Clinigen Group PLC – Operating with Unique & Diverse Business Model; Generated Strong Cash Returns

AIM-listed Clinigen Group PLC (LON: CLIN) is the UK based Pharmaceuticals & Biotechnology company, which is involved in the activities related to distribution, sale and management of pharmaceutical products.

Recent News
On 1^st May 2020, the Group has appointed J.P.Morgan Cazenove as Nominated Adviser and Joint Broker.

On 16th April 2020,Clinigen has signed an agreement with PBL (Porton Biopharma Limited) for exclusive licensing and distribution, which is to commercialise Erwinase®. Moreover, the group reported over 10% in organic gross profit at the end of March 2020, for the first nine months of FY2020. In the first three months of the second half, the cash generation was in line with the Board's expectations.

Financial Highlights (H1 FY20)

(Source: Interim Reports, Company Website)

On 25^th February 2020, the Company provided the half-year results for the six months ended 31 December 2019, with double-digit growth in revenue.For the first half of 2020, the company’s adjusted net revenue increased by 24 per cent to £224.6 million as compared with the corresponding period of the last year (H1 FY19: £181.1 million). Adjusted EPS (earnings per share) rose by 34 per cent to 30.8 pence (H1 FY2019: 23 pence). Operating cash flow stood at £10.1 million, impacted by an outflow in working capital in the final months of the period. The interim dividend per share stood at 2.15 pence, an increase of 10 per cent.

Share Price Performance
 
1-Year Chart as at June-12-2020, before the market close (Source: Refinitiv, Thomson Reuters)

On 12^th June 2020, before the market close (at 9:22 AM GMT+1), Clinigen Group PLC’s shares were trading at GBX 806.50 and were down by 1.95 per cent versus the previous day closing price. Stock 52 weeks High and Low are GBX 1,046.00 /GBX 350.40.

From the technical standpoint, its shares were trading well above its short-term support level of 20-day simple moving average prices, which reflects an uptrend in the stock.

Valuation Methodology

*Peers: UDG Healthcare Plc, Vectura Group Plc, Hikma Pharmaceuticals Plc, and Spire Healthcare Group Plc.

Valuation Metrics

(Source: LSE)

As on 29th May 2020, the Price to Sales multiple of the CLIN was 2.5x, which was lower as compared with the Pharmaceuticals & Biotechnology industry multiples of 3.7x, reflecting that the Company is trading at a lower multiple as compared to its peers.

Growth Catalysts
In the medium-term, the organic gross profit growth will be in the range of 5%-10% target. Investment in EU and US infrastructure set to continue to support growth opportunities for both Unlicensed Medicines and Commercial Medicines operations. The operational leverage expected to improve further beyond the financial year 2020.

Conclusion
The Company plans to improve the financial performance and further action is to build an integrated, international pharma product and services group with robust operational synergies, and working with a growing roster of multinational clients. On an underlying organic basis, the Group has shown robust financial performance. The fundamental positive cash generation characteristic of the Group stays unchanged with substantial levels of liquidity available to Clinigen from its GBP 430 million debt facility. The Company expects to keep well within its 3.0x net debt to EBTIDA covenant limit throughout FY20 before tumbling this leverage ratio to below 2.0x during FY21. Meanwhile, the group has continued the good performance into the second half of 2020.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance at the current price of GBX 801.50 (as on 12th June 2020, before the market close at 8:15 AM GMT+1) and will recommend fresh buying at the right time.

Georgia Healthcare Group PLC (LON: GHG)– Performing Resiliently with its Market Leading Position

Georgia Healthcare Group PLC is a FTSE All-Share listed fully integrated healthcare provider. The Company has five business segments, namely Clinics, Hospitals, Pharmacy & Distribution, Diagnostics and Medical Insurance.

Recent News
11^th May 2020: The Company signed a USD 25 million loan agreement for 2 years with European Bank for Reconstruction and Development to fund operational and capital expenditure.

Trading Update (as on 19^th May 2020)
 
(Source: Company Website)

In the first-quarter 2020 update (ended 31^st March 2020), the Company reported 10.6 per cent surge in revenue to GEL 260.1 million in Q1 FY20 from GEL 235.2 million in Q1 FY19. The Group’s EPS and adjusted profit stood at GEL 0.07 million and GEL 14.3 million, respectively in Q1 FY20. Regarding the liquidity, the Company bolstered its financial flexibility in May by securing USD 25 million loan facility. Moreover, the Group had cancelled the final dividend of FY19, while reducing certain capital expenditure for FY20. As at March 2020, the Group had GEL 68.2 million in cash and bank deposits.

Share Price Performance

Daily Chart as on 12^th June 2020, before the market closed (Source: Refinitiv, Thomson Reuters)

Georgia Healthcare Group PLC’s shares were trading at GBX 94.80 on 12^th June 2020 (before the market close at 9.24 AM GMT+1), which was up 4.75% against the last day closing price. Stock's 52 weeks High is GBX 269.23 and Low is GBX 60.00.

From the technical standpoint, its shares were trading well above its short-term support level of 20-day simple moving average prices, which reflects an uptrend in the stock and carrying the potential to move up further.
 
Valuation Methodology
 

*1 GEL = 0.260867 GBP

Valuation Metrics

(Source: London Stock Exchange)

As on 29^th May 2020, the EV/EBITDA and Price/Book multiples of the Georgia Healthcare Group PLC were 5.1x and 0.8x, respectively, which were lower as compared with the Health Care Equipment & Services industry of 12.0x and 2.6x, respectively. It reflects that the Company is trading at a lower multiple as compared to its peers.
 
Growth Catalysts
The Company has around 32% market share by revenue, as a provider of medical insurance. It operates 18 hospitals with a total of 2,967 beds, and 34 healthcare facilities.

Conclusion
The Company reported a significant growth in both top-line and bottom-line of the income statement during the financial year 2019. Even in 2020, Company’s Pharmacy & Distribution business has remained resilient so far, and its pharmacies stayed opened during the lockdown. Subsequently, it achieved double-digit growth in quarter revenue for the Q1 FY20 versus Q1 FY19. To withstand the financial impact of the COVID-19 disruption, the Company has adopted serval measures for operational stability and financial health, such as reviewing the lease contracts terms, slashing certain planned capital expenditures, secured additional facility, requesting grace period for loan facilities, and did not recommend the final dividend for FY19.


(Source: Annual Report, Company Website)

Based on the decent growth prospects and the valuation done using the above method, we have given a “Speculative Buy” recommendation at the current price of GBX 90.20 (as on 12th June 2020, before the market close at 10.40 AM GMT+1) with lower double-digit upside potential based on 10.00x NTM Price/Earnings (approx.) on FY20E Earnings Per Share (approx.).
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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