Open Orphan PLC (LON: ORPH)  

Open Orphan PLC (LON: ORPH) is an FTSE AIM All-Share index listed pharmaceutical research company that holds a leading global position in testing vaccines and antivirals using human challenge clinical trials.

Investment Rationale – SELL at GBX 21.00

• Profit Booking: ORPH’s stock price has given a decent run since our last coverage, and thus, investors can book profit as per their risk-return profile.
• Macroeconomic Uncertainty: As the Federal Meeting has signalled the interest rates hike and monetary policy tightening, it can keep the equity market under pressure.
• Technical Indicators: From a technical standpoint, the MACD line has given a bearish crossover against the signal line and hovering below the centreline.
• Underperformance Against Index: ORPH’s stock price has fallen around 18% in the past six months and showing significant underperformance against the FTSE AIM All-Share index.
• Overvalued Multiples: On a forward 12-months basis – EV/EBITDA and Price/Earnings multiples are overvalued against the median of the Health Care sector.

Key Risks

• Liquidity Risk: The Company has not reported profit yet, and thus, can face liquidity risk. Moreover, macroeconomic instabilities can cause credit risk and delay the launch of new products.
• Pandemic Induced Disruption: The resurgence in the Omicron variant of coronavirus can limit the Company’s ability to formulate, innovate, launch, and commercialize new products.

H1 FY21 Financial Highlights (for the six months ended 30 June 2021, as of 20 September 2021)

(Source: Company Results)

• Top-Line Revenue: ORPH had reported robust revenue growth of around 242% from £6.4 million during H1 FY20 to £21.9 million for H1 FY21.
• Profitability: The Company had demonstrated a positive turnaround and reported a positive EBITDA of £2.1 million during H1 FY21. In comparison, it had reported an EBITDA loss of negative £4.1 million during H1 FY20.
• Balance Sheet: The Company’s cash & cash equivalents stood at £14.9 million as of 30 June 2021.

Share Price Chart

 (Data Source: REFINITIV, analysis done by Kalkine Group)

Valuation Methodology: EV/Sales Approach (FY21) (Illustrative)

Conclusion

ORPH’s stock price has given a decent return since our last coverage. Moreover, there are concerns related to the margin headwinds, inflation issues, monetary policy tightening, and supply chain snags, which can eventually affect the Company’s financials. ORPH is also trading as a penny stock with a history of operating losses. Therefore, it is prudent to liquidate the position as per the risk-return profile of investors. The stock made a 52-week High and Low of GBX 48.00 and GBX 16.86, respectively.

Based on the notional gains, weak fundamentals, continued losses, significant downtrend, and unfavorable valuation conducted above, we have given a “SELL” recommendation on Open Orphan PLC at the current market price of GBX 21.00 (as of 27 January 2022, at 9:00 AM GMT).  

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

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