Immunodiagnostic Systems Holdings PLC (LON: IDH) – Transitioning from Loss to Profitability 

Founded in 1977, Immunodiagnostic Systems Holdings PLC is a FTSE AIM All-Share listed Medical Equipment Company, which supports clinical laboratory market by developing and selling in-vitro diagnostics tests (IVD are diagnostic tests which are performed based on blood and serum). The Company operates through three operating segments – Automated IVD, Manual IVD and Licensing & Technology. The Automated IVD is involved in selling and placement of IDS instrument besides selling automated assays and other related consumables. The Manual IVD caters to manual assay kits through which the testing is performed by laboratory technicians. It is headquartered in the United Kingdom and employs around 295 people worldwide. The Company has sales offices in Brazil and regional offices in the USA and Europe. The Company was admitted to the London Stock Exchange on 21^st September 2005. 

On17^th June 2020, the Company will announce its preliminary results for FY20 (for the ended 31^st March 2020).

 
(Source: Presentation, Company Website)

Key Fundamental Statistics



A Glimpse of Operating Segments

Operationally, the Company has the business of manufacturing, developing and selling IVD (in-vitro diagnostics tests) and had three business units – Automated, Manual and Technology, which represented around 60 per cent, 33 per cent and 7 per cent of revenue in FY19.

Geographically, the Company distributes its revenue into five segments – the UK (country of domicile), Germany, France, US and Other – distribution territories.

The image below summarises the unaudited revenue performance of the business segments of the Company, and their evolution over the past three years.


(Source: Annual Report, Company Website)

Progress of Non-Financial KPIs in FY2019
 

1. In FY19, the Company sold 127 IDS-iSYS (instrument based on Chemiluminescence and Absorbency technology) instruments, which were up from 103 in FY18.

2. Average revenue for per direct instrument stood at £52,000 in FY19 as compared to £53,000 in FY18.

3. During the FY19, Company did not release any new endocrinology assays due to longer development process than anticipated.
 

(Source: Annual Report, Company Website)

Synopsis of Recent Developments
 

1. In May 2020, the Company announced that it had added seven new clinically relevant allergens to its portfolio.

2. 17^th April 2020: The Company reported its position of GBP 27.6 million in cash and cash equivalents (at 31^st March 2020), while it is expecting like-for-like revenue growth of 2 per cent in the financial year 2020 as against FY19.
 

Top Shareholders Statistics

 

Increased Revenue in FY2020 Trading Update

On 17^th April 2020, Immunodiagnostic Systems Holdings released an update on trading performance for the full-year ending 31^st March 2020 and impact of covid-19 on business performance. During the period, the Group expects its revenue to increase by 2 per cent to GBP 39.3 million. The revenue from Automated business increased by 4 per cent on an LFL basis to GBP 23.4 million, representing strong performance in H2 of FY2020. Due to a decline in direct sales in European markets, the revenue from Manual business declined by 8 per cent on an LFL basis. The technology business performed well and reported a growth of 30 per cent on an LFL basis. The Group’s cash balance as on 31^st March 2020 stood at GBP 27.6 million versus GBP 27.7 million as on 31^st March 2019. All the manufacturing sites of the Company are operational and is focused on ensuring the health and safety of its employees and encouraging good hygiene, and social distancing practises. IDH has enabled remote access for employees not involved in the manufacturing of products and procurement team is working in sync with supply chain to ensure uninterrupted supply. The Company is also in contact with its Italian partner for maintaining operational capabilities, which is manufacturing products related to Autoimmune and Infectious Disease. In April 2020, the Group experienced a decline in the revenue versus revenue for April 2019, due to a decline in the routine medical testing in laboratories and hospitals, while the cash balance remained strong with GBP 28 million. The Group is also offering its manufacturing sites for the development of Coronavirus testing kits. 

Financial Highlights – Increased Financial Performance in H1 FY2020 (30^th September 2019)

                                            
(Source: Interim Report, Company Website)

In the first half of the financial year 2020, driven by an increase in revenue from Automated Business and Technology Business for the period, the company’s revenue stood at GBP 18,791 thousand versus GBP 18,495 thousand in the first half of the financial year 2019. The company’s adjusted EBITDA stood at GBP 2,857 thousand in the first half of the financial year 2020 versus an adjusted EBITDA of GBP 1,893 thousand in the first half of the financial year 2019, reflecting an increase of 49 per cent for the period. Due to lower operating expenses for the period, the Company reported an operating profit of GBP 642 thousand in the first half of the financial year 2020 versus an operating loss of GBP 223 thousand in the first half of the financial year 2019.

In H1 of the Financial Year 2020, the Company received a tax rebate and reported a PAT (profit after tax) attributable to shareholders of GBP 16 thousand versus a reported LAT (loss after tax) attributable to shareholders of GBP 305 thousand in the first half of the financial year 2019. The company’s basic and diluted earnings per share stood at 0.1 pence in the first half of the financial year 2020 versus a basic and diluted loss per share of 1 pence in the first half of the financial year 2019. The cash balances (cash and cash equivalents) stood at GBP 28,148 thousand in the first half of the financial year 2020 versus GBP 27,752 thousand in the first half of the financial year 2019.

Financial Ratios: Strong Liquidity Position versus Industry Median  
 
 

The reported Gross Margin and EBITDA Margin stood at 44.8 per cent and 15.2 per cent for the first half of the financial year 2020. Reported profitability metrics were higher versus the last year data for the same period. On the liquidity front, Immunodiagnostic Systems HoldingsPlc’scurrent ratio was significantly higher than the industry median of 1.81. On leverage front, the Debt-equity ratio of the Immunodiagnostic Systems HoldingsPlc’swas 0.05x, which was lower as compared to the industry median of 0.14x.

Share Price Performance Analysis


Daily Chart as on 11^th June 2020, before the market close (Source: Refinitiv, Thomson Reuters)

On June 11, 2020, at the time of writing (before the market close, at 1:00 PM GMT+1), Immunodiagnostic Systems HoldingsPLCshares were trading at GBX 196.55, down by 6.4 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 290.00/GBX 160.00.

Bullish Technical Indicator

From the technical standpoint, 14-day RSI is currently hovering in an oversold zone and carry the potential to trigger an upside bump in the stock price.

Valuation Metrics

                              
(Source: London Stock Exchange)

This analysis is a useful technique to decompose the different drivers of ROE. It can be further examined through three financial metrics which are: net profit margin, asset turnover and financial leverage. This analysis helps to deduce whether the company’s profitability, use of debt or assets that are driving ROE.

Immunodiagnostic Systems HoldingsPLC Vs FTSE AIM 100 Index (1 Year)


(Source: Refinitiv, Thomson Reuters)

In the last year, Immunodiagnostic Systems HoldingsPlc share price has delivered negative 1.73 per cent returns as compared to negative 8.61 per cent returns of FTSE-AIM 100 index, which shows that the stock has outperformed the index during the last year.

Growth Prospects and Risk Assessment

The Company keeps on launching new platforms and upgrade the old products and services to become one of the market leaders in the healthcare market. There has been a strong demand for its existing as well as newly launched products in the market. The company provides cost-effective services, accurate diagnostic testing and is a leading healthcare provider in every region and community it serves. The Group is exposed to the effects of political and economic risks, as the market expects macro-economic uncertainty or downturn in the UK economy. The Company’s revenue is impacted by increased competition in the healthcare sector. Global political uncertainty regarding the trade policy also poses a risk for the group, including protectionist measures and regulation or legislation in local markets.

Business Outlook Scenario

In the financial year 2020, the Company’s Manual Business performance has declined because of one-off order in FY2019. The performance in the second half of the financial year 2020 improved. The Company has shown an improvement in financial performance in the first half of the financial year 2020. Both the top-line and the bottom-line performance have improved, with the improvement in the profitability of the company for the current period. The company’s revenue on an LFL basis increased in the FY2019 for the first time since the financial year 2014. The revenue from automated and Technology business have also improved.

As per the June edition of Fior Markets’ report, the Immunodiagnostic Reagents devices market is expected to grow at a CAGR (compounding annual growth rate) of 13.2 per cent during the period 2020-2027, which was valued at USD 6.16 billion in FY19 and projected to reach around USD 16.63 billion by 2027. The market is forecasted to proliferate, owing to the increasing incidence and prevalence of infectious diseases such as respiratory infections, hepatitis, HIV, cancer and others.

 
(Source: Annual Report, Company Website)

Overall, the Company has delivered excellence in endocrinology over the years - by focussing on internal assay development, building expertise in new indication areas, monetizing OEM, and distribution opportunities, and continuously capturing strong market position with acquisitions and partnerships. Moreover, The Group has brought its core Automated business to growth in FY20, while maintaining a strong momentum of Technology division, which holds the potential for the profitability in the mid and long-term period.

During the FY20, the manual business declined 8 per cent on LFL, primarily due to decline in sales in the European markets; however, the Company has deployed ample resources to boot sales, since the Company is still witnessing a strong demand for its products. Due to the COVID-19 outbreak, the Company might also face logistic challenges in the short run. 

The Company has been able to manage the operating costs, which has resulted in improved financial performance for the period. In H1 FY2020, the Company’s adjusted EBITDA improved by over 49 per cent, mainly driven by an increased revenue, high supply margin and low expenditure on R&D. The Group is focusing on higher growth markets, through M&A and has achieved significant growth in the past. The Company remained cash generative in the current financial period due to focused investment prioritisation, and tight financial management approach opted by the Company. To support the business continuity, the Group has enabled remote access and is working in sync with supply chain to ensure uninterrupted supply. The liquidity position of the Company remained strong in April 2020.

The Company generated strong revenue in the financial year 2020 and posted solid financials in the first half of the financial year 2020, with decent operational performance. The revenue from the Technology business have increased significantly in the H2 of the financial year 2020. The Group has a solid cash position to tackle the uncertain environment due to covid-19 pandemic.
 
Based on the decent fundamental growth story as discussed above, we have given a “Speculative Buy” recommendation at the current market price of GBX 196.55 (as on 11^th June 2020, before the market close at 1:00 PM GMT+1).

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