fits into what Philo is providing or whether any additional development work is required for the product to be fit for purpose in the sector. Presumably Class is the administration platform that sits behind the transaction and rebalancing platform used by Philo.

Either way, with the company’s growth decelerating in recent years in the SMSF sector, new avenues of growth will be welcome.

Medical Development (MVP) – Cash in the bank and ready for global rollout

Following the $25m capital raising completed during H1 19 along with the $21m in upfront payments received from Daiichi Sankyo for the China, Thailand and Vietnamese markets, the company ended the half with $32m in cash in the bank and no debt.

The next few years, as the company ramps up its international ambitions for Penthrox, are going to be expensive, with $22m slated for investment in the clinical programs alone to expand the indications for Penthrox and accelerate the adoption of Penthrox globally. The bulk of this investment relates to getting Penthrox approved for sale in the USA and China.

The company grew total revenue by 22% to $9.8m during H1 19 from $8m in H1 18.) NPAT was $132,000 for the six months ended 31 December 2018. EBITDA increased by 42% to $1,241,000 . From these numbers, it’s safe to assume that the bulk of the company’s current $280m market capitalisation is based on the company achieving significant global penetration for Penthrox.  

Penthrox global sales grew by 37%, with sales in Europe and the UK growing 375%. The UK/ Europe now makes up 25% of total sales, with the Australian share of revenue reduced from 62% to 50%.

Including the UK, Ireland, France and Belgium, sales have been made into 13 of the 41 countries in Europe for which Penthrox is approved. Launch activities are planned for the remaining 28 countries including the principal markets of Germany, Italy and Spain.

Approval and launch into both the Chinese and US markets are expected by 2022.

MVP’s ambition is to globalise Penthrox. The process has begun, but still has a long way to go.

By Danny Sandler

Founder of Ocean Asset Management.