AUSTRALIA SRX AU Price (at CLOSE#, 11 Jul 2016) Outperform A$27.88 Valuation A$ 37.93 - DCF (WACC 9.0%, beta 1.2, ERP 5.0%, RFR 3.3%, TGR 1.5%) 12-month target A$ 38.00 12-month TSR % +37.4 Volatility Index High GICS sector Pharmaceuticals, Biotechnology & Life Sciences Market cap A$m 1,597 30-day avg turnover A$m 10.6 Number shares on issue m 57.27 Investment fundamentals Year end 30 Jun 2015A 2016E 2017E 2018E Revenue m 176.0 236.6 273.0 311.2 EBIT m 50.8 66.5 86.4 104.2 Reported profit m 40.3 53.8 70.0 85.3 Adjusted profit m 40.3 53.8 70.0 85.3 Gross cashflow m 42.5 60.6 78.0 94.4 CFPS 73.5 104.2 134.2 162.4 CFPS growth % 66.7 41.8 28.7 21.1 PGCFPS x 37.9 26.8 20.8 17.2 PGCFPS rel x 4.11 2.56 2.28 2.01 EPS adj 69.6 92.5 120.5 146.9 EPS adj growth % 68.5 33.0 30.2 21.9 PER adj x 40.1 30.1 23.1 19.0 PER rel x 2.59 1.76 1.53 1.35 Total DPS 20.0 24.5 32.0 39.4 Total div yield % 0.7 0.9 1.1 1.4 Franking % 100 100 100 100 ROA % 29.0 29.4 30.6 29.7 ROE % 31.9 31.8 31.6 30.1 EV/EBITDA x 29.3 21.4 16.5 13.7 Net debt/equity % -15.0-25.2-42.3-55.0 P/BV x 10.9 8.2 6.3 5.0 SRX AU vs ASX 100, & rec history Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, July 2016 (all figures in AUD unless noted) 11 July 2016 Macquarie Securities (Australia) Limited Healthy dose sales Event SRX today announced FY16 dose sales growth of +16.4% vs. pcp. Impact Dose sales growth comes in towards the upper end of guidance: SRX announced that its unaudited, full year, worldwide dose sales grew +16.4% vs. pcp, which is towards the upper end of the group's 15% to 17% guidance provided at the beginning of June. This result is in line with our FY16 dose sale estimate which sits at +15.9% growth vs. pcp. The Americas remain the growth engine: The Americas region continues to outpace the rest of the world in terms of dose sales growth, recording +19.0% for the full year vs. pcp (MRE: +19.0%). In other geographies, EMEA surprised on the upside at +11.2% vs. pcp (MRE: +9.0%) and APAC was in line at +8.9% vs. pcp (MRE: +9.0%). We see the EMEA result as particularly positive given that 1H growth was only +8.8% vs. pcp, implying a +13.5% growth rate in 2H. Upcoming clinical readouts critical for product penetration momentum: We continue to see data readouts for the SARAH and FOXFIRE (in late CY16 and CY17, respectively) as key catalysts for the stock. As discussed here, we believe that if these studies hit their overall survival endpoints, this will go a long way to seeing SIRT recommended as a standard first-line therapy for both mcrc (metastatic colorectal cancer) and primary liver cancer. This recommendation would provide a potential step-change in driving global product penetration within the clinical oncology community. Further reimbursement deals will also assist growth: SRX continues to seek more comprehensive reimbursement in a number of key geographies globally (particularly throughout EMEA). These deals provide another key driver of dose sale growth, expanding SIRT s global footprint and making it a more financially accessible treatment for cancer patients. Earnings and target price revision Adj EPS: FY16e +0.5%; FY17e +0.5%; FY18e +0.4%. TP unchanged. Price catalyst 12-month price target: A$38.00 based on a DCF methodology. Catalyst: FY16 result on the 24th of August Action and recommendation Maintain Outperform: Today s announcement suggests that SRX s dose sale trajectory has indeed stabilised and that the headwinds called out in its June trading update were more likely transient in nature. With the company printing +16.4% unit growth in FY16 and it currently trading on a less taxing multiple (23.1x FY17e earnings), we continue to like the value proposition it represents. Please refer to page 4 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures.
Fig 1 (SRX AU) Profit & Loss 1H/15A 2H/15A 1H/16A 2H/16E 1H/17E 2H/17E 2015A 2016E 2017E 2018E Sales SIR-Spheres $m 80.4 95.6 112.6 124.0 129.3 143.7 176.0 236.6 273.0 311.2 Sales Revenue $m 80.4 95.6 112.6 124.0 129.3 143.7 176.0 236.6 273.0 311.2 - growth % vs pcp 38% 35% 40% 30% 15% 16% 36% 34% 15% 14% Other revenue $m 0.1 2.1 0.0 0.0 0.0 0.0 2.1 0.0 0.0 0.0 Operating revenue $m 80.5 97.7 112.6 124.0 129.3 143.7 178.1 236.6 273.0 311.2 Units US # 3,390 3,686 4,028 4,392 4,592 5,007 7,076 8,420 9,599 10,943 Europe # 1,120 1,153 1,219 1,309 1,390 1,492 2,273 2,528 2,881 3,285 Asia Pac # 440 463 481 502 548 573 903 983 1,121 1,278 SIR-Spheres total units (#) # 4,950 5,302 5,728 6,203 6,530 7,072 10,252 11,931 13,602 15,506 - growth % vs pcp 26% 14% 16% 17% 14% 14% 20% 16% 14% 14% COGS $m 12.6 15.1 16.9 18.7 19.5 21.6 27.7 35.6 41.1 46.8 Gross Profit $m 67.8 80.6 95.6 105.3 109.8 122.1 148.3 201.0 231.9 264.3 gross margin % % 84% 84% 85% 85% 85% 85% 84% 85% 85% 85% Operational expenses $m 44.0 53.4 60.3 67.3 64.5 73.0 97.4 127.6 137.5 151.1 EBITDA $m 23.8 29.2 35.3 38.0 45.3 49.1 53.1 73.3 94.3 113.3 EBITDA margin % 30% 31% 31% 31% 35% 34% 30% 31% 35% 36% - Depreciation & Amortisation $m 0.9 1.3 3.3 3.4 3.6 4.3 2.3 6.8 7.9 9.0 EBIT $m 22.9 27.9 32.0 34.5 41.7 44.8 50.8 66.5 86.4 104.2 EBIT growth % 59.5% 88.2% 39.7% 23.8% 30.2% 29.6% 74.1% 30.9% 29.9% 20.6% - Net Interest Expense $m (1.0) (0.9) (1.2) (1.4) (1.8) (2.2) (1.9) (2.5) (4.0) (5.9) Pretax Profit $m 23.9 28.8 33.2 35.9 43.4 47.0 52.7 69.1 90.4 110.1 - Tax Expense $m 6.3 6.2 7.2 8.1 9.8 10.6 12.4 15.3 20.3 24.8 Tax rate % 26.2% 21.4% 21.8% 22.5% 22.5% 22.5% 24% 22% 23% 23% Net Profit $m 17.7 22.6 25.9 27.8 33.6 36.4 40.3 53.8 70.0 85.3 + Net Ind. Significant Items $m 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - Minority Interests $m 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Reported Profit $m 17.7 22.6 25.9 27.8 33.6 36.4 40.3 53.8 70.0 85.3 Adjusted Profit $m 17.7 22.6 25.9 27.8 33.6 36.4 40.3 53.8 70.0 85.3 Gross Cashflow $m 18.6 24.0 29.3 31.3 37.3 40.7 42.5 60.6 78.0 94.4 EPS (adj.) 30.5 39.1 44.6 47.9 57.9 62.6 69.6 92.5 120.5 146.9 EPS Growth % 56.4% 79.3% 46.4% 22.5% 29.7% 30.8% 68.5% 33.0% 30.2% 21.9% CFPS 32.1 41.4 50.4 53.8 64.1 70.0 73.5 104.2 134.2 162.4 DPS 0.0 20.0 0.0 24.5 0.0 32.0 20.0 24.5 32.0 39.4 PE (adj) x 54.0 42.1 36.9 34.4 28.4 26.3 47.3 35.6 27.3 22.4 PGCFPS x 102.6 79.6 65.4 61.2 51.4 47.0 44.8 31.6 24.6 20.3 Yield % 0.0% 0.6% 0.0% 0.7% 0.0 0.0 0.6% 0.7% 1% 1% EV/EBITDA x 77.6 62.9 52.6 48.2 39.6 35.8 34.7 24.7 18.6 14.9 EV/EBIT x 80.7 65.9 58.1 53.1 43.0 39.2 36.2 27.2 20.3 16.2 Ordinary Fully Paid m 56.5 56.5 57.1 57.1 56.5 56.5 56.5 56.5 56.5 56.5 EFPOWA m 57.9 57.9 58.1 58.1 58.1 58.1 57.9 58.1 58.1 58.1 Cashflow Analysis 1H/15A 2H/15A 1H/16A 2H/16E 1H/17E 2H/17E 2015A 2016E 2017E 2018E EBITDA $m 23.8 29.2 35.3 38.0 45.3 49.1 53.1 73.3 94.3 113.3 - Inc. in Working capital $m 0.5 0.0 11.4 2.7 1.3 3.5 0.5 14.2 4.8 4.8 - Net Interest Paid $m (1.2) (0.6) (1.3) (1.2) (1.4) (1.8) (1.8) (2.4) (3.1) (4.9) - Tax Paid $m 2.6 (0.2) 3.0 7.2 8.1 9.8 2.4 10.2 17.8 22.3 + Other $m 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net Cash in Op Activities $m 21.9 30.0 22.2 29.2 37.3 37.6 52.0 51.4 74.9 91.0 + Proceeds from Sale of PP&E $m 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 + Proceeds from Sale of Investments $m 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - Capex $m 0.6 1.1 2.1 2.1 2.1 2.1 1.7 4.2 4.2 4.2 - Acquisitions & Investments $m 10.4 10.7 9.0 0.0 0.0 0.0 21.1 9.0 0.0 0.0 + Other $m (12.0) (10.0) 0.0 0.0 0.0 0.0 (22.0) 0.0 0.0 0.0 Net cash in investing $m -23.1-21.7-11.2-2.1-2.1-2.1-44.8-13.3-4.2-4.2 - Dividends Paid $m 7.9 0.0 11.4 0.0 14.0 0.0 7.9 11.4 14.0 18.1 + Equity Movements $m 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 + Short term Debt Movements $m 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 + Long term Debt Movements $m 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 + Other $m 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net cash in financing $m -7.9-0.0-11.4 0.0-14.0 0.0-7.9-11.4-14.0-18.1 Opening Cash balance $m 22.5 13.5 21.7 21.7 48.8 70.0 22.5 21.7 48.8 105.5 Net Increase in Cash $m -9.0 8.3-0.4 27.1 21.2 35.5-0.8 26.7 56.6 68.6 + Net Exchange Rate Differences $m 0.0 0.0 0.4 0.0 0.0 0.0-0.4 - - Cash Balance $m 13.5 21.7 21.7 48.8 70.0 105.5 21.7 48.8 105.5 174.1 Balance Sheet 2015A 2016E 2017E 2018E Cash 21.7 48.8 105.5 174.1 Europe 22% FY15 SIR-Spheres unit sales breakdown Asia Pac 9% US 69% Source: Company data, Macquarie Research, July 2016 Receviables 35.0 50.0 58.0 66.1 Inventory 1.8 1.8 2.1 2.4 Prepayments 0.0 0.0 0.0 0.0 Other Current Assets 56.4 56.9 56.9 56.9 Fixed Assets 13.4 15.1 16.8 18.0 Intangibles 68.0 72.5 67.2 61.2 Other Non current assets 6.1 6.6 8.0 9.5 Total Assets 202.5 251.9 314.4 388.1 Payables 24.3 22.0 25.5 29.1 Short Term Debt 0.0 0.0 0.0 0.0 Other Current Liabilities 0.0 0.0 0.0 0.0 Long Term Debt 0.0 0.0 0.0 0.0 Other Liabilities 33.6 36.4 39.4 42.3 Total Liabilities 57.8 58.4 64.9 71.4 Net Assets 144.6 193.5 249.5 316.7 Shareholders Funds 144.6 193.5 249.5 316.7 Minority Interests 0.0 0.0 0.0 0.0 Shareholder Funds 144.6 193.5 249.5 316.7 11 July 2016 2
Fundamentals Macquarie Quant View The quant model currently holds a marginally positive view on Sirtex Medical. The strongest style exposure is Profitability, indicating this stock is efficiently converting investments to earnings; proxied by ratios like ROE or ROA. The weakest style exposure is Price Momentum, indicating this stock has had weak medium to long term returns which often persist into the future. 133/724 Global rank in Pharma, Biotech & Life Sciences % of BUY recommendations 60% (6/10) Number of Price Target downgrades 0 Number of Price Target upgrades 0 Attractive Quant Local market rank Global sector rank Displays where the company s ranked based on the fundamental consensus Price Target and Macquarie s Quantitative Alpha model. Two rankings: Local market (Australia & NZ) and Global sector (Pharma, Biotech & Life Sciences) Macquarie Alpha Model ranking A list of comparable companies and their Macquarie Alpha model score (higher is better). Factors driving the Alpha Model For the comparable firms this chart shows the key underlying styles and their contribution to the current overall Alpha score. 1.5 0.5 0.0-0.1-0.3-0.3-2.7-3.0-2.0-1.0 0.0 1.0 2.0 3.0-100% -80% -60% -40% -20% 0% 20% 40% 60% 80% 100% Valuations Growth Profitability Earnings Momentum Price Momentum Quality Macquarie Earnings Sentiment Indicator The Macquarie Sentiment Indicator is an enhanced earnings revisions signal that favours analysts who have more timely and higher conviction revisions. Current score shown below. Drivers of Stock Return Breakdown of 1 year total return (local currency) into returns from dividends, changes in forward earnings estimates and the resulting change in earnings multiple. 0.5-0.7 0.1-0.1-0.8-0.4 0.6-3.0-2.0-1.0 0.0 1.0 2.0 3.0-90% -40% 10% 60% Dividend Return Multiple Return Earnings Outlook 1Yr Total Return What drove this Company in the last 5 years Which factor score has had the greatest correlation with the company s returns over the last 5 years. Capex to Sales FY0 Incremental Capex Capex Growth Change in PPE FY0 Return on Assets FY0 Return on Equity FY0 ROIC FY0 Net Income Margin FY0-34% Negatives Positives -40% -20% 0% 20% 40% 28% 27% 26% 34% How it looks on the Alpha model A more granular view of the underlying style scores that drive the alpha (higher is better) and the percentile rank relative to the sector and market. Alpha Model Score Valuation Growth Profitability Earnings Momentum Price Momentum Quality Capital & Funding Liquidity Risk Technicals & Trading Normalized Score 0.48-0.26 0.54 1.32 0.19-0.48 0.45 0.36-0.93 0.58-0.52 Percentile relative to sector(/724) Percentile relative to market(/398) 0 50 100 0 50 100 0 0 1 1 Source (all charts): FactSet, Thomson Reuters, and Macquarie Research. For more details on the Macquarie Alpha model or for more customised analysis and screens, please contact the Macquarie Global Quantitative/Custom Products Group (cpg@macquarie.com) 11 July 2016 3
Important disclosures: Recommendation definitions Macquarie - Australia/New Zealand Outperform return >3% in excess of benchmark return Neutral return within 3% of benchmark return Underperform return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield Macquarie Asia/Europe Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie South Africa Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie - Canada Outperform return >5% in excess of benchmark return Neutral return within 5% of benchmark return Underperform return >5% below benchmark return Macquarie - USA Outperform (Buy) return >5% in excess of Russell 3000 index return Neutral (Hold) return within 5% of Russell 3000 index return Underperform (Sell) return >5% below Russell 3000 index return Volatility index definition* This is calculated from the volatility of historical price movements. Very high highest risk Stock should be expected to move up or down 60 100% in a year investors should be aware this stock is highly speculative. High stock should be expected to move up or down at least 40 60% in a year investors should be aware this stock could be speculative. Medium stock should be expected to move up or down at least 30 40% in a year. Low medium stock should be expected to move up or down at least 25 30% in a year. Low stock should be expected to move up or down at least 15 25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only Recommendations 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations Financial definitions All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards). Recommendation proportions For quarter ending 31 March 2016 AU/NZ Asia RSA USA CA EUR Outperform 50.34% 59.09% 46.67% 44.76% 60.66% 46.12% (for global coverage by Macquarie, 3.72% of stocks followed are investment banking clients) Neutral 34.14% 25.66% 32.00% 49.90% 30.33% 35.10% (for global coverage by Macquarie, 4.79% of stocks followed are investment banking clients) Underperform 15.52% 15.26% 21.33% 5.33% 9.02% 18.78% (for global coverage by Macquarie, 2.31% of stocks followed are investment banking clients) SRX AU vs ASX 100, & rec history (all figures in AUD currency unless noted) Note: Recommendation timeline if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, July 2016 12-month target price methodology SRX AU: A$38.00 based on a DCF methodology Company-specific disclosures: SRX AU: Macquarie and its affiliates collectively and beneficially own or control 1% or more of any class of Ltd's equity securities. Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/research/disclosures. Date Stock Code (BBG code) Recommendation Target Price 06-Jun-2016 SRX AU Outperform A$38.00 24-Feb-2016 SRX AU Outperform A$40.00 27-Oct-2015 SRX AU Outperform A$42.00 13-Aug-2015 SRX AU Outperform A$40.00 01-Jun-2015 SRX AU Outperform A$33.00 14-May-2015 SRX AU Outperform A$30.00 17-Mar-2015 SRX AU Neutral A$26.00 18-Feb-2015 SRX AU Neutral A$32.00 27-Nov-2014 SRX AU Neutral A$28.00 19-May-2014 SRX AU Neutral A$15.00 19-Feb-2014 SRX AU Neutral A$16.00 Target price risk disclosures: SRX AU: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures. Analyst certification: We hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. The Analysts responsible for preparing this report receive compensation from Macquarie that is based upon various factors including Macquarie Group Limited (MGL) total revenues, a portion of which are generated by Macquarie Group s Investment Banking activities. 11 July 2016 4
This publication was disseminated on 11 July 2016 at 09:59 UTC. General disclosure: This research has been issued by Macquarie Securities (Australia) Limited ABN 58 002 832 126, AFSL 238947, a Participant of the ASX and Chi-X Australia Pty Limited. This research is distributed in Australia by, a division of Macquarie Equities Limited ABN 41 002 574 923 AFSL 237504 ("MEL"), a Participant of the ASX, and in New Zealand by Macquarie Equities New Zealand Limited ( MENZ ) an NZX Firm. Macquarie Private Wealth s services in New Zealand are provided by MENZ. Macquarie Bank Limited (ABN 46 008 583 542, AFSL No. 237502) ( MBL ) is a company incorporated in Australia and authorised under the Banking Act 1959 (Australia) to conduct banking business in Australia. None of MBL, MGL or MENZ is registered as a bank in New Zealand by the Reserve Bank of New Zealand under the Reserve Bank of New Zealand Act 1989. Apart from Macquarie Bank Limited ABN 46 008 583 542 (MBL), any MGL subsidiary noted in this research,, is not an authorised deposit-taking institution for the purposes of the Banking Act 1959 (Australia) and that subsidiary s obligations do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of that subsidiary, unless noted otherwise. This research contains general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice, you should consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. This research has been prepared for the use of the clients of the Macquarie Group and must not be copied, either in whole or in part, or distributed to any other person. If you are not the intended recipient, you must not use or disclose this research in any way. If you received it in error, please tell us immediately by return e-mail and delete the document. We do not guarantee the integrity of any e-mails or attached files and are not responsible for any changes made to them by any other person. Nothing in this research shall be construed as a solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any transaction. This research is based on information obtained from sources believed to be reliable, but the Macquarie Group does not make any representation or warranty that it is accurate, complete or up to date. We accept no obligation to correct or update the information or opinions in it. Opinions expressed are subject to change without notice. The Macquarie Group accepts no liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this research and/or further communication in relation to this research. The Macquarie Group produces a variety of research products, recommendations contained in one type of research product may differ from recommendations contained in other types of research. The Macquarie Group has established and implemented a conflicts policy at group level, which may be revised and updated from time to time, pursuant to regulatory requirements; which sets out how we must seek to identify and manage all material conflicts of interest. The Macquarie Group, its officers and employees may have conflicting roles in the financial products referred to in this research and, as such, may effect transactions which are not consistent with the recommendations (if any) in this research. The Macquarie Group may receive fees, brokerage or commissions for acting in those capacities and the reader should assume that this is the case. The Macquarie Group s employees or officers may provide oral or written opinions to its clients which are contrary to the opinions expressed in this research. Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/disclosures Macquarie Group 11 July 2016 5