Yourgene Health Plc

Yourgene Health Plc (LON: YGEN) is an AIM-listed Company engaged in the business of molecular diagnostics.

Investment Highlights - Yourgene Health Plc – Speculative Buy at GBX 17.30

• The Company’s revenue increased at the end of H1 FY2021 and is expected to increase further in the second half.
• As per valuation metrics, EV/Sales and Price/Book Value multiples of the Yourgene Health Plc are currently lower as compared to the corresponding multiples of the Biotechnology & Medical Research industry. It reflects, shares are undervalued as compared to the industry.
• In the one year, the Company delivered a significant return of ~ 47.76% and delivered higher returns compared to the benchmark Index (FTSE-AIM Index).
• From the technical standpoint, 14-day RSI is in oversold zone and supporting an upside move (around 34 level), which means the stock price could increase in the short term.

Key Risks

• The Growth of business is dependent on external funding, which is difficult to get amid the weak internal cash generation.
• Any failure to meet the quality and comply with regulatory laws could leads to increased cost and even recall or suspension of products.

Trading Update for H1 FY2021 (30 September 2020) (released on 26 October 2020)

• The revenue in H1 FY2021 surged by 5% reflecting strong revenue from UK and Europe, while revenue from international business declined.
• The revenue from international Clarigene® SARS-CoV-2 diagnostic product and UK COVID-19 testing services improved at the end of H1 FY2020.
• The Company raised £15 million to fund the acquisition of Canada based Coastal Genomics Inc.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

The Company witnessed an increase in revenue in the first half of the financial year 2021, as core laboratory customers have started returning to normal patterns. Despite the improved revenue, the revenue from international markets declined by 25% for the period. The COVID-19 testing service in the UK is expanding rapidly and is expected to increase covid-19 testing revenue to around £1 million/month with the potential of further expansion. With the acquisition of Coastal Genomics, the Company could expand operations to Canada and the US market. The economic environment in which the Company operate is full of challenges, while the recent developments have opened new opportunities. Due to covid-19 outbreak, the Company’s activities were impacted and resulted in delays to clinical readouts. The stock made a 52-week low and high of GBX 7.00 and GBX 24.55, respectively.

Based on the decent prospects which are supported by valuation done using the above method, we have given a “Speculative Buy” recommendation for Yourgene Health Plc at the current price of GBX 17.30 (as on 26 October 2020, before the market close at 8:12 AM GMT) with lower double-digit upside potential based 5.13x EV/NTM Sales (approx.) on FY21E sales (approx.). 

*All forecasted figures have been taken from Refinitiv, Thomson Reuters.

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