Clinigen Group PLC (LON: CLIN): Painted a Strong Underlying Picture for a Decent Second Half Performance

Clinigen Group PLC is a FTSE AIM UK 50 index listed pharmaceutical and services Company. The Company’s mission is to ensure the delivery of the right medicine at the right time to the right patient in three areas of global medicine supply: unlicensed, clinical trials, and licensed medicines. It has sites in Europe, Asia Pacific, North America, and Africa. The Company employs over 1,100 people in 14 countries across five continents. It serves 22 of the 25 largest pharmaceutical Companies, by interacting with over 15,000 registered users and ships nearly 6.5 million units annually. The Group is operating as a global leader in specialist supply for clinical trials. Moreover, it has evolved significantly since the IPO by expanding the portfolio of products and services of niche medicines. In October 2018, the Company completed the acquisition of CSM and iQone to extend the geographic capabilities.
 
 
(Source: Company Website)

Key Fundamental Statistics



Segment Analysis

The Company evaluates business performance by segregating into three operating segments:

Commercial Medicines: It acquires global rights to supply critical care products around the world.

Unlicensed Medicines: It manages the supply of unlicensed medicines to innovate new medicines for high unmet medical need.

Clinical Services: It caters to specialist supply, distribution and packaging of medicines and services to clinical trials.

The geographic breakdown of operations based on H1 FY20 period can be seen in the image below:

 
(Source: Presentation, Company Website)

Synopsis of Recent Developments

10 June 2020: The Company issued 50,013 fresh equity shares to get admitted to FTSE AIM Index. Following the admission, the total issued share capital of the Group stood at 132,898,771 ordinary shares.

16 April 2020: The Group signed an exclusive licensing and distribution agreement to commercialise Erwinase® with Porton Biopharma Limited. The licensing agreement will strengthen the commercial offering in key markets.

Operational Key Performing Indicators in 2019

During the FY19, the Company expanded the product portfolio by acquiring branded generic products in the AAA region and new local marketed licences. However, the number of supply agreements were slightly down.

 
(Source: Annual Report, Company Website)

Top Shareholders Statistics

 

Operational Highlights for the period H1 FY2020

In the first half of 2020, the Group has taken the first significant step in the revitalisation of Proleukin through the supply agreement with Iovance Biotherapeutics. In Commercial Medicines, the Group has shown a growth in Melatonin and continued with a decent performance of Glycopyrronium in the United Kingdom. Unlicensed Medicines delivered robust growth in Global Access. In Clinical Services, Clinigen witnessed strong growth in CSM and the integration of CSM and CTS is on track. In October 2019, the Group’s ERP (Enterprise Resource Planning) system was implemented, which is designed to deliver automated, streamlined operational activities and processes to increase the Company’s efficiency and productivity.

Financial Highlights (for the six months ended 31 December 2019): Reported Decent Fundamental Growth Trajectory


(Source: Interim Reports, Company Website)

Clinigen has achieved a strong period of organic progress, with double-digit growth in revenue and profit. Net revenue surged by 24% (6% on an organic basis and 24% on a constant currency basis), gross profit rose by 35% (9% on an organic basis and 35% on a constant currency basis) to £108.1 million (H1 FY19: £80.0 million), driven by both strong underlying performance and the acquisitions made in FY19.

Adjusted EBITDA was up by 42% (10% on an organic basis and 42% on a constant currency basis) to £62.1 million (H1 FY19: £43.7 million), driven by improvement in operational leverage and the benefits of previous year acquisitions. Adjusted EPS (earnings per share) rose by 34% to 30.8 pence (H1 FY2019: 23 pence), while reported basic EPS stood at 14.1 pence.

Operating cash flow stood at £10.1 million, down by 71%, which was impacted by an outflow in working capital in the final month of the period. Net debt as at 31 December 2019 stood at £322.3 million, representing a pro-forma leverage of 2.4x. The interim dividend per share stood at 2.15 pence, an increase of 10% against last year comparatives.

Financial Ratios – Decent Profitability Margins versus the Industry Median

 

On the profitability front, Clinigen Group Plc’s gross margin and EBITDA margin were higher than the industry median, reflecting higher revenue generated and better control over expenses as compared to the industry median. In H1 FY20, ROE (Return on Equity) stood at 4.3%, which was higher as compared to the corresponding period of the last year of 2.5%, reflecting a good utilization of equity capital. Reported liquidity metrics for the first half of the financial year 2020 were lower against the industry median, but it was higher than the previous period. The Group has a robust liquidity profile to meet the short-term obligations in the near term. On leverage front, the debt-equity ratio stood at 0.82x, which was higher as compared to the industry median.

Share Price Performance Analysis


Daily Chart as on 2 July 2020, before the market close (Source: Refinitiv, Thomson Reuters)

On July 2, 2020, at the time of writing (before the market close, at 9:35 AM GMT+1), Clinigen Group Plc shares were trading at GBX 803.15, up by 1.03% against the previous day closing price. Stock 52 week High and Low were GBX 1,039.00 and GBX 350.40, respectively.The outstanding market capitalisation was around £1.06 billion, with a dividend yield of 0.89%.

Bullish Technical Indicators

From the technical standpoint, the shares were trading well above the short-term support level of 50-day and 100-day simple moving average prices, which reflects an upward trend in the stock. Also, 14-day RSI is currently in an oversold zone, which means there is a good potential for a short term rebound in the stock price. The Company’s stock has delivered a positive return of around 64% in the last three months.

Valuation Methodology

EV/Sales Approach (NTM)




To compare Clinigen Group Plc with peers, EV/Sales multiple has been used. The peers are UDG Healthcare Plc (EV/NTM Sales was 1.84), Vectura Group Plc (EV/NTM Sales was 2.98), Hikma Pharmaceuticals Plc (EV/NTM Sales was 2.79), Ergomed Plc (EV/NTM Sales was 2.41), Horizon Discovery Group Plc (EV/NTM Sales was 2.29) and Diaceutics Plc (EV/NTM Sales was 6.55). The Average of EV/NTM Sales of the Company’s peers was 3.15x (approx.).

Clinigen Plc Vs FTSE AIM UK 50 Index (3 Months)

 
(Source: Refinitiv, Thomson Reuters)

In the last three months, Clinigen Group Plc share price has delivered around 62.91% returns as compared to 30.45% returns of FTSE AIM UK 50 index, which shows that the stock has outperformed the index during the last three months.

Industry Outlook Dynamics

As per the study from ReportLinker, the market size of the global pharmaceutical industry will worth around $1.57 trillion by 2023. The market growth is dependent on various factors, such as growing and ageing population, regulatory policies, the prevalence of diseases, urbanization, and taxes.

Moreover, the increased prevalence of counterfeit and substandard medicines due to rising demand creates substantial opportunity for Clinigen to serve across key stages of pharmaceutical product’s lifecycle.

Growth Prospects and Risk Assessment

As the Group has been closely working with hospital customers and pharmaceutical clients during the pandemic, the trading for the FY20 period (ended 30 June 2020) continued to be in line with the Board’s expectation. Presently, the Company is having substantial liquidity, and thus, it is targeting to reduce the leverage ratio for FY21. Regarding the segment, the Company has around 458 clients in Clinical Services division, which provides synergy benefits to other two divisions as well. Under the Unlicensed Medicine division, the Company has been witnessing excellent growth in Europe and AAA region and having an extensive pipeline in place to reap the benefits in future. Further, the Commercial Medicines division continues to enhance commercial footprints and licensing opportunities. Despite the global disruption caused by the pandemic, the Company is meeting the commitment to serve the customers and healthcare partners worldwide. The Company has delivered a robust operational performance in the first half of 2020 and reported strong organic growth with continued double-digit EPS growth. In the medium-term, the organic gross profit growth will be in the range of 5%-10% target. Investment in EU and US infrastructure will continue to support the growth opportunities for both Unlicensed Medicines and Commercial Medicines operations. The operational leverage is expected to improve further beyond the financial year 2020. The Company, through the wide-ranging scope, has accelerated growth organically and through strategic acquisitions.


(Source: Company Website)

However, the Company’s performance is subject to various kinds of risk, such as adverse local political decisions, loss of market share with rising competition, shortage of supply during the Covid-19 crisis, failure to comply with regulatory policies, and high dependency on technology can put risk to data. The Group is anticipating higher cost and customer delays due to the Brexit implications.

Business Outlook

The Company has shown an increase in financial performance in the first half of 2020. Both the top-line and the bottom-line performance have accelerated with improved profitability margins. The positive cash generation characteristic of the Group remains unchanged with robust liquidity profile. The Company expects to keep within the 3.0x net debt to EBTIDA covenant limit throughout FY20. CLIN has developed a strong pipeline of opportunity from the producing assets and is making an investment in those assets to fetch higher returns in the long-term. With the commercial platform in the US and EU now established, the Group is actively seeking further acquisition opportunities. The Company is also integrating CSM into the Clinical Services division, which drives higher organic growth across the Group. The Company plans to improve the financial performance, and further action is to build an integrated, international pharma product and services group with robust operational synergies, and working with a growing roster of multinational clients. Meanwhile, the Group has continued the good performance into the second half of 2020.

Over the course of 4 years (FY15 - FY19), the Company's revenue surged from £184.36 million in FY15 to £456.90 million in FY19. Compounded annual growth rate (CAGR) stood at 25.47%.
 

Based on the decent growth prospects, support from the valuation as done using the above method and associated risks, we have given a “Speculative Buy” recommendation at the current market price of GBX 803.15 (as on 2 July 2020, before the market close at 9:35 AM GMT+1), with lower-double digit upside potential based on 3.15x EV/NTM Sales (approx.) on FY20E sales (approx.).

 
*All forecasted data and peer information have taken from Refinitiv (Thomson Reuters).

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