Omega Diagnostics Group Plc

Omega Diagnostics Group Plc (LON: ODX) is a FTSE AIM All-Share Listed medical diagnostics Company. Its major segments are infectious diseases, allergy testing and food intolerance.

Rationale for Valuation – Speculative Buy at GBX 48.00

• The Company expects to have a significantly improved second-half performance, with an H2 recovery in food intolerance business, growth opportunity in China and Exciting opportunity for the commercial roll-out of the AbC-19™ Rapid test.
• As per valuation metrics, EV/Sales multiple is currently lower than the Healthcare Equipment & Supplies industry.
• The Company has decent liquidity, with a current ratio of 7.49x, which is higher than the industry median of 2.15x.
• The debt/equity ratio was lower than the industry median in the past three years, reflecting that the Company is less leveraged as compared to the industry.
• In the last year, the Company has delivered a decent return of ~262%, which was higher as compared to the FTSE AIM All-Share Index.
• From the technical standpoint, 90-day RSI stood at around 45.78, which is supporting the upside movement.

Key Risks

• The Company operates in a highly regulated landscape, and failure to comply 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 capabilities.
• The Company may face the loss of output due to disaster or disruptive event at logistics facility or manufacturing facility.

Financial Highlights (for the six months ended 30 September 2020 (H1 FY21), as on 30 November 2020)

(Source: Company Website)

• Led by the performance in our Food Intolerance division, the revenue from operations decreased by 29% year-on-year to £3.16 million. While Global Health revenue surged to £0.58 million (2019: £0.38 million).
• The adjusted loss before tax from continuing operations was in line with management's expectation at £1.70 million.
• The Company has got the regulatory approval from the Chinese government for Food Detective® test, mainly for laboratory settings and self-test use.
• It has also signed a supply agreement with Clinton Health Access Initiative and Abingdon Health Ltd.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

The Company saw a significant growth opportunity in China and is showing early signs of H2 recovery in food intolerance business. For Food Detective®, the Company has achieved self-test regulatory approval in China, which shows a significant milestone for the Group. It also shows a significant mark of regulatory approval for VISITECT® CD4 Advanced Disease, which received in August 2020. For Covid-19, the Company has several exciting opportunities in both antigen testing and antibody testing, and it is on target to reach a production capacity of 500,000 tests a week by the end of December 2020. As the business has made substantial progress over recent months, the Board remains confident in the Company’s prospects. Omega Diagnostics has been well placed and highly proactive in playing a key role in developing and manufacturing much needed COVID-19 tests. The stock made a 52-week low and high of GBX 5.93 and GBX 127.00, 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 Omega Diagnostics Group at the current market price of GBX 48.00 (as on 18 December 2020, before the market close at 12:00 PM GMT), with lower double-digit upside potential based on 8.50x EV/NTM Sales (approx.) on FY21E sales (approx.).

Ramsdens Holdings Plc – Operating with a strong cash position

Ramsdens Holdings Plc (LON: RFX) is an AIM-listed Company, which is a growing and diversified financial service provider.

On 10 February 2021, the Company will hold the Annual General Meeting.

Rationale for Valuation – Speculative Buy at GBX 137.00

• In FY20, the Company delivered a strong performance and robust balance sheet.
• The Company has decent fundamental metrics as it has maintained a ROE (return on equity) above 17% for the last three years.
• The debt/equity ratio was lower than the industry median in the past three years, reflecting that the Company is less leveraged as compared to the industry.
• As per valuation metrics, EV/Sales EV/EBITDA and Price/Earnings multiples of the RFX are currently lower as compared to the corresponding multiples of the Investment Banking & Investment Services industry. It reflects, shares are undervalued against peers.
• From the technical standpoint, shares are trading well above the short-term support level of 50-day (GBX 132.98) simple moving average price, which reflects an uptrend in the stock.

Key Risks

• A major part of the revenue is generated in the UK, the Group’s revenue and the financial performance may be impacted due to the challenging market dynamics.
• The Company’s performance is subject to certain liquidity and credit risk arising from the volatility presented by the COVID-19 disruption.

Financial Highlights (for the 18 months ended 30 September 2020 (FY20), as on 15 December 2020)

(Source: Company Website)

• Despite the impact of Covid-19, the Company has delivered strong growth in the 12-months to March 2020 and profitable performance in the final 6-month period, with revenue growth of 27%, gross profit growth of 22% and profit before tax growth of 30% (all are compared with the 12-months ended 31 March 2020).
• The Company witnessed a strong cash position, with an undrawn £10 million revolving credit facility and net cash of £15.9 million as at 30 September 2020.
• RFX has opened one net store after merging eight stores and has a total of 153 owned stores at the period end.
• The Company has continued progress in jewellery retail, with e-commerce sales of £1.9 million during the period.
• During the period, it has acquired six pawnbroking loan books, with an average loan value of £248 as at 30 September 2020 and a low loan to value ratio of around 60%.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

The Company has shown strong performance in the 12-month period to March 2020, with further growth and made strategic progress across each of the income streams. It has maintained a strong cash position and continued to trade profitably. However, 2021 outlook remain uncertain. Meanwhile, the performance has been encouraging in the jewellery retail segment and has benefited in the purchase of precious metals segment, due to a high gold price. RFX seems to be well-positioned to continue to deliver the long-term objectives, with an increase in consumer demand for high-quality jewellery and luxury branded watches. Also, the Company remain well-positioned to continue the growth trajectory as normality resumes, with a strong balance sheet and diversified model. The stock made a 52-week low and high of GBX 68.00 and GBX 260.00, respectively.

Based on decent growth prospects, and support from the valuation as done using the above method, we have given a “Speculative Buy” stance on Ramsdens Holdings at the current market price of GBX 137.00 (as on 18 December 2020, before the market close at 12:30 PM GMT), with lower double-digit upside potential based on 16.80x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

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

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

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