Why the Sirtex Medical Limited share price plunged 12% on today’s results

The Sirtex Medical Limited (ASX: SRX) share price dived 12% to $14.28 after the company released its annual results this morning. Here’s what you need to know:

  • Dose sales grew 5% to 12,578
  • Revenue grew 0.8% to $234 million
  • Net loss after tax of $26.3 million
  • Underlying net profit after tax (NPAT) of $42.4 million
  • Underlying earnings per share (EPS) of 73.5 cents
  • Dividends of 30 cents per share
  • $118 million in cash and no debt
  • Outlook for tough market conditions to continue in 2018 but with some measured expansion into countries like France

So what?

Sirtex generated a huge loss after tax this year due to the write-down of its intangible research assets. The company’s previous funds spent on research & development (R&D) had been recorded as an ‘asset’, and now that those trials have failed, that asset (worth $90 million) is now worthless.

On an underlying basis, excluding the R&D write-down, results were mediocre with sales growing just 5%. Revenue fell 0.8% due to currency headwinds, and was up 6% on a constant-currency basis. There should be a big decline in clinical expenditure in 2018 because most research projects are now finished, so profits could potentially improve in the near term.

Now what?

Sirtex management continued the recently-announced share buyback, with ~$3 million worth of shares already purchased, and a further $27 million to be purchased by mid-September. The company is also ‘re-aligning’ (I read this as ‘reducing’) its spending on R&D and focusing on the core SIR-Spheres business. Recent trials showed an interesting result with the combination of SIR-Spheres plus chemotherapy being better than chemotherapy alone for treating certain types of colon cancer, and this could prove a fertile ground for further investigation.

One thing that stood out to me most about Sirtex was that the company, with a $940 million market capitalisation, is still priced at 22x this year’s underlying profits. Once clinical spending is cut back however, the company may prove significantly cheaper. Still, dose sales are growing well below previous forecasts and there is the uncertainty added by the new CEO’s strategy. I’d call Sirtex a hold today.

Available now -- 3 best ASX dividend stocks to buy right now

If you're looking for solid income from dividend stocks, look no further. The Motley Fool's top dividend analyst, who leads our dividend stock newsletter, Dividend Investor, recently picked what he believes are the best dividend stocks in the market right now.

These dividend cash cows -- paying franked and fully franked dividends -- could be the latest in a list of top stocks Dividend Investor has picked over the years.

Click here to learn how you can get access!

Motley Fool contributor Sean O'Neill owns shares in Sirtex Medical Limited.  The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.