Novacyt SA – Operating with a strong cash position

Novacyt SA (LON: NCYT) is a France-based Clinical Diagnostics Company. It deals in diversified diagnostic products used in oncology, haematology, microbiology, LBC, and serology testing.

In April 2021, the Company expects to announce its 2020 full-year results.

Investment Highlights – Hold at GBX 827.00

• For Novacyt, the year 2020 has been transformational and delivered over 900% of sales growth.
• The Board believes the strong demand for COVID-19 diagnostic testing will continue through the next few months as well into next year.
• The Company has decent fundamental metrics as it has maintained a Net margin and ROE above the industry median in H1 FY20. In H1 FY20, the net margin was 55.5%, and ROE was 109.6%.
• On leverage front, the debt-equity ratio was 0.04x, which was lower than the industry median of 0.17x, reflecting that the company is less leveraged than the industry.
• From the technical standpoint, shares were trading well above the short-term support level of 200-day (564.46) simple moving average price, which reflects an uptrend in the stock.

Key Risks

• The pace of development in the healthcare industry and competitive pressure may impact business operations.
• The Group faces an inherent risk of product liability and associated adverse publicity.
• Brexit, customer credit risk and foreign exchange fluctuations can also hamper the business.

Recent News

On 2 February 2021, the Company announced the launch of a new and innovative portfolio of assays to detect the diagnosis of the new variants of SARS-CoV-2. This launch under the brand name SNPsig®.

Full Year 2020 Trading Update (for the year ended 31 December 2020, as on 29 January 2021)

• For the full year of 2020, the revenue surged by more than 20x to €311.6 million as compared with the previous year, with a gross margin of above 80%.
• EBITDA for FY20 was above €210 million, with H2 FY20 EBITDA above €161 million as compared with the previous period (H1 FY20).
• At the year-end, the Company saw a strong cash position, with paying down all outstanding debt during the year.
• It has successfully integrated IT-IS International Ltd's acquisition, which expanding its product offering into broader Covid-19 opportunities and beyond.
• The Company has secured significant contracts with national governments and also expanded its global presence.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Conclusion

Novacyt has had a strong start to 2021, with robust demand for the COVID-19 product portfolio. The Board believes that it will launch several products in 2021 and expand the Company's VersaLab™ service. NCYT is planning to invest in innovation, external business development and organic expansion, with a strong cash position. In 2020, it also signed significant contracts with national governments. Recently, the Company launched PCR (polymerase chain reaction) genotyping assay portfolio to detect Covid-19 variants. Overall, it seems to be well-positioned to deliver on the vision of becoming a market leader in respiratory and transplant clinical diagnostics. The stock made a 52-week low and high of GBX 30.00 and GBX 1,276.00, respectively.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance on Novacyt SA at the closing price of GBX 827.00 (as on 4 February 2021) and will recommend fresh buying at the right time.

Tiziana Life Sciences Plc

Tiziana Life Sciences Plc (LON: TILS) is a Pharmaceuticals & Biotechnology company, which specialises in the development of transformative therapies to fight against cancer and other diseases related to the liver.

Rationale for Valuation – Avoid at GBX 144.00

• The Company has not reported its revenue from the last four years, which raises uncertainty regarding its earning potential.
• The Company’s profitability margins and Return on equity remained in the negative zone from the last four years.
• Tiziana reported positive data from the clinical study of nasal administration with Foralumab.
• The Company’s EV/EBITDA and Price/Earnings multiples are in the negative zone.
• In the short-term, the UK market is likely to remain under pressure due to increased market volatility.
• From the technical standpoint, shares were trading below the short-term support level of 20-day (GBX 150.75) simple moving average prices, which reflects a downtrend in the stock and can decline further.

Key Risks

• The Company faces significant pressure from regulatory changes with the threat of price controls increasing across all markets.
• A global economic slowdown may further accentuate pressure from governments and regulators on prices, which may result in a reduction of revenue, profits and cash flow.
• Also, failure to integrate acquisitions and shortage of supply during the Covid-19 crisis can disrupt operations and reduce returns.

Recent News

On 2 February 2021, the Company stated that it had reported positive data from the exploratory clinical study in Brazil, which investigating nasally administered Foralumab in Covid-19 patients. Therefore, this approach may also be effective against patients infected with the newly identified Covid-19 variants in South Africa, Brazil and the UK.

On 27 January 2021, the Company has filed a registration statement on Form F-3 with the U.S. SEC (Securities and Exchange Commission).

On 13 January 2021, the Company has appointed Dr Neil Graham as a Chief Medical Officer.

Financial Highlights (for the six months ended 30 June 2020 (H1 FY20), as on 30 September 2020)

(Source: Company Website)

• The company's total loss went up from £3.57 million in H1 FY19 to £3.91 million in H1 FY20.
• The Company has raised £12.9 million of funds for the six months ended on 30 June 2020.
• Regarding its financial position, the Company had a cash balance of £7.2 million as of 30 June 2020 compared to £153,000 as of 31 December 2019.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Conclusion

The Company is in the development stage and do not generate any revenue for the period. The profitability margins have remained stagnant or declined. However, it relied on the cash balances and fundraised from the stock market for all the operational tasks. The stock prices might have recently rallied due to the clinical study's positive data investigating nasally administered Foralumab in Covid-19 patients in Brazil. Although, it remains difficult to provide forward-looking guidance, due to the ongoing uncertainty. Further, the prolonged impact of the COVID-19 outbreak continued to affect its financial results, plans, operations, outlook, goals, reputation, liquidity and stock price. The stock made a 52-week low and high of GBX 20.74 and GBX 264.83, respectively.

Based on the headwinds faced by the Company, we have given an “Avoid” recommendation on Tiziana Life Sciences at the closing price of GBX 144.00 (as on 4 February 2021, before the market close at 8:31 AM GMT), and we will watch for results of new investments.

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