Clinigen Group PLC (LON: CLIN) – Decent performance in FY2021 with strong portfolio growth

Clinigen Group PLC is an FTSE AIM All-Share Index listed global Pharmaceutical and Services Company. Through three areas of medicine supply - unlicensed, clinical trials, and licensed medicines, it ensures the delivery of the right medicine at the right time to the right patient. It has sites in Europe, the 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. It 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.

On 16 September 2021, CLIN would release its FY2021 results.

Recent trend of dividend payments

(Data Source: LSE Website, Research done by Kalkine Group)

The chart above demonstrates the consistent dividend payment done by CLIN from FY2017 to FY2020. In FY2021, CLIN paid an interim dividend of GBX 2.15 per share. It was paid on 13 April 2021 and had an ex-dividend date of 18 March 2021. The next dividend of FY2021 is expected to be declared on 16 September 2021. It would have an ex-dividend date of 4 November 2021, and it would be paid on 1 December 2021.

Growth Prospects

• Exclusive agreements: Recently, CLIN signed an exclusive agreement with Eyevance Pharmaceuticals to contribute to the supply and distribution of NATACYN. Furthermore, it has signed another exclusive agreement with ORPHELIA Pharma. By this agreement, CLIN would manage the supply and distribution of Kigabeq into unlicensed markets.
• Removal of supply constraints in the UK: CLIN previously used to supply Erwinase in France, the Netherlands, Portugal and Ireland. However, it was restricted in the UK. Recently, the authorities approved the unrestricted supply of Erwinase in the UK.
• Strong underlying business: The Company has a solid underlying business. It won the highest number of Managed Access Programs in FY2021 with a net of 30 additions. Furthermore, it won USD 100 million of business in Clinical Services.
• Simplified platform: To further align with customers, CLIN has simplified its platform, which could drive further synergies. It has also disposed of non-core UK Specials and Aseptics business for more simplification.

Key Risks 

• Delay in clinical trials: There could be a delay in clinical trials by the Company. It would increase costs and delay revenues.
• Disruptive innovations: There could be the introduction of new disruptive technologies in the sector. If the Company is slow to respond to these changes, it could lead to erosion of the business.
• Covid-19 impact on oncology treatments: Due to Covid-19 induced disruptions, there is an ongoing lower demand for hospital-based oncology treatments. It could affect the margins of CLIN as the performance of the Products division would remain subdued.
• Changes in the regulatory environment: There could be material changes in the regulatory environment surrounding the healthcare market. Failure or delay in adapting effectively could lead to significant cost incurrence.
  

Now we will analyse some key fundamental and shareholders statistics of Clinigen Group PLC.

FY2021 Trading Update (released on 13 July 2021)

• The Company reorganised the business into two divisions: Products and Services. CLIN also divested the UK Compounding Business, simplifying the structure.
• The Company has seen solid business activity in Services. In Clinical Services, it won USD 100 million of business.
• However, due to the continued impact of Covid-19 on hospital-based treatments, demand for products of the Company remains weak.
• The management expects net revenue to increase by 12% YoY in FY2021 to reach £455 million and double-digit EBITDA growth in FY2022.

Financial and Operational Highlights (for the six months ended 31 December 2020 as of 23 February 2021)

(Source: LSE Website)

• Despite the impact of Covid-19, net revenue on an organic basis rose 4% YoY in H1 FY2021.
• However, there was a drastic increase in costs due to Covid-19. Hence, even after cost control initiatives, organic gross profit declined 5% YoY, and organic EBITDA fell 9% YoY in H1 FY2021.
• On a positive note, excellent cash conversion and reversal of the working capital headwind of H1 FY2020 resulted in adjusted operating cash flow of £60.7 million in H1 FY2021, up from £10.1 million in H1 FY2020.
• However, despite excellent cash flow, net debt at H1 FY2021 stood at £351.5 million, up 9% YoY.
  

Financial Ratios (H1 FY2021)

 Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 12 August 2021, at 10:05 AM GMT, CLIN’s shares were trading at GBX 624.00, down by 0.24% against the previous day closing price. Stock 52-week High and Low were GBX 891.79 and GBX 554.00, respectively.

On a daily chart, CLIN's price is sustaining above 20-day EMA of about GBX 619.00 and 20-day SMA of about GBX 610.80, indicating the possibility of an upward movement. The MACD line is trading below the centreline but forming a positive crossover with the signal line. Hence, the stock price has been corrected and is taking support at a lower level.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook Scenario

CLIN delivered a strong performance in FY2021, driven by solid business activity in its Services division. Net revenue is expected to grow by 12% YoY in FY2021. The management focuses on reducing the leverage by debt pay down. The Company could benefit from its recent exclusive agreements, removal of supply constraints in the UK for Erwinase, its strong underlying business, its simplified platform, and the launch of a new Managed Access Program going into FY2022. The management is confident that the Company would deliver value for patients, customers and investors in FY2022 and beyond.

Considering the Company’s exclusive agreements, strong underlying business, its continued investments & simplified platform, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Clinigen Group Plc at the current price of GBX 624.00 (as on 12 August 2021 at 10:05 AM GMT), with lower-double digit upside potential based on 12.02x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

*All forecasted figures and Peer information have been taken from Refinitiv.

*The dividend yield is subject to change as per the stock price movement.

*The reference data in this report has been partly sourced from Refinitiv.

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