Creo Medical Group PLC

Creo Medical Group PLC (LON: CREO) is a FTSE AIM 100 index listed medical device entity focusing on the emerging field of surgical endoscopy.

Investment Highlights – SPECULATIVE BUY at GBX 127.24

• Growth Prospects: CREO expects strong trends in H2 FY21 with increasing clinician education and training sites. Besides strong growth in the US and Europe, it has also enhanced direct presence in the APAC region.
• Solid Funding: Following the successful placing of additional £36.3 million, CREO has solid balance sheet to pursue strategic growth opportunities.
• Technical Indicator: From a technical standpoint, the momentum oscillator 14-day RSI (~21.86) confirms the oversold position, while the price is hovering close to the lower Bollinger Band.
• Valuation Multiples: In terms of valuation multiples on a trailing 12-month basis –EV/Sales, and Price/Book multiples are undervalued against the median of Health Care sector.

Key Risks

• History of Operating Losses: The Company is not yet profitable and can face liquidity crunch in absence of substantial capital.
• Omicron Apprehensions: The restrictions on elective surgery had raised the likelihood of the commercial execution risk. Moreover, the increased financial pressure on governments and hospitals caused by the Covid-19 pandemic has exposed CREO to pricing and reimbursement risk.
  

H1 FY21 Financial Highlights (for the six-month period ended 30 June 2021, as on 30 September 2021)

 (Source: Company Website)

• Strong Orders: The Group experienced solid orders for Speedboat Inject across the US and Europe.
• Operational Progress: During H1 FY21, it reported total sales of £12.9 million (H1 FY20: £0.0 million).
• Operating Loss: Its operation loss slightly worsened to £11.4 million in H1 FY21 from £10.6 million in H1 FY20, reflecting the impact of £0.6 million in share-based payments.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

Valuation Methodology: Price/Sales Approach (FY21) (Illustrative)

Conclusion

The Group expects positive trends to continue in H2 FY21 with increasing clinician education and training sites. Moreover, the acquisition of Aber Electronics Limited (manufacturer of power amplifiers and radio frequency products), which shall complement the Company’s three-tiered 'Build, Buy, Partner' strategy since CREO was already a customer of Aber.

Notwithstanding, investors are recommended to punt on this stock post evaluating their risk-return profile since it is a speculative counter with small market capitalization. The stock made a 52-week high and low of GBX 236.00 and GBX 127.24, respectively.

Based on the strong revenue growth, positive trends, growth in clinical network, strengthened commercial infrastructure, and valuation conducted above, we have given a “SPECULATIVE BUY” recommendation on Creo Medical Group PLC at the current price of GBX 127.24 (as on 17 January 2022, at 9:30 AM GMT), with lower double-digit upside potential based on 10.05x Price/NTM Sales Per Share (approx.) on FY21E Sales (approx.).

Bioventix PLC

Bioventix PLC (LON: BVXP) is an FTSE AIM All-Share listed entity that develops and commercializes high-affinity monoclonal antibodies for its application in clinical diagnostics.

Rationale for Valuation – SPECULATIVE BUY at GBX 3,156.00

• Top-line Growth: The sales related to troponin antibodies grew significantly in FY21, and thus, BVXP reported an increase in revenue despite the challenging operating environment.
• Special Dividend: The Group also announced a special dividend of 38 pence per share in FY21, which reflects the management’s confidence in the business outlook.
• Robust Cash to Support Investments: BVXP continued to report strong cash balance despite investing in research projects and developing pipeline for creating incremental value for its shareholders.
• Stronger Profitability: Since FY17, BVXP has maintained excellent profitability margins as gross margin, operating margin and the net margin remained above 92%, 74%, and 62%, respectively. All the margins are significantly higher than the industry median.
• Technical Indicator: From a technical standpoint, the momentum oscillator 14-day RSI (~32.10) confirms the oversold position, while the price is hovering close to the lower Bollinger Band.

Key Risks

• US Inflation: The U.S. consumer price inflation had touched 40 years high during December 2021. Thus, it may cause a sooner-than-expected interest rate hike.
• Pandemic Impact: The resurgence in Covid-19 cases in the UK can be concerning since the diagnostic pathways in hospitals and clinics have been impacted with the Covid-19 pandemic.

Financial Highlights (for the year ended 30 June 2021, as on 18 October 2021)

 (Source: Company Website)

• Top-line Growth: During FY21, revenue surged 6% year-on-year to £10.93 million (FY20: £10.31 million).
• Profit Declined Moderately: The profit before tax slightly fell by 1% to £8.12 million (FY20: £8.23 million).

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22) (Illustrative)

Conclusion 

BVXP has a resilient business model, and thus, it continued to follow its established dividend policy. The continued success of the core antibody business and vitamin D antibody brought further progress in FY21. Adjacently, the Company is optimistic about the troponin revenues. The stock made a 52-week High and Low of GBX 4,549.24 and GBX 3,000.00, respectively.

Based on the resilient financial performance, robust profitability margins, dividend increase, we have given a “SPECULATIVE BUY” stance on Bioventix PLC at current market price of GBX 3,156.00 (as on 17 January 2022, 11:16 AM GMT), with lower-double digit upside potential based on 28.82x 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).

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

*All forecasted figures and Peers/ Industry information have been taken from Refinitiv.

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

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