Week Ahead | Pacific Edge – Initiation of Coverage

24 May 2021

Global markets mostly rebounded or finished flat (S&P 500 index -0.01%) on Friday after cryptocurrencies took a new dive to end a turbulent week. The renewed threat of a Chinese clampdown knocked the Bitcoin price. At the same time, US unemployment applications fell to a pandemic-era low.

Markets remained choppy but trended sideways last week, with headlines dominated by talk of the US Federal Reserve tapering asset purchases. Fed Chair Powell has reiterated when they do discuss a taper an actual interest rate hike will be well after that. Markets seem to have moved on from COVID, and are now focussed on Inflation & central bank actions/interest rate implications.

Crypto was where the action was last week, with bitcoin junkies experiencing wild swings with one trade session seeing night with -31% plunge in morning & +33% in the afternoon. At its worst, Bitcoin dropped about 30% to almost $30,000. Other cryptocurrencies held double-digit percentage losses, pressured in part by a Tuesday statement from the People’s Bank of China reiterating that digital tokens can’t be used as a form of payment.

We are currently expanding our stock research coverage across Australia & New Zealand – with Pacific Edge the latest addition. If anyone has a stock they would like us to cover, please let us know by replying to this email and we will endeavour to start research if there is enough demand. 

Pacific Edge (PEB:NZX)

PEB is a Biotech company that specialise in cancer diagnostics technology. With operations in New Zealand, Australia, Singapore and United States – their core commercial product is Cxbladder, which is a non-invasive genomic urine test that quickly and accurately detects or rules out bladder cancer.

PEB has market leading technology, which is easier and cheaper to use and there is currently a lack of competition. PEB believe they will be able to capitalise on this in the bladder cancer market – bladder tests are estimated to bring in approximately ~US$1.2 billion per annum in the US alone.

PEB have been around for years, but many recent milestones over the past year or so have improved the commercial viability for Pacific Edge, which includes new pricing reimbursement for tests (at US$760 each in the US making it a high margin product), increased coverage of usage from groups of clinics, hospitals, and insurance companies, with supportive peer reviews validating the effectiveness of PEB’s Cxbladder tests.

Pacific Edge have yet to turn a profit but maintain a solid balance sheet to support themselves over the medium-term and help them invest in future growth. With recent contract coverage we anticipate they become cashflow break even by 2024 financial year.

PEB does come with risks such as increased competition from major players entering into the market as they are currently financially reliant on a single product. However, we will initiate coverage on Pacific Edge with a BUY for investors with a medium term investment horizon, given most of the supportive news flow over the last year makes it a much lower risk proposition than it has been in the past – this has admittedly seen its share price increase by 9-fold over the last 12-months.

It is still a relatively early time to invest, PEB’s market capitalisation of $834m is still relatively small for a healthcare company given their ambitious targets in the US market. We still see upside potential from Pacific Edge meeting its US revenue targets and with positive cashflow it should help boost the research and development of its other cancer diagnostic products.

Members will receive our full initiation of coverage report in this week’s weekly report.


Australia & New Zealand Market Movers

The Australian market edged higher on Friday (ASX 200 index +0.2%) with robust rises in healthcare and consumer staples stocks including ResMed (+3.1%), CSL (+2.2%), Woolworths (+2.0%) and Coles (+1.6%).

Kogan shares tanked another -14% as they warned of lower earnings after wrongly assuming the pandemic sales surge would continue in 2021. Kogan also said excess stock led to higher warehousing costs and blamed inflation which was evident in the cost of products it was ordering for Christmas.

The New Zealand market was higher on Friday (NZX 50 index +0.2%) led by a rebound in A2 Milk (+6.5%).
Ryman Healthcare reported annual net profit up 60% on property revaluations but underlying profit was down -7.3% because of covid-19 challenges. The retirement village operator weighed down the index, as it fell -3.4%, with investors concerned about its high levels of debt and departure of their long serving CEO.

On the flipside, Oceania Healthcare reported a small rise in underlying net profit for the 10 months ended March as its valuers reversed last year's property write-downs boosting net profit to $85.5m. The underlying result was up 1.8% to $41.8m, with 2022 development  guidance is for 221 units & care suites.

My Food Bag’s first-year earnings result failed to stem the stock’s share price slide despite delivering earnings ahead of forecast, with the stock losing another -4%, and now down -23% from IPO in March.


3 Things Markets will be Watching this Week

  1. Central bank rhetoric globally remains in focus for investors. 
  2. The Latest RBNZ OCR meeting on Wednesday and a raft of US data including new home sales, consumer confidence, 1st quarter GDP, durable goods and pending home sales. 
  3. Across Australasia, earnings releases are due from Aristocrat, Kiwi Property, Mainfreight and Fisher & Paykel Healthcare while James Hardie is scheduled to host an Investor Day on Tuesday.
Markets remained choppy but trended sideways last week, with headlines dominated by talk of the US Federal Reserve tapering asset purchases. Fed Chair Powell has reiterated when they do discuss a taper an actual interest rate hike will be well after that.

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