Medica Group Plc

Medica Group Plc (LON: MGP) is a Health Care Equipment & Service Company providing teleradiology services. The Company presently offer three services to hospital radiology departments which includes Routine plain film (Routine PF), Routine cross-sectional (Routine CS) and NightHawk.

Investment Highlights - Medica Group Plc – Speculative Buy at GBX 117.00

• In the last six months, the Company delivered a decent return of ~ 10.86% and delivered higher returns compared to the benchmark Index (FTSE-All Share Index).
• Over the past four years (FY15 – FY19), the Company’s revenue has surged from GBP 22.24 million in FY15 to GBP 46.54 million in FY19, compounded at an annual growth rate (CAGR) of ~ 20.27 per cent.
• From the technical standpoint, 14-day RSI is currently supporting an upside move (around 22 level – oversold zone), which means the stock price could increase in the short term.

Key Risks

• Significant competition in the industry could affect the revenue and profitability of the Company.
• Failure in maintaining clinical quality could hamper the reputation of the Company. 

Financial & Operational Highlights – H1 FY2020 (30 June 2020)

(Source: Interim Report, Company website)

• In the first half of the financial year 2020, due to the impact of covid-19 on radiology reporting activity, the revenue declined by 22.7%.
• The profitability margins also declined for the period, while cash position remained strong, reflecting resilient business model.
• The Company witnessed an improvement in reporting activity at the end of H1 FY2020, both NightHawk and Elective witnessed a recovery in activity levels.
• MGP is focused on advanced projects to support the new strategy revealed in March 2020.

One Year Share Price Chart

(Source: Kalkine Group, Refinitiv)

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

Conclusion

The Company has shown a decline in financial performance in the first half of the financial year 2020, due to the impact of the covid-19 crisis. Despite the lower financial performance, the Company has a strong liquidity position and activity levels starting to recover at the end of H1 FY2020. MGP experienced an improving trend in reporting activity in Elective and NightHawk services till date. The Company, through the new strategy, is focusing on investing in processes, systems and people, to improve service offerings.

The Company is looking to expand geographically, introduce new business lines and selective M&A in the mid to long-term period, to deliver strong organic revenue growth. At present, the Company is not able to provide any future guidance but expects revenue improvement in H2 FY2020. The stock made a 52-week low and high of GBX 88.00 and GBX 168.50, respectively.

Based on the factors discussed above, we have given a “Speculative Buy” recommendation on Medica Group Plc at the closing price of GBX 117.00 (as on 1 October 2020) with a lower double-digit upside potential based on 22.50x Price/NTM Earnings (approx.) on FY20E earnings per share (approx.). 

Genedrive Plc

Genedrive Plc (LON: GDR) is a Health Care Equipment & Services Company, which is engaged in the business of developing and selling molecular diagnostics platform used for the diagnosis of infectious diseases.

The Company will release full-year results in October 2020.

Investment Highlights - Genedrive Plc – Speculative Buy at GBX 109.50

• As per valuation metrics, EV/EBITDA, Price/Cash Flow and Price/Earnings multiples of the Genedrive Plc are currently lower as compared to the corresponding multiple of the Healthcare Providers & Services industry. It reflects, shares are undervalued as compared to the industry.
• In the last six months, the Company delivered a significant return of ~ 240.63% and delivered a significantly higher return compared to the benchmark Index (FTSE-AIM Index).
• From the technical standpoint, 14-day RSI is currently supporting an upside move (around 44 level), which means the stock price could increase in the short term.

Key Risks

• The Company operates in a highly regulated market, and failure to comply with regulations could lead to a significant financial or reputational loss.
• The Growth of business is dependent on external funding, which is difficult to get amid the weak internal cash generation.

Recent News

On 30 September 2020, Genedrive announced the receipt of approval for Genedrive® 96 SARS-CoV-2 Kit from Health Products Regulatory Authority of South Africa.

Update on Trading Performance (released on 10 July 2020)

• The revenue for FY2020 was in line with expectations at £1.0 million. The lower revenue was driven by the impact of covid-19 on the existing business.
• The Company in May 2020 made equity fundraise, the cash balance improved by £4.7 million to £8.2 million as on 30 June 2020.
• On 16 June 2020, the GHIF (Global Health Investment Fund) exercised the rights and converted bonds worth US$8 million to new shares, to further strengthen the balance sheet.
• The Company has developed Genedrive 96 SARS-CoV-2 kit and received CE-IVD certification on 22 May 2020, and it has signed a contract with 11 countries for the supply of kit.

One Year Share Price Chart

(Source: Kalkine Group, Refinitiv)

Valuation Methodology: EV/Sales Approach (NTM) (Illustrative)

Conclusion

Due to the impact of covid-19 pandemic, the Company witnessed a decline in revenue but stood in line with management’s expectations. Genedrive is focused on expanding the commercial footprint in Africa, India and the US and has applied for the regulatory approvals. The Company has received orders worth £1.0 million and has shown a strong balance sheet and good liquidity position, with a new opportunity in coronavirus testing. GDR is optimistic over Genedrive 96-SARS-CoV-2 test kit, and it is in the process to attain regulatory approval in new markets to expand the portfolio. The Company is also in the process to secure a new contract from the US Department of Defense in autumn 2020. The stock made a 52-week low and high of GBX 6.25 and GBX 302.60, respectively.

Based on the decent growth prospects, and support from the valuation as done using the above method, we have given a “Speculative Buy” stance on Genedrive Plc at the closing price of GBX 109.50 (as on 1 October 2020), with lower double-digit upside potential based on 16.30x EV/NTM Sales (approx.) on FY21E sales (approx.).

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

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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