Novacyt SA

Novacyt SA (LON: NCYT) is a FTSE AIM 100 listed diagnostic business with a portfolio of Vitro and molecular diagnostic tests. Primerdesign and Lab21 Products are its leading business units.

Rationale for Valuation – SPECULATIVE BUY at GBX 410.10

• NCYT remained committed to developing new tests for the SARS-CoV-2 virus (with the expansion of PathFlow® lateral flow test, genesig® COVID-19 PCR portfolio, PROmate™ COVID-19 PCR portfolio and SNPsig® COVID-19 PCR genotyping portfolio) and encouraged by its inclusion in NHS England's VoC Framework.
• The strong demand for the SNPsig® portfolio and mobile processing laboratories underpins bright Company prospects.
• Over the last one month, Novacyt’s stock has sustained a bullish trend and generated nearly 7.92% of return, which outperformed the negative return delivered by the benchmark FTSE AIM 100 index.
• From a technical standpoint, 14-day RSI (40.34) is hovering around the oversold position and supporting the upside potential.

Key Risks

• There is limited visibility over future sales with the ever-changing nature of the COVID-19 pandemic.
• Revenue and profit for FY21 might be lower than the current market expectations following the absence of the DHSC contract extension.

Recent News

17 May 2021: Novacyt announced the inclusion of its SNPsig® SARS-CoV-2 polymerase chain reaction (PCR) in the NHS England Framework. For detecting SARS-CoV-2 VoC, it also launched two new PCR assays.

Trading Update for the three months ended 31 March 2021 (09 April 2021)

• Novacyt affirmed that the extension for the supply contract with the DHSC has not been agreed upon, which may impact Q4 FY20 revenue.
• During Q1 FY21, Novacyt delivered revenue of £72.6 million, around 50% of revenue was driven by sales to the DHSC.
• The remaining 50% of revenue was contributed by the continued growth of international sales and private sector testing operations.
• The rollout of PROmate™ sales shall support NHS current roll-out plans.

One Year Share Price Chart

 (Source: Refinitiv, Thomson Reuters)

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

Conclusion

With the expansion of service offerings and product portfolio, Novacyt remained well-positioned to capitalise on future growth opportunities. Post cancellation of DHSC’s supply contract, Novacyt is taking legal advice to hold strong grounds to assert its contractual rights. Although there is limited sales visibility due to uncertain diagnostic testing demands amid the Covid-19 pandemic, the Company shall expand private sector testing and international sales with new contract wins to meet evolving COVID-19 testing demands. The stock made a 52-week high and low of GBX 1,276.00 and GBX 202.75, respectively. On the technical chart, the next important support level is at GBX 339.

Based on the improved revenue generation, continued growth in private sector testing operations, demand for its mobile processing laboratories and support from the valuation as done using the above method, we have given a “SPECULATIVE BUY” recommendation on Novacyt SA at the current market price of GBX 410.10 (as on 19 May 2021, at 8:10 AM GMT) with lower double-digit upside potential based on 5.89x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

Yourgene Health PLC

Yourgene Health PLC (LON: YGEN) is a FTSE AIM All-Share listed Company, which is involved into molecular diagnostics. It develops and commercialises genetic services and products.

Rationale for Valuation – SPECULATIVE BUY at GBX 12.60

• Revenues for FY22 is expected to be over £25 million with underlying market opportunities.
• The acquisition of Coastal Genomics shall extend YGEN’s capabilities in offering IP portfolio and increase geographical penetration as well.
• The Company is encouraged by the successful launch of Covid-19 testing, while it has substantial resources to tap upcoming market opportunities.
• Over the last three years, YGEN’s stock has outperformed the benchmark FTSE AIM All-Share index by yielding approximately 66.97% return.
• From a technical standpoint, 14-day RSI (39.39) is supporting the upside movement.

Key Risks

• The Company still reports losses, and hence, it is dependent on external funding to pursue growth opportunities.
• It can face supply chain issues and delay in testing due to significant headwinds from the Covid-19 pandemic.

Recent News

17 May 2021: Yourgene Genomic Services will process a proportion of the MyHealthChecked™ second Boots agreement, which is a testament to quality services provided by the YGEN.

Financial Highlights for the financial year ended 31 March 2021 (as on 29 April 2021)

 (Source: Company Website)

• During FY21, revenue jumped 10% year-on-year to £18.3 million (FY 2020: £16.6 million), demonstrating strong performances for European core revenues and UK testing services.
• The acquisition of the Company's French distribution business in March 2020 supported non-invasive prenatal testing in Europe.
• There was a 26% year-on-year growth in FY21’s Molecular Genetics revenues.
• There is a strong pipeline of opportunities with the more localised sales organisation and the growth of DPYD (dihydropyrimidine dehydrogenase) testing.

One Year Share Price Chart

 (Source: Refinitiv, Thomson Reuters)

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

Conclusion

The acquisition of Coastal Genomics in Canada and its French distribution business have integrated well and met earn-out targets. With suitable opportunities, revenue guidance for FY22 remained unchanged for over £25 million. The Company is encouraged by double-digit revenue growth in FY21 despite the volatile trading environment. FY21 results demonstrated business resilience since it supported the UK with its Covid-19 test offerings, which eventually increased the revenue. The Group has decent potential to grow through product penetration and geographic expansion. Moreover, the Company has hired senior positions in the US and in Europe to drive localisation and further growth. The stock made a 52-week high and low of GBX 22.19 and GBX 11.50, respectively. On the technical chart, the next important support level is at GBX 10.70.

Based on the improved revenue generation, enhanced localisation, strong potential growth drivers with support from the valuation conducted, we have given a “SPECULATIVE BUY” recommendation on Yourgene Health PLC at the current market price of GBX 12.60 (as on 19 May 2021, at 8:25 AM GMT) with lower double-digit upside potential based on 73.92x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

*All forecasted figures and Industry Information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

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