Novacyt SA

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

In April 2020, the company will announce its full-year results.

Recent News
On 17^th February 2020, the company released that its Primerdesign, a part of molecular diagnostics division, has introduced its CE-Mark molecular test for the clinical discovery of the novel coronavirus (COVID-19).

Full-year Trading and Operational Update (as on 28^th January 2020)
The company released its full-year trading update for the financial year ended 31st December 2019 and also provided an operational update. In the year-end, the company's revenues from continuing operations will fall by around 5% (6% at CER) on a consolidated basis to approximately €13.1 million as compared with the previous year (2018). The revenue, excluding the Clinical Lab, decreased by 2% (3% CER). This decrease was driven by working capital constraints, which has been affected in the second quarter of 2019. At the beginning of 2020, the company increased the order book from the corresponding time of the last year. Lab21 products had confirmed orders of €1.6 million. The company began in November 2019 to invest funds in the revitalization of its supply chain. On a year-on-year basis, the core reagent sales across the company increased by 3 per cent, with Primerdesign providing 8 per cent higher reagent revenues. The Primerdesign division also attained international revenue increase of 12 per cent. This was in spite of restricted q16 instrument sales driven by a lack of stock. As part of the Lab21 Products business, Microgen Bioproducts sales were robust despite the persistent stock shortages, as shown by Middle East sales expanded by 8% with Ireland and the UK direct sales surged by 13% over the previous year. In December 2019, these sales were engendered before the sale of the business and represent an increase of 37 per cent against the previous year which assisted the division in providing positive cash flow in 2020, with a €0.7 million of net cash contribution in H2 FY19. On 31st December 2019, the company held cash and cash equivalents of 1.8 million euro, an increase from the previous year (2018: €1.1 million).

The company is also developing a new test for coronavirus.In 2019, the company made a successful sale of two non-core businesses. The group will also transfer production to its Camberley site by the end of Q1 FY2020 and close its manufacturing facility in Bridport.

Share Price Performance

Daily Chart as at February-19-20, before the market closed (Source: Thomson Reuters)

Novacyt SA shares were trading at GBX 128.5, at the time of writing before the market close (at 8:23 AM GMT) on 19^th February 2020 and were down by 16.01% versus the previous day closing price. Stock 52 weeks High and Low are GBX 222.90/GBX 6.03. The group’s stock is reflecting the higher volatility as against the benchmark index based on the company’s beta of 1.47.

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

Conclusion
In 2020, the company’s management will maintain to emphasis on improving EBITDA profitability and gross margins while cautiously managing working capital to re-establish stock levels and provide sustainable revenue progress. 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 2020.

Presently, Negotiations are underway with several parties to sell the outstanding instruments and some of the remaining IP, following the successful sale of certain assets to Algimed Trade Ltd for €0.4 million-plus royalties in December 2019.

Following the successful disposals of the NOVAprep® assets and Clinical Lab and the accomplishment of the financing in the year 2019, the group’s board is focused on driving key business sales progress and profitability in the upcoming year 2020. The company started in 2020 with a decent sales order book, new business (VGS Group) and a decent pipeline of new clients for the newly launched PathFlow™ product range in infectious diseases.

Currently, the stock is trading near the 52-week mid, suggesting that the upside potential might be limited, and the company can face stiff resistance at the current level. At the current trading level, the stock was trading quite below its short-term crucial support level, a bearish technical indicator which reflects prices could move down from the current trading level.

Based on the headwinds faced by the company, we have given a "WATCH" recommendation at the closing price of GBX 153 (as on 18^th February 2020), while any correction with support from few catalysts needs to be evaluated at a later stage.

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