Novacyt SA – Rapidly Growing with Focus on International Expansion

Novacyt SA (LON: NCYT) is a France-based international specialist in clinical diagnostics. The Group deals in diversified diagnostic products used in oncology, haematology, microbiology, LBC, and serology testing.

Monthly Update on Liquidity Agreement (1^st July 2020)
Novacyt provided an update on the liquidity agreement with Invest Securities SA. The agreement is governed under French law. As per liquidity agreement for June, Invest Securities bought 21,150 shares at €3.63 maximum price and €2.40 minimum price and sold 18,500 shares at €3.99 maximum price and €2.62 minimum price.

Product Launch to Support Covid-19 Testing (18^th June 2020)
Novacyt announced the launch of 3 new products to support coronavirus testing. COVID-HT for the high-throughput test and Exsig™ Mag and Exsig™ Direct are RNA extraction kits.

Sales and Regulatory Update (2^nd June 2020)
The Group’s sales for Primerdesign COVID-19 test stood at €45 million or £40 million as on 1^st June 2020. Primerdesign also received an order amounting €90 million or £80 million for COVID-19 test. The total sales and orders are €135 million or £120 million. In the second half of the financial year 2020, the sales for COVID-19 will increase with the launch of new products. The Group sells COVID-19 test to over 130 counties, with the UK and Germany being the top countries and is making progress in the US market as well. The Child Care and Ministry of Health of Zimbabwe has awarded a contract to the Company to supply 1.5 million Primerdesign tests. In France, HAS (Haute Autorité de Santé) has not approved Primerdesign's COVID-19 test. The Company has secured regulatory approvals in new markets which include the UAE, Paraguay, Peru, Columbia, Ecuador and Panama.

Share Price Performance

Daily Chart as of July 9^th, 2020, before the market close (Source: Refinitiv,Thomson Reuters)

Novacyt SA shares were trading at GBX 264.00 on 9 July 2020 (before the market close at 12:07 PM GMT+1), which was down by 4.86% against the last day closing price. Stock 52 week High and Low were GBX 529.00 and GBX 6.03, respectively.

Key Risks
The pace of development in the healthcare industry and competitive pressure may impact business operations. The Group faces an inherent risk of product liability and associated adverse publicity as a result of the sales of the products. Some more risks are bad debtors, Brexit, and Foreign exchange fluctuations.

Conclusion
In the short-term period, the group is likely to perform well by selling the COVID-19 test kit. In 2020, the company’s management will maintain the emphasis on improving EBITDA profitability and gross margins, while cautiously managing working capital to re-establish stock levels and provide sustainable revenue progress. The Company expects additional sale with the launch of three new products. The recent contract wins, and regulatory approvals from multiple countries will boost financial performance in the short-term. The planned overhead savings will not only enhance profitability but broaden the Group’s cash runway and enable additional investment in rebuilding the supply chain, which is anticipated to be done by the middle of the year.

Based on the headwinds faced by the company, we have given a "WATCH" recommendation at the current price of GBX 264.00 (as on 9^th July 2020, before the market close at 12:07 PM GMT+1), while any correction with support from few catalysts needs to be evaluated at a later stage.

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