This report is an updated version of the report published on 05 May 2022 at 08:42 AM GMT+1

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.

Growth Prospects

• Significant Operational Progress: The acquisition of ADAMAS will expand ERGO’s global reach in the US, Europe, and APAC. The acquisition of MedSource drove the CRO division’s revenue higher by around 85.6% to £58.1 million in 2021.
• Expansion 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.

Key Risks 

• Weak Global Growth Forecast: The World Bank has reduced its global growth forecast for 2022 from 4.1% to 3.2%.
• Federal Reserve Rate Hike: The Federal Reserve announced an 0.5% increase in interest rates on 04 May 2022. Meanwhile, the Bank of England is expected to raise interest rates to their highest level in 13 years on 05 May 2022.
• Risk of Inflation: The Group is prone to the impacts of inflation, which has been reported at 7% in the period 12 months to March 2022, and there is a possibility of further increase moving ahead.

Key Fundamental and Shareholders Statistics of Ergomed PLC.

Reljanovic (Miroslav) is the most significant shareholder as it holds nearly 9.53 million shares. 

FY21 Financial Highlights (for the year ended 31 December 2021, released on 29 March 2022)

(Source: Company Website)

• Top-Line Business: The top-line revenue had witnessed a jump of around 37.3% to £118.6 million during FY21.
• Profitability: The Company’s basic earnings per share had shown a significant improvement of around 59.3% for FY21.

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 05 May 2022 at 08:05 AM GMT+1, ERGO’s shares were trading at GBX 1,064.10, up by around 0.01% against the 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 sustained around the lower Bollinger band. Hence, there could be an uptick in the stock price in the near term. Also, the 14-days RSI of 29.19 illustrates an oversold territory.

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

Business Outlook

ERGO has kickstarted its FY22 on an optimistic note as it has broadened the service offering with the acquisition of ADAMAS. Moreover, the continued strong organic growth in both the pharmacovigilance and CRO businesses illustrates the resilience and robustness of the global services business. 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 returns 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, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Ergomed PLC at the current market price of GBX 1,064.10 (as of 05 May 2022 at 08:05 AM GMT+1), with lower-double digit upside potential based on 29.51x 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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