Clinuvel: Sphene Capital Initiates Coverage With A Buy Rating

Jan. 30, 2018 8:35 AM ETCLVLY, CLVLF
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Deep Value, Special Situations, Contrarian, Long/Short Equity

Contributor Since 2013

Educated as a PhD in Engineering and a MSc in business administration, I enjoy crossing the line between technology and commerce. Professional life so far spend in R&D management, as a business unit CFO, corporate strategy and now again R&D management. Value investor by heart; focusing on businesses that I think I have enough knowledge to understand second level dynamics at least.

Summary

  • Sphene Capital, a research house with focus on small caps, has initiated coverage on Clinuvel Pharmaceuticals.
  • The unusually extensive report (58 pages) values the potential of indication EPP only with a DCF model at 31.70 AUD (25.66 USD) - an upside of >250% vs today.
  • Additional indications such as Vitiligo and central nervous system disorders are described as potential upsides, but not part of the valuation, indicating more upside.

For my taste, the valuation looks very solid and a lot of in-depth research has flown into this. Comparing this with my own valuation, resulting in a price target of 21-28 USD, we are in the same ballpark, with the following notable differences:

  • comparable revenue trajectory until 2021, then Sphene Capital assumes continued growth from EPP (non-US, non-Europe)
  • No valuation of Vitiligo potential (8-18 USD/share in my valuation)
  • more accurate representation of tax shield from historic losses
  • more accurate modeling of WACC (varying assumptions over time, taking cumulating cash pile and maturing company into account

Read the full study here: http://www.more-ir.de/d/16065.pdf

The company will publish figures for the quarter ending Dec 31, 2017 tonight (Feb 1, 2018). The historic KPIs look as following:

Clinuvel Pharmaceuticals key KPIs, Source: Company quarterly reports, Visualization by the author

Disclosure: I am/we are long CLVLY.

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