Avacta Group PLC

Avacta Group PLC (LON: AVCT) is a FTSE AIM All-Share listed Company, which is engaged in the development of immunotherapies for novel cancer through platforms, namely Affimer® and CISION™. Therapeutics development activities are based in the United Kingdom.

Investment Rationale – Expensive at GBX 165.00

• The operating loss and net loss have been widening each year for the past five years, whereas the industry has been delivering positive fundamentals.
• The EV/Sales and Price/Book multiples are currently overvalued compared to corresponding multiples of the Healthcare industry.
• The stock is trading close to a 52-week high, while RSI-14 giving the overbought signal, a short-term correction in price can be expected.

Risk Assessment

• The Company relies heavily on other clinical research organizations for therapeutic development programmes and hence, the underperformance of these third parties can impact its ability to function effectively and efficiently.
• Several core clinical trials have been halted as the regulators are prioritizing COVID-19 related therapies. Hence, there is a delay in AVA6000 phase I study as their clinical partners are not operating at a normal level.
• Furthermore, cybersecurity threats are imposing another peril as they depend on third-party cloud-hosted applications.

Recent News:

2 September 2020: AVCT announced an agreement with Abingdon Health, for the manufacturing of saliva-based rapid SARS-CoV-2 antigen test.

20 August 2020: The Company announced the issuance of 1,092,083 new ordinary shares, under the exercise of share options by employees. Following the transaction, the enlarged issued share capital was 250,649,804.

Financial Highlights (for the 17-month period ended 31 December 2019)

(Source: Company Website)

• AVCT reported revenue of £5.5 million against £2.8million reported in (12-month period to 31 July 2018.
• In November 2019, the Company completed the fundraising of £9.0 million in gross proceeds to progress the AVA6000 programme into clinical trials.
• The operating loss and loss before tax widened to £18.0 million for the period.
• As of 31 December 2019, cash balance was £8.8 million, which was merely £5.2 million at 31 July 2018.
• The loss per ordinary share was reported as 13.0 pence (FY18: 13.5 pence).

One Year Share Price Chart

1-Year Chart as of 4 September 2020, after the market close (Source: Refinitiv, Thomson Reuters)

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

Conclusion

Avacta has created huge potential value for shareholders and has given sparkling return. However, the Company is still in losses which can cause liquidity risk if substantial funds are not available. During the FY19, it has shown a tremendous decline in bottom-line financial items.

Moreover, the stock is trading close to 52-week high, which raises doubts on the upside potential for stock amid the weak fundamentals. Stock 52 week High and Low were GBX 215.25 and GBX 12.62, 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.

Therefore, based on the overstrained prices, and overvalued trading multiples, we have given an “Expensive” stance on Avacta Group at the closing price of GBX 165.00 (as on 4 September 2020), while we will watch how strategic initiatives will gain traction in the near term or if we can get a rational price to invest in this growth stock.  

*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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