Avacta Group Plc

Avacta Group Plc (LON: AVCT) is an FTSE AIM 100 listed Company, which is engaged in the development of immunotherapies for novel cancer through platforms, namely Affimer® and CISION™.

In mid-April 2021, the Company will release its preliminary results for the financial year ended 31 December 2020.

Rationale for Valuation – Expensive at GBX 222.00

• In 2020, the Company made excellent operational progress in both the Diagnostics and Therapeutics Divisions.
• The Company is trading near the 52-week high, raising doubts at the upside potential at current prices.
• The Company’s profitability margins were in the negative zone in H1 FY20.
• The Company’s EV to EBITDA, Price to Earnings and Price to Cash Flow metrics are in the negative zone as compared to the Biotechnology & Medical Research industry multiples.
• From the technical standpoint, 14-day RSI stood at around 79.79 (overbought zone), which means the stock price could decline in the short term.

Key Risks

• The Company is exposed to commercialisation risks such as competitive pressures, affordability, pricing and delays or failure in commercial strategies' quality execution.
• The adverse US federal income tax regimes and fluctuating exchange rates can also affect the financial condition further.
• Further, the Covid-19 pandemic can cause a significant delay in the delivery of pipeline and new medicines.
• The Company relies heavily on other clinical research organisations for therapeutic development programmes, and hence, the underperformance of these third parties can impact its ability to function effectively and efficiently.

Recent News

On 9 March 2021, the Company had entered into a diagnostic license agreement with Biokit, which incorporate Affimer® reagents into a Biokit in-vitro diagnostic product.

On 8 March 2021, Avacta Group announced that the AffiDX® SARS-CoV-2 rapid antigen test detects the dominant new variants of the Covid-19, known as the D614G variant and the B117, or 'Kent', variant, as well as the original strain.

Business Update (for the 12 months ended 31 December 2020, as on 24 February 2021)

• On 31 December 2020, the cash position stood at £48 million, which was slightly higher than the market forecasts.
• In the Diagnostics division, the Company has expanded and strengthened its diagnostics management team.
• Therapeutics Division has continued to make good progress, with the expansion of the existing multi-target collaboration, the license agreement with Point Biopharma Inc and the joint venture with Daewoong Pharmaceuticals.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Conclusion

During 2020, the Company achieved significant progress in both the Diagnostics and Therapeutics Divisions. The Company made the fund raise in 2020 and was in line with the Board’s commitments. Avacta made an agreement with Biokit, which expand to other diagnostic targets and future Affimer-based IVDs. Meanwhile, the Company has shown a decline in financial performance in the first half of the financial year 2020. Despite an increase in revenue, the bottom-line performance declined, and profitability margins remained in the negative zone. The Company successfully completed fundraising for expansion of Therapeutics and Diagnostics programmes, and liquidity position improved significantly. Avacta Group expects to achieve several milestones with a rapid coronavirus antigen lateral flow test. The Company has a pipeline of opportunities created by Covid-19 spike protein binding Affimers. Overall, it has overcome the pandemic's substantial challenges but generate a decent return for shareholders. The stock made a 52-week low and high of GBX 12.62 and GBX 238.90, respectively.

Based on the factors as highlighted above, we believe the stock of Avacta Group Plc is “Expensive” at the closing price of GBX 222.00 (as on 9 March 2021), with support from few catalysts needs to be evaluated at a later stage.

Genedrive Plc – Operating with a strong balance sheet

Genedrive Plc (LON: GDR) is an AIM-listed Pharmaceutical Company, which is engaged in the development and sales of molecular diagnostics platform for the diagnosis of infectious diseases.

On 25 March 2021, the Company will release its interim results for the six months ended 31 December 2020.

Rationale for Valuation – Hold at GBX 135.00

• Genedrive has also significantly reduced the level of debt on the balance sheet.
• The unique aspects of the CoV-2 Test will give significant confidence in delivering successful commercial outcomes in the near future.
• In the last year, the Company has delivered a magnificent return of ~1,432%, which was higher as compared to the FTSE AIM All-Share Index.
• As per valuation metrics, EV/Sales multiple is currently lower than the Healthcare Equipment & Supplies industry multiple.
• From the technical standpoint, shares were trading well above the short-term support level of 50-day (GBX 87.54) simple moving average price, which reflects an uptrend in the stock.

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.
• Also, the overdependence on technology can lead to loss of data and significant service interruptions.

Recent News

On 9 March 2021, the Company has entered into a distribution agreement with Mountain Horse Solutions for the distribution of the Company's military assays and instrument in the United States.

Financial Highlights (for the year ended 30 June 2020 (FY20), as on 17 November 2020)

(Source: Company Website)

• The revenue for FY20 was in line with expectations at £1.1 million (£2.4 million a year ago). The lower revenue was driven by the impact of Covid-19 on the existing business.
• As on 30 June 2020, the Company stood at a cash balance of £8.2 million, an increase of £4.7 million from the previous year (Dec 2019: £3.5 million).
• The GHIF (Global Health Investment Fund) exercised the rights and converted bonds worth USD 8 million to new shares.
• On 31 October 2020, the Company’s unaudited cash was £5.1 million.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Conclusion

Genedrive is focused on expanding the commercial footprint in Africa, India and the US and has applied for regulatory approvals. In 2020, it received orders of £1.0 million. GDR is optimistic over the 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. Meanwhile, the Company has shown a decline in financial performance in the financial year 2020. The Company expects operational performance to be impacted in a short-term period. However, The Company has shown a strong balance sheet and good liquidity position, with a new opportunity in coronavirus testing. The stock made a 52-week low and high of GBX 7.91 and GBX 302.60, respectively.

Based on the decent growth prospects, we have given a “Hold” stance on Genedrive Plc at the closing market price of GBX 135.00 (as on 9 March 2021).

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

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