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Why we continue to like Sirtex

Why we continue to like Sirtex

At the end of August we provided some brief comments on the FY16 results of Sirtex Medical Limited (ASX:SRX).  At the time, we noted that SRX should be on the radar of every value investor.  We continue to hold that view, and are happy to share our most recent thoughts on the variables we consider when evaluating the business.

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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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#Sirtex Medical Limited (SRX)

18 Comments

  1. Hi Team,

    I would be interested to hear your thoughts on Sirtex’s latest results, winding down on non-core R & D activities and the implementation of the on market share buy back program which is due to start in early March. If the company is buying back shares below my intrinsic value (& other shareholders), it may be adding value to shareholders.

    On the flip side, this suggests the company could be maturing and is unable to re-invest it’s profits successfully.

  2. Paying up for high-growth companies like SRX, HSO, APO and ISD has always made me nervous. It leaves absolutely no room for error or adverse developments.

    To maintain that there is a real margin of safety in a stock that is trading at nearly 30 times earnings based on the company’s expected growth rate requires that that growth be as certain as death and taxes – and it rarely is.

    In my view, there needs to be a very compelling reason to purchase a stock trading at a very high multiple and for that stock still maintain an adequate margin of safety. If that reason is based on projections of future growth rates and nothing else, I button up my wallet.

    • Thank for sharing Justin. We agree and we also believe their is a risk that ones sentiment changes with teh share price. We see the current declines as an opportunity rather than a risk, and you must remember that The Montgomery Fund was near its maximum cash weighting going into this period. Major insto’s have “rotated” out of high quality growth companies to build back their positions in the banks and miners. This will, I believe, prove to be a mistake on their part. And the high quality high growth companies remain just that.

      • Roger, are you able to provide any specific commentary on the recent trading update and other announcements with SRX and their impact on your view of the business and your fair value estimate? Do you see the resultant sharp drop in the SRX share price as an overreaction and a buying opportunity?

  3. Hi Roger and Scott,
    given the recent SRX announcements regarding the impact of competitor products, and the resultant sharp drop in SRX stock price, do you see this as an opportunity or a concern?
    John

  4. Hi Roger & Scott. Thanks for the fantastic blog. I was wondering if you have any update on SRX following their surprise sales & earnings downgrade late last week. What’s your view on the announcement and has it had a material impact on your investment thesis? Is it just short-term volatility in the salvage market caused mainly by the entry of alternate but inferior therapies, or a deeper, more long-term issue? Appreciate your thoughts. Regards, James.

  5. “Shares in SRX are currently trading at circa $29 dollars, a fair clip below what we believe is fair value.”

    Hi Scott, no comment on Sirtex dropping over 40% in one day? Unfortunately SRX is another one I picked up. The Portfolio has undergone serious trauma with each taking a massive hit in recent weeks.

    Regards,

    Joel

  6. with the recent savage correction to sirtex price do either scott or david see this as a buy opportunity

  7. In view of the recent Trading update from Sirtex (9 Dec 2016) and the subsequent 37% price slump, now might be a good time to address the concerns around the CEO’s sell-down and competition that were raised by previous comments… While I have held SRX for a couple of years now, perhaps it is time for us all for follow Mr Wong’s lead.

  8. I will be interested to hear everyone’s comments after Sirtex’s investor update on 09/12/2016 revising dose sales downward for first half 2017. The mention of increased competition, constraints on reimbursements in some countries and the comment “majority of clinicians are awaiting the Overall Survival (OS) data from the SIRFLOX/FOXFIRE/FOXFIRE Global studies in the first half of CY17, before a significant change to their referral patterns was to occur. ” is prompting me to revaluate Sirtex.

  9. Roger and Scott,

    I note that, with little or no explanation, the CEO of Sirtex, Gilman Wong, has sold some $2m worth of his personal shareholding in the company that he manages. I wonder if you share some of the concerns about this transaction that I do:
    (1) in 2014 Sirtex terminated their practice of providing quarterly sales updates
    (2) Earnings and dose sales guidance for FY2017 has not been provided (apart from a casual “double-digit growth in dose sales” statement). With a single product and a high earnings ratio there is quite a difference between 10%, 20% and 30% growth rates.
    (3) we are currently 4 months into a 6 month reporting period, and no shareholder update has been provided, even when questioned at the AGM just a few days ago.

    Whilst no listing rules from ASX or ASIC may have strictly been broken, do you not feel it incumbent on the CEO and board to both justify director share sales and also reaffirm that the company is on track to meet market expectations (a deviation from which would merit a a price-sensitive announcement under the listing rules?

  10. Hi Scott. A couple of comments on your article.
    Firstly, I think the market is ascribing relatively little value to the potentially transformational results due this FYr with regard to OS in MCRC and HCC. I attribute this to traders getting burned following the initial Sirflox Data. Commentators such as Montgomery correctly picked that the market reaction would be binary (in terms of the primary end point), however as we have seen, the true scientific value is anything but binary. In particular, the subsequent Depth of Response analysis utilising the data from Sirflox, show that the DOR is 20% greater in those with significant tumour burden. This is very significant, and frankly hard to imagine this will not translate into improved OS.
    Further, I suspect results for SARAH and the combined Sirflox/Foxfire trials will again be far from binary, and it will be the detailed analysis of subgroups that yield the real value. I am concerned that once again the market will have no idea how to evaluate the value of the forthcoming announcements, and in this regard there may be trading opportunities like we saw when the primary endpoint data was released. I hope the company can do a better job this time of informing their share holders.

    Secondly, I wonder if you could comment on why you and the company think Sirtex has a solid moat in terms of barrier to entry of competitors. Sirtex is doing all the heavy lifting with its multiple clinical trials, but what is to stop the manufacterer of Theraspheres, or another start up, just using that data to advance their own product. Sirtex doesn’t have a patent denying others access to the idea of embolizing a hepatic tumour with radioactive particles. Therefore why would we not see “Generics” appearing fairly rapidly if the trials are positive and the market opportunity becomes more attractive?

    Bruce Marks

  11. Thank you Scott for the excellent update on Sirtex. Today their annual report provides, as you describe, some exciting prospects. I am pleased to be invested in this company, and others like Altium, that plan and invest their growing profits towards a true long-term vision. The one thing that interested me, and I admit I did not know much about before I read your report, is that of the risk of “competition from incumbent operators”. As you mentioned, this seems to be mainly from BTG, which uses effectively the same SIRT technology as SIR-spheres, but with the radioisotope encased in glass ( TheraSpheres). I would be interested to hear your comments on significance of this competition?

      • Hello Roger & Scott- Recent sell down by CEO of his holdings in SRX by 1/3; should we be concerned? I know management can have all sorts of reasons for this, but it hardly boosts my confidence when on this scale.

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