The Vitec Group Plc - Leading Global Provider, with Robust Financial Performance and Significant Strategic Progress

The Vitec Group Plc (LON: VTC) is an industrial engineering company, engaged in the business of providing image capture and content creation solutions.

Recent News
On 4^th May 2020,the company announced that it confirmed its liquidity position with Revolving Credit Facility of £165 million, while it had completed its application to issue commercial paper under the COVID Corporate Finance Facility and intended issuing commercial paper initially at a value of £30 million.

Financial Highlights (for the year ended 31 December 2019) - Robust 2019 Financial Performance and Strong Balance Sheet to Support Organic Investments and M&A


(Source: Full Year Results, Company Website)

In the financial year ending 31st December 2019, the revenue stood at GBP 376.1 millionversus GBP 385.4 million in the financial year 2018. The adjusted operating profit declined to GBP 52.4 million in FY2019 versus GBP 53.5 million in the financial year 2018, while the adjusted operating margin stood at 13.9 per cent for the period. The basic earnings per share declined from 76.1 pence in the financial year 2018 to 44.9 pence in the financial year 2019.

Share Price Performance
 
Daily Chart as at May-06-20, before the market closed (Source: Refinitiv, Thomson Reuters)

The Vitec Group Plc’s shares were trading at GBX 678 before the market close (at 1:20 PM GMT+1) on 6th May 2020 and were up by 2.73% versus the previous day closing price. Stock 52 weeks High and Low are GBX 1,335.00/GBX 485.98.

Valuation Methodology


Valuation Metrics


(Source: LSE)

As on 31st March 2020, the Price/Earnings and EV/EBITDA multiples of the VTC were 14.3x and 5.4x, respectively and the same multiples were lower as compared with the Industrial Engineering industry. It is reflecting that the company is trading at a lower multiple as compared to its peers.

Conclusion
The company based on its strong and agile business modelis amongst the market-leading brands in the market. The company is focused on technology innovation and operational excellence, which will help them to take advantage of the growing and fast-changing global market. The group’s balance sheet remained strong, with a decent level of cash conversion. The group expects to deliver better performance in the Financial Year 2020. However, the Debt level is relatively higher in the company against the peer group.

In the financial year 2019, the group's performance was impacted because of two factors. Firstly, unexpected retail de-stocking in Imaging Solutions and Secondly, sluggish recovery SmallHD since the fire in 2018.

Over the course of 4 years (FY15 - FY19), the company’s revenue surged from GBP 317.8 million in FY15 to GBP 382.60 million in FY19. Compounded annual growth rate (CAGR) stood at 4.75 per cent.

Based on the decent prospects which are supported by valuation done using the above method, we have given a “SPECULATIVE BUY” recommendation at the current price of GBX  642.40 (as on 6^th May 2020, before the market close at 10:15 AM GMT+1) with lower double-digit upside potential based 19.67x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).

Avacta Group PLC - Downside Risk Protection Through Revenue Generating Reagents Business

Avacta Group Plc (LON: AVCT) is a Biotechnology and Medical Research Company. The company offers products that include optim and sensipod. It also develops UCB celltech that is an analytical instrument. Avacta’s sensipod is an in-clinical blood testing system that delivers ELISA tests. The company offers intellectual property relating to an alternative to antibodies.

Financial Highlights (for the 17-month period ending 31 December 2019) – Decent Growth, with two partnerships established to develop Affimer-based Coronavirus antigen tests

For the 17-month period ended 31 December 2019, the reported Group revenue surged to £5.51 millionas compared with the previous year (year ended 31 July 2018 ('2018'): £2.76 million), due to an increase in Avacta Life Sciences and Avacta Animal Health. Led by an increase in selling, general and administrative expenses, the losses before taxation from continuing operations increased to £18.05 million in FY19 (2018: £10.39 million). The reported loss for the current period stood at GBP 15.62 million (FY18: GBP 8.83 million), reflecting loss per ordinary share decreased to 12.98 pence. On 31^st December 2019, the company’s reported cash and short-term deposit balance was £8.79 million (2018: £5.22 million). During the year, capitalised development costs stayed consistent at GBP 1.88 million (2018: GBP 1.95 million), and capital expenditure was also consistent at GBP 0.62 million (2018: GBP 0.58 million).

From the perspective of operating highlights,the company is progressing well, expanding to new targets, collaborating or partnership with new Therapeutics, and has a significant opportunity. Recently, the company has completed a joint venture (JV) with Daewoong Pharmaceutical Co. Ltd. On 30^th April 2020, the net cash position was £10.5 million.

Share Price Performance
 
Daily Chart as at May-06-20, before the market closed (Source: Refinitiv, Thomson Reuters)

Avacta Group PLC’s shares were trading at GBX 110.625 before the market close (at 12:43 PM GMT+1) on 6th May 2020 and were down by 4.63% versus the previous day closing price. Stock 52 weeks High and Low are GBX 122.00 /GBX 12.62.

Valuation Metrics

(Source: LSE)

As on 31st March 2020, the Price to Sales multiple of the AVCT was 9.3x, which was higher as compared with the Pharmaceuticals & Biotechnology industry average of 3.2x. It indicates that the company is trading at a higher multiple as compared to its peers.

Key Risks
Fluctuation in foreign exchange rates could affect the profitability of the company. Failure in cybersecurity and a critical data breach could hamper the operations as well as the reputation of the company. Uncertainty in macroeconomic and political conditions could affect the business of the company.

Conclusion
The company is currently working on multiple projects and is about to sign multiple licenses deals with large diagnostics partners.The company has also entered into a collaboration with Cytiva and Adeptrix and its been progressing well. The company is heavily dependent on external funding for smooth operational performance. There is also the risk that the main products of the company may not be successful in the clinical trials, hindering the profitable monetisation of the product. The company is making acquisitions or collaborations, which would boost or decline its growth. The company witnessed wide fluctuations in the Biotechnology price in the international market and expect the same in the coming future, which might have an adverse effect on the company’s financial performance. Presently, the company is trading near the 52-week High, raising doubts at its upside potential at the current price level.

Therefore, considering the business challenges as highlighted above, we have given a “Watch” recommendation at the closing price of GBX 116 (as on 5^th May 2020), while we look for any upcoming catalysts in the near term.
 
*All forecasted data and peer information have taken from Refinitiv (Thomson Reuters).

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