This report is an updated version of the report published on 14^th April 2022 at 07:51 AM GMT+1.

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.

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 ageing 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.

Key Risks 

• Reduction in Covid-19 Testing Volumes: The significant reduction in Covid-19 testing volumes may adversely impact the top-line business in FY22.
• FOMC Meeting Minutes: The Federal Open Market Committee's meeting minutes indicated that the Federal Reserve is preparing to move aggressively to head off inflation.
• Record UK Inflation: British inflation hit a 30-year high of around 7.0% in March 2022, intensifying the cost-of-living squeeze faced by households. Thus, it may result in a further interest rate hike by the Bank of England.
• Ukraine Tension: The mounting concern over the Russian invasion of Ukraine can continue to weigh on the equity market.
• Intellectual property risk: Any failure to protect and register Intellectual property rights may adversely impact the SBI’s future business performance.

Key Fundamental and Shareholders Statistics of SourceBio International PLC.

Lombard Odier Asset Management (Europe) Ltd is the most significant shareholder as it holds nearly 17.08 million shares.

FY21 Financial Highlights (for the 12 months ended 31 December 2021, as of 05 April 2022)

(Source: Company Filings)

• Top-Line Business: The Company’s top-line revenue grew by around 82%, from £50.7 million during FY20 to £92.4 million for FY21, boosted by COVID-19 PCR testing services.
• Profitability: On the profitability front, the Basic and diluted EPS had increased by 325% to 22.5 pence per share during FY21.
• Balance Sheet: SBI had managed to increase the cash balance from £8.4 million at the end of FY20 to £33.3 million as of 31 December 2021.

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 13 April 2022, SBI’s shares were closed at GBX 125.00, same as the previous day’s closing price. Stock’s 52-week High and Low were GBX 200.33 and GBX 105.00, respectively.

On a daily chart, the stock price is sustained above the 20-days exponential moving average of GBX 123.22. Hence, there could be an uptick in the stock price in the near term. Furthermore, the MACD line has given a bullish crossover against the signal line.

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

Business Outlook

The Company had reported record top-line and bottom-line business during FY21, driven by the provision of COVID-19 PCR testing services. Moreover, it allowed SBI to re-invest in the core Healthcare Diagnostics business unit through acquisition. Meanwhile, the Cellular Pathology business is demonstrating a material month-on-month growth in volumes and revenues, driven by the return of elective surgeries and the Government initiatives to reduce the enormous backlog of patient waiting lists. In a nutshell, the Company remained well-positioned to achieve further attractive growth in revenue and margin from core business units in 2022.

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 acquisition benefits, solid revenue and profitability growth, strong liquidity profile, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on SourceBio International PLC at the closing market price of GBX 125.00 (as of 13 April 2022), with lower-double digit upside potential based on 69.30x 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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