Ergomed PLC (LON: ERGO)

Ergomed PLC (LON: ERGO) is an FTSE AIM UK 50 index listed Company focused on rendering specialised services to the pharmaceutical industry. Moreover, the diversified services encapsulate all clinical development phases, post-approval pharmacovigilance, and medical information. Under the Ergomed brand (CRO), ERGO provides high-quality clinical research & trial management services, and it renders specialist pharmacovigilance (PV) solutions through the PrimeVigilance brand.

On 29 March 2022, the Company will release full-year FY21 results for the 12 months ended 31 December 2021.

Growth Prospects (also covers trading update released on 25 January 2022)

• Acquisition Benefits: The acquisition of ADAMAS has strengthened ERGO’s position as a specialised pharmaceutical services provider in premium consulting services. The transaction got completed for a cash consideration of £25.6 million.
• Expansion of Operations in Japan: ERGO had expanded the footprints of the PrimeVigilance brand in Japan as it had established a new legal entity and regional office. Moreover, the new subsidiary Company, PrimeVigilance Japan KK, became fully operational during H1 FY21.
• Strong US Growth: ERGO had managed to expand its footprints in the US with recent acquisitions and witnessed a year-on-year growth of around 59.5% in US-based revenue during FY21.

Key Risks 

• Record UK Inflation: British inflation hit a 30-year high of around 6.2% during February 2022, which may cause a further interest rate hike.
• Ukraine Tension: The mounting concern over the Russian invasion in Ukraine can continue to weigh on the equity market.
• Quality & Third-party Oversight: Failure to maintain adequate quality, governance and oversight of internal & third-party operations could result in the breach of contract, which might impact the top-line revenue of the Company.
• Cancellation or Delay of Clinical Trials: The unexpected cancellation or delay of a clinical trial by customers might adversely impact the profitability of ERGO.

Key Fundamental and Shareholders Statistics of Ergomed PLC.

Reljanovic (Miroslav) is the most significant shareholder as it holds nearly 9.68 million shares as of 31 December 2021.          

Financial Highlights (for the six months ended 30 June 2021, as of 28 September 2022)

(Source: Company Website)

• Top-Line Business: The Company’s total revenue grew by around 38.8% to £56.0 million during H1 FY21.
• Profitability: ERGO had shown a solid growth of around 48.7% in the basic earnings per share to 48.7 pence during H1 FY21.
• Net Cash Position: The net cash position improved by approximately 74.5% to £24.6 million as of 30 June 2021.

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 24 March 2022 at 08:14 AM GMT, ERGO’s shares were trading at GBX 1,285.00, down by around 0.39% against previous day closing price. Stock 52-week High and Low were GBX 1,585.00 and GBX 1,015.00, respectively.

On a daily chart, the stock price is hovering above the 20-days exponential average of GBX 1,197.28. Hence, there could be an uptick in the stock price in the near term. Also, the MACD line had given a bullish crossover against the signal line.

Valuation Methodology: Price/Earnings Approach (FY22E) (Illustrative)

 Business Outlook

ERGO has kickstarted its FY22 on an optimistic note after achieving year-on-year growth of around 37.3% in top-line revenue during FY21. Moreover, ERGO has excellent revenue visibility into 2022 with robust order book growth of around 24.2% to £240 million at the end of FY21. The continued focus on profitability pushed FY21 adjusted EBITDA ahead of current market expectations. ERGO has strengthened its presence in the largest pharmaceutical market globally in the US and delivered excellent operational execution. In a nutshell, ERGO had a long-term strategy to generate superior return through its geographic expansion, robust order book and strategic acquisitions.

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering the impressive order book, recently completed acquisitions, robust revenue growth, bright outlook, robust cash generation, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Ergomed PLC at the current price of GBX 1,285.00 (as of 24 March 2022 at 08:14 AM GMT), with lower-double digit upside potential based on 39.23x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Note 3: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 4: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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