EKF Diagnostics Holdings Plc

EKF Diagnostics Holdings Plc (LON: EKF) is an FTSE AIM All-Share listed central laboratory and point-of-care diagnostics assay manufacturer. It specialises in producing tests for use in diabetes diagnosis & management, and anaemia. It also focuses on developing reagents for usage in clinical chemistry analysers.

The Company will announce H1 FY2020 results in the first half of September 2020.

Recent News

On 5 August 2020, EKF Diagnostics Holdings announced that RemCo (Remuneration Committee) of EKF is determined to pay the bonus to Executive Directors of around £227,300 each.

On 5 August 2020,EKF Diagnostics Holdings announced the receiving of £3 million of the initial order to supply PrimeStore MTM to the private sector and will be used to in testing programme for COVID-19 for UK staff.

Update on Trading Performance for 6 months period ending 30 June 2020 (14 July 2020)

The Group trading performance for H1 FY2020 remained decent based on trading performance and updated market expectations. The higher demand for PrimeStore MTM Device resulted in improved adjusted EBITDA. The Group expect revenue to be around £26.3 million and adjusted EBITDA  to be approximately £9 million in H1 FY2020. The gross cash stood above management expectations at £16.9 million as on 30 June 2020.

Share Price Performance


Daily Chart as of August 17, 2020, before the market close (Source: Refinitiv,Thomson Reuters)

EKF Diagnostics Holdings Plc shares were trading at GBX 54.00 at the time of writing before the market close (at 11:34 AM GMT+1) on 17 August 2020 and down by 1.82% versus the previous day closing price. Stock 52 week High and Low were GBX 58.00 and GBX 16.58, respectively.

From the technical standpoint, 14-day RSI is currently in an overbought zone, which means the stock price could decline in the short term.

Key Risks

The Company’s performance is subject to several kinds of risk, such as supply chain continuity amid the COVID-19 disruption, failure to comply with regulatory policies, political and foreign exchange risk. The Group may face the loss of output due to disaster or disruptive event at logistics facility or manufacturing facility. Being a healthcare Company, EKF needs to maintain high-quality standards with ethical business practices, failure to do so could lead to contact losses.

Valuation Methodology

Conclusion

Driven by strong demand for PrimeStore MTM Device, the Group showed decent performance in H1 FY2020 and expected to show the same performance in H2 FY2020. Despite the strong performance, the Group’s operations are impacted by the covid-19 pandemic and may also impact production facilities further. The Covid-19 pandemic can hamper the pace of developments to cause significant liquidity risk.Moreover, the Company’s share price is trading near its 52-week high, which raises doubt over its upside potential. The Company’s Price/Book and EV/Sales multiples are significantly higher as compared to the industry multiple, reflecting overstretched valuations. Considering the market dynamics and stretched valuations, we believe it is a viable strategy to take profits at current level and will renter at an appropriate level once the due correction is done.

Based on the risks associated and uncertain business environment, we have given a “Sell” recommendation on EKF Diagnostics Holdings Plc at the current price of GBX 56.00 (as on 17 August 2020, before the market close at 12:04 PM GMT+1)based on 15.30x Price/NTM Earnings (approx.) on FY20E earnings per share (approx.).
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.
*Dividend Yield may vary as per the stock price movement.

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