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Sirtex goes from strength to strength

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Sirtex goes from strength to strength

Sirtex Medical (ASX: SRX) has just reported its FY16 results, and they were pleasing on every metric. We recently commented on the firm’s sales growth which the market took the news badly and subsequently the price of the firm’s shares fell.

In our last piece on Sirtex Medical, we noted issues in the firm’s dosage sales growth in the EMEA & APAC regions. This was seen as bad news and subsequently the price of the shares fell from over $30 to below $26 in the following weeks.

Such occasions are a gift to the value investor and, after some due diligence, we acquired a stake in the firm (I’ll add in here, with the share price hovering below $35 the opportunity to buy with a cushion of safety – we think – is largely gone).

The firm reported its FY16 results yesterday (having pre-announced dosage sales growth back in July). We’d like to highlight the following:

  • Revenue growth of 32 per cent (35 per cent growth from the Americas).
  • Dosage sales growth of 16.4 per cent (19.0 per cent from the Americas).
  • NPAT up 33 per cent.
  • Trials recruitment is largely completed.
  • Results of the SARAH trial have been delayed, reportedly due to patients living longer than the researchers had expected (this may possibly be a good sign but we’ll reserve judgement until the results are published in the first half of 2017).

In the coming weeks, we’ll publish a piece which provides a deep dive into the prospects for Sirtex.

Montgomery owns shares in Sirtex.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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13 Comments

  1. If I may comment, calling Sirtex a one-trick-pony is a bit misleading, in that although it does have one “system” of treatment, the potential application of that is far wider. BTW I have been an unworried owner of SRX since I saw the opportunity to pick it up around $20 in early 2015. As with the recent dip in dosage sales, I’m sure there will be other opportunities to buy more at reasonable prices, but in the long term the business seems to have bright prospects.

  2. I am quite perplexed as your recent approach is contrary to the ‘value investing’ methodology promoted in Rogers book. 3 stocks in the last 12 months where you have sold out and then changed your mind: Resmed, Trade Me and now Sirtex. I thought your conviction from underlying research would be stronger. Good conviction on ISD though , well done with that.

    • Scott Shuttleworth
      :

      Investors who can’t/won’t change their minds as new information surfaces are operating with a critical weakness. Being open to changing your view is key in investment management.

      Note though that we began selling near the top of its range (circa $40) and buying back below $30. Regardless of our thoughts on the company, we will always reduce our position sizes if the share price becomes too expensive.

  3. Just bought some! I think it’s reasonably priced at the moment and I will top it up if the stock falls further in the future. As we know if the growth continues the value/ price will follow. I remember looking at REA about five years ago and thinking it was too dear. I ending up buying some last year when the price fell to about $40. Don’t I wish I had bought it five years ago! Another stock I didn’t buy was Reece REH at about $20, again waiting for the price to fall so I could pick up a bargain.

    Sometimes waiting for that bargain to appear can be an opportunity cost. My thinking is- provided you are reasonably confident that the value of a stock will continue to grow, paying a fair price for a true growth story is ok.

    • Scott Shuttleworth
      :

      Growth is worth paying for if its reasonably priced, but your examples indicate that you’re focused on what you could make rather than what you could lose.

      SRX could certainly trade higher but there are also cases for it to go lower and this would impair your hard earned capital. Hence, looking at both the upside and downside in conjunction with the expectation of each cases respective probability would give you a better sense of what you’re getting for your investment.

      Congrats on your buy of REA at $40. I only wish more of the investment community had bought as soundly as you did!

  4. about six months ago MIM fund exited Sirtex due to concern of value vs growth potential. It appears a aweful short time for a long-term investment to get back into Sirtex. So what’s the thinking and triggers MIM gets back in Sirtex and when MIM decided to re-invest in Sirtex after its exit 6 months ago?

    • Scott Shuttleworth
      :

      Hi Andy

      As per the ending of the article, we’ll have something out a bit more comprehensive later. With reporting season at the moment, I’m lacking the time to prepare a more detailed document.

  5. I agree the results are good and they have a great product but this company is a one trick pony,and a biotech with one trick should be spending far more on R&D. US biotechs spend a much larger percentage of their revenue on R/D to maintain market share and dig a deeper moat.

    • Scott Shuttleworth
      :

      To a degree we agree, there’s only one product here but even that has a value which can be estimated.

      Spending on R&D is not the only way to build a moat. Consider what else they are doing.

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