SourceBio International PLC (LON: SBI)

SourceBio International PLC (LON: SBI) is an FTSE AIM All-Share index listed company. It is a leading international provider of laboratory services to clients in the pharmaceutical industry, the NHS and to private healthcare providers. The Group is headquartered in Nottingham, with additional facilities in the UK, Ireland, and the US.

The company will release its Unaudited Half Year Results for the six months ended 30 June 2021 on Tuesday, 28 September 2021. 

Major Approvals Received During the Year

• The company expanded its test offerings beyond RT-PCR to include LamPORE, Rapid antigen, and a pipeline of offerings under evaluation, including quantifiable antibody testing solutions.
• In the Genomics segment, SBI invested in the NovaSeq NGS system from Illumina, which increased wins of larger and repeat projects.
• In the stability storage, the company increased its capacity to sell due to the recent investments made in Ireland and a new larger site in the US.

Growth Prospects

• Market Leadership: The Company is the leading provider of laboratory services to Blue Chip Pharma, NHS & Private hospitals, with four main areas of focus, namely, Pathology testing services & companion diagnostics, DNA sequencing, Environment controlled stability storage and COVID-19 Antigen RT-PCR testing.
• Market Opportunities: With the rise of the aging population across Europe and the USA, the demand for healthcare diagnostics will increase. Furthermore, there is a significant backlog of more than 10 million patients requiring treatment post COVID. In the Genome segment, the demand for outsourcing genome sequencing by Pharma and Biotech companies keep on increasing, and with more and more drugs in the pipeline in the pharma industry, the demand for stability storage is on the rise.
• Continuing Demand for Covid-19 Testing: As per the recent survey by BCG, the demand for testing will remain high long after widespread vaccine distribution, the need for testing peaking in late 2021 and early 2022 with the continued need for testing in 2023 and 2024. It will not only provide demand for RT-PCR tests, but the company plans to capture broader market opportunities beyond the test through other tests as well.

(Source: LSE, chart created by Kalkine Group, as of 31 August 2021)

Key Risks

• High Competition: The Group’s current and potential competitors could establish financial and strategic relationships amongst themselves or with existing or potential customers or other third parties to increase the ability of their products to address customer needs. This could affect the demand and financial outlook of the company.
• Reduction in Government Fundings: Changes in political conditions and attitudes towards the funding of healthcare could impact the growth of the company.
• Geographical Risk: The Group operates in numerous jurisdictions, which have different regulatory, fiscal and legal environments that could change in the future and could impact the company’s operations.
  

Now we will analyze some key fundamental and shareholders statistics of SourceBio International Plc. 

H1 FY21 Trading Update (for six months ended 30 June 2021 as of 27 July 2021)

• On the back of robust recovery across segments, the total revenue increased four-fold to £37.3 million.
• The demand from the new divisions and products led to a seven-fold increase in Adjusted EBITDA to approximately £11.2 million.
• The Company became debt-free at the end of H1FY21, providing freedom to raise funds while maintaining a strong balance sheet.
• The Cash at the end of H1FY21 was more than doubled to £17.2 million.
• The Group has already seen a marked uptick during July, with daily testing volumes rising from under 4,000 tests per day in June to approximately 9,000 tests daily, and the company plans to expand its capacity to more than 20,000 tests per day.

Financial Ratios (FY20) 

 Share Price Performance Analysis (since 29 October 2020)

 (Source: Refinitiv, Research done by Kalkine Group)

On 16 September 2021, at 10:37 AM GMT, SBI’s shares traded at GBX 160.10, down by around 1.48% against the previous day closing price. SBI’s 52-week High and Low were GBX 240.00 and GBX 140.75, respectively.

On a daily chart, the stock price is sustaining around the lower Bollinger band. Hence, there could be an uptick in the stock price in the near term. Also, the 14 days-RSI stood at around 35.53, indicates that the stock is trading near the oversold territory, which suggest trend reversal in the near term.

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

Business Outlook

SourceBio International PLC delivered a robust performance in H1FY21, with revenue growth 4x and profit growth of 7x. The Company anticipates a strong second half bias to revenues, earnings and cash generation, largely driven by the phasing of COVID-19 testing revenues generated through its newest business unit, Infectious Disease Testing. However, the high competition level continues to affect the company. The Company maintains a solid financial position, with the company becoming debt-free at the end of H1FY21. The acquisition plans and capacity expansion along with new units will drive growth in the medium term.

Considering the Company’s strong H1 FY21 performance, recent approvals, and support from the valuation using the above method, we have given a “Speculative Buy” recommendation on SourceBio International PLC at the current price of GBX 160.10 (as on 16 September 2021, at 10:37 AM GMT), with a lower-double digit upside potential based on 13.73x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

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

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

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

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