Business Overview
Sensyne Health Plc (LON: SENS) is a health care equipment & services company, engaged in the business of development and discovery of new medicines and refining patient care. The group’s business is carried through a deep analysis of real-world evidence from databases of anonymised patient data in collaboration with the National Health Service (NHS) Trusts. The company’s product portfolio includes SEND, GDm-Health, EDGE, CleanSpace, Support-HF. The company records observations and signs such as pulse rate, temperature, blood pressure, oxygen saturation, and respiratory rate, through SEND. The group developed a patient-to-clinician system called GDm-Health to manage diabetes during pregnancy period. The company, through EDGE, manage the care the patients suffering from COPD (chronic obstructive pulmonary disease). CleanSpace, a research tool is used to measure pollution exposure to an individual and provide information about air pollution in the form of a map. The group, through Support-HF, a digital health software system, provides heart failure patients with patient management service.

The current Interim Chairman Non-Executive is Sir Bruce Keogh. Rt. Hon. Lord Drayson holds the responsibilities of the Chief Executive Officer and Mr Lorimer Headley is the current ChiefFinancial Officer.

Key Statistics




Top Shareholders


(Source: Thomson Reuters)
 
Regional Health Care Spending
 


The global spending on health care is expected to show an increase from USD 7,724 billion in 2017 to USD 10,059 billion in 2022. The North American region is set to increase its spending into health care to USD 4,175 billion in 2022 from USD 3,509 billion in 2017. As per the data, Western Europe’s spending on health care is expected to increase from USD 1,745 billion in 2017 to USD 2,279 billion in 2022.

Sensyne Health Business Model


(Source: Annual Report, Company Website)
 
Sensyne Health’s business model is a classic example of how commercial healthcare technology company can benefit from the partnership with the National Health Service (NHS). The company’s partnership with NHS helps in the improvement of patient care and also generate anonymised patient data ethically. The company acts as a docking station between the pharmaceutical companies and NHS. The group, through its double bottom line business model, have access to anonymised patient data.

Operational Highlights

The company signed its first major pharmaceutical agreement for GBP 5 million for collaboration with Bayer. As per the agreement, both the companies will work together to develop new treatments using Clinical Artificial Intelligence for cardiovascular disease. The company also partnered with Agorai and Cognizant to launch and sale its digital health software products in the US market. The group entered into an additional partnership agreement with Bayer, both the companies will build a new LifeHub in the UK, based artificial intelligence for drug discovery, diagnosis and disease detection. The company will contribute in the development of the procedure to validate software algorithms for digital health entered into a research agreement with the UK Medicines and Healthcare products Regulatory Agency (MHRA). The company to fast-track the commercialisation of next-generation data-driven drug discovery and digital therapeutics using digital health innovations and Clinical Artificial Intelligence research entered into a partnership with LAB10x. LAB10x include the University of Oxford, Oxford Sciences Innovation, Oxford University Innovation and Evotec.

Segment Information

The company divided its business into one reportable segment beingthe development and commercialisation of digital health products and doesn’t disclose any segment presentation.

Financial Highlights – H1 Financial Year 2020 (31^st October 2019, GBP, thousand)


(Source: Interim Report, Company Website)
 
In the first half of the financial year 2020, driven by the agreement signed by the company with Bayer, the company’s revenue increased to GBP 392 thousand as against GBP 39 thousand in the first half of the financial year 2019. Driven by higher revenue for the period, the company reported a gross profit of GBP 244 thousand in the first half of the financial year 2020 versus a gross loss of GBP 59 thousand in the first half of the financial year 2019. During the period, the company’s expenses related to research and development and administrative expenses increased. The company reported an adjusted operating loss of GBP 7,364 thousand in the first half of the financial year 2020 as against an adjusted operating loss of GBP 5,112 thousand in the first half of the financial year 2019. The reported operating loss declined to GBP 9,837 thousand in the first half of the financial year 2020 from an operating loss of GBP 10,334 thousand in the first half of the financial year 2019. In the first half of the financial year 2020, the company’s LBT (loss before tax) and LAT (loss after tax) from continuing operations stood at GBP 9,894 thousand versus an LBT (loss before tax) and LAT (loss after tax) from continuing operations of GBP 10,334 thousand in the first half of the financial year 2019. The company’s loss attributable to the shareholders stood at GBP 9,894 thousand in the first half of the financial year 2020 versus a loss attributable to the shareholders of GBP 13,309 thousand in the first half of the financial year 2019. The company’s basic and diluted loss per share (from continuing operations) stood at 0.08 pence in the first half of the financial year 2020 as against a basic and diluted loss per share (from continuing operations) of 0.10 pence in the first half of the financial year 2019. As on 31^st October 2019, the company’s cash reserves stood at GBP 40,488 thousand as against GBP 57,655 thousand as on 31^st October 2018.

Key performance indicators


 (Source: Interim Report, Company Website)
 
Revenue is the income generated by the company from its normal day to day operations. The company’s revenue increased to GBP 392 thousand in the first half of the financial year 2020 from GBP 39 thousand in the first half of the financial year 2019. The group’s unique patients stood at 2,367,000 in the first half of the financial year 2020 versus 2,105,000 in the financial year 2019, as per the data reported by NHS partner trusts. The company’s patient’s admission stood at 27,234,000 in the first half of the financial year 2020 versus 20,057,000 in the financial year 2019, as per the data reported by NHS partner trusts.
 
Financial Ratios 
 
 

The reported gross margin in H1 Financial Year 2020 increased significantly by 213.50 per cent (absolute term) to 62.20 per cent against negative 151.3 per cent reported last year for the same period. The other profitability margins like EBITDA margin, Operating Margin, Pretax Margin and Net Margin improved in the first half of the financial year 2020 but remained in the negative zone. The company’s ROE (Return on Equity) improved in the first half of the financial year 2020 versus last year data for the same period but remained in the negative zone. On the liquidity front, Sensyne Health Plc’s current ratio stood at 10.88x in the first half of the financial year 2020, and the current ratio declinedversus last year data for the same period. On leverage front, the debt-equity ratio of the Sensyne Health Plc’s was 0.04x, which was higher as compared to the last year data for the same period. The assets-equity ratio of the Sensyne Health Plc’s was 1.10x, which was higher as compared to the last year data for the same period.

Share Price Performance


Daily Chart as at February-20-2020, before the market close (Source: Thomson Reuters)

On February 20, 2020, at the time of writing (before the market close, at 11:47 AM GMT), Sensyne HealthPlc shares were trading at GBX 49.50 and remained same against the previous day closing price. Stock's 52 weeks High and Low are GBX 190.00/GBX 35.30. Stock’s average traded volume for 5 days was 68,303.60; 30 days – 424,035.17 and 90 days – 167,431.38. The traded volume (average) for 5 days was down by 83.89 per cent versus 30 days average traded volume. The outstanding market capitalisation was around £64.03 million.

From the technical standpoint, 14-Relative Strength Index of the stock also hovering in the oversold zone, which is strengthening the upside move.

Valuation Methodology 

 

To compare Sensyne Health Plc with its peers, EV/Sales multiple has been used. The peers are Senzine AB (NTM EV/Sales was 25.38), Renalytix AI Plc (NTM EV/Sales was 17.43), Mainstay Medical International Plc (NTM EV/Sales was 15.95), Aortech International Plc (NTM EV/Sales was 15.90) and Episurf Medical AB (NTM EV/Sales was 13.58). The average of EV/Sales (NTM) of the company’s peers was 17.65x (approx.)

Comparative Total Return


(Source: Thomson Reuters)
 
In the last month, Sensyne Health Plc has delivered a reinvested total return of 6.47 per cent while the FTSE All-share index has delivered a reinvested total return of -2.13 per cent.

Sensyne Health V/S Industry V/S Sector


(Source: Thomson Reuters)
 
Sensyne Health performance in the last one month against industry UK-DS Health Care Prvd and sector UK-DS Health Care remained good. The stock generated a return of 6.45 per cent, while the industry and sector showed a decline of 19.97 per cent and 5.8 per cent in last one month period.

Valuation Metrics


(Source: London Stock Exchange)
 
As on 31st January 2020, the Price to Book multiple of the Sensyne Health Plc’s was 1.2x, which was slightly lower as compared with the Health Care Equipment & Services industry of 2.9x, reflecting that the company is trading at a lower multiple as compared to its peers.

Growth and Risk Assessments

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. The company provides cost-effective services, accurate diagnostic testing and is a leading healthcare provider in every region and community it serves. The group signed a collaboration agreement with the oxford and strategic research agreements with NHS will help them to improve its operational performance and gain more market share in the health care sector. The group is exposed to the effects of political and economic risks, including the impact of Brexit, as the market expects macro-economic uncertainty or downturn in the UK economy as a result of Brexit. Global political uncertainty regarding trade policy also poses a risk for the group, including protectionist measures and regulation or legislation in local markets. The company’s revenue is impacted by increased competition in the healthcare sector.

Conclusion

In the first half of the financial year 2020, the company’s expenses related to research and development and administrative expenses increased. Despite the increase in the operating expenses, the company has shown 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, though it remained in the negative zone for the period.

The company signed an agreement with Bayer for GBP 5 million, which will help the company to generate higher revenues in the second half of the financial year 2020.The group signed a collaboration agreement with the oxford and strategic research agreements with NHS will help to gain more market share in the health care sector.

The company is focusing on higher growth markets, through M&A and has achieved significant growth in the past. The company remained a cash generative in the current financial period due to focused investment prioritisation, and tight financial management approach opted by the company.

Based on the decent growth prospects and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation at the current price of GBX 49.00 (as on 20^th February 2020, before the market close at 8:00 AM GMT) with low double-digit upside potential based on 17.65x NTM EV/sales (approx.) on FY20E sales (approx.).
 

*All forecasted figures and peer information have been taken from the Thomson Reuters.

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