Sirtex moves into the big league after share surge

Sirtex, whose products are used in cancer treatment, has seen its market value soar, but some analysts still see further upside.Trading at 10 times revenues, biotech stock Sirtex ranks as one of the most expensive stocks in the market.

But unlike Xero, the Kiwi accounting software house with global ambitions whose shares are tradiing on a heart-stopping multiple of 30 times its revenues, Sirtex at least makes a profit as well as paying a small dividend and, at last balance date, had around $50 million in cash in hand.

And despite a 60 per cent surge in its share price over the past 12 months, there are still analysts who rate the company a ‘buy’. Baillieu Holst’s Stuart Roberts, for one, reckons Sirtex shares have further to go, setting a $21 price target on the shares. Broking house CLSA has a $21.50 value on them.

For the true believers, this represents significant upside from the present share price of $19.07, a new closing high.

But other analysts aren’t so bullish, with a raft of ‘hold’ or ‘neutral’ recommendations from the likes of UBS, Macquarie, Moelis and Bell Potter.

Over the past week alone, Sirtex’s share price has shot ahead a heady 12 per cent which has pushed its sharemarket value to just over $1 billion for the first time, ranking it among most valuable biotech stock after CSL, Resmed, Cochlear and Mesoblast ($1.5 billion) and well ahead of the likes of Mayne Pharma ($500 million) which has bulked up with a string of acquisitions over the past 12 months.

David Blake of the biotech stock report Bioshares says the company has “gone into another tier,” with its shares now seen increasingly as an “investment-grade” stock for some institutional investors – “a stock that some are compelled to buy”.

Additionally, once a biotech company is worth more than $1 billion, it comes on the radar of a host of potential global merger and acquisition groups, he said.

“There are a lot of bankers who won’t get out of bed and look at something valued at anything less,” he said.

Nor is it unusual for a biotech stock to trade at around ten-times revenue. Baillieu Holst analyst Stuart Roberts points out that Amgem paid $US9.7 billion in 2013 for Onyx Pharmaceutical – a multiple of around ten times revenues.

“Sirtex at 10 times sales would be a $22 stock,” he told clients.

The latest driver behind the Sirtex share price surge was robust June quarter sales of its treatment, irradiated microspheres, which are used to treat liver cancer. In the quarter, unit sales surged 27.1 per cent, giving the company ten straight years of quarterly sales growth with no sign of slowing.

Taylor Collison analyst Thomas Dufty, who has followed Sirtex for years, forecasts unit sales will rise another 20 per cent in fiscal 2015, which underpins his “out-perform” rating on the shares.

Adding to some of the analyst optimism for the outlook for Sirtex shares are hopes that new research work will open the door for a broader use of its microspheres, which at present are used as a last-line cancer treatment.

Sirtex has four large clinical trials underway, with the data from the first of these to be released next year.

Ahead of this it has moved to treble production capacity of its microspheres, indicating management optimism over the likely outcome.

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