SourceBio International PLC (LON: SBI)

SourceBio International PLC is an FTSE AIM All-Share index listed Company. It is a leading international provider of laboratory services to clients in the pharmaceutical industry, the NHS and to private healthcare providers.

Investment Rationale – Speculative Buy at GBX 120.00

• Decent Fundamentals: SourceBio demonstrated record revenues, profits, and cash generation in FY21. Moreover, it delivered re-investment in the core Healthcare Diagnostics business unit via LDPath acquisition.
• Growth Catalysts: Post FY21 end, it continued the strong trading momentum into FY22, launched a Precision Medicine business line within the Genomics business unit, and received UKAS accreditation of SourceBio's Digital Pathology Platform, and progressed well towards the integration of LDPath acquisition.
• Promising Prospects: SourceBio is well-positioned to deliver further attractive growth in revenue and margin in FY22 as it has identified attractive growth opportunities in the Precision Medicine marketplace. Moreover, the Company has a robust cash balance of £33 million and with no bank borrowings.
• Technical Indicators: From a technical standpoint, the momentum oscillator 14-day RSI (30.89) is close to an oversold scenario, while the stock price is trading below the lower Bollinger Band.

Key Risks

• Reduction in Covid-19 Testing Volumes: The significant reduction in Covid-19 testing volumes may adversely impact the top-line business in FY22.
• Macroeconomic Uncertainties: The interest rate worries, the US dollar hitting two-decade peaks, persistent inflation, and subdued economic forecasts can continue to impact corporate profits and put pressure on equity markets.

FY21 Financial Highlights (for the 12 months ended 31 December 2021, as of 05 April 2022)

(Source: Company Filings)

• Top-Line Business: The Company’s top-line revenue grew by around 82%, from £50.7 million during FY20 to £92.4 million for FY21, boosted by COVID-19 PCR testing services.
• Profitability: On the profitability front, the Basic and diluted EPS had increased by 325% to 22.5 pence per share during FY21.
• Balance Sheet: SBI had managed to increase the cash balance from £8.4 million at the end of FY20 to £33.3 million as of 31 December 2021.

One Year Share Price Chart

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

Valuation Methodology: Price/Earnings Approach (FY23) (Illustrative)

*Peers: Abcam PLC, Spire Healthcare Group PLC, and Oncimmune Holdings PLC.

*All selected peers are LSE-listed Companies from the Healthcare sector. 

Conclusion

Based on the strong fundamentals, strategic acquisition of LDPath Limited, operational achievements, with support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on SourceBio International PLC at the current market price of around GBX 120.00 (as of 10 May 2022, at 8:00 AM GMT+1), with lower double-digit upside potential based 38.24x Price/Earnings (approx.) on FY23E Earnings Per Share (approx.).

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: Dividend Yield may vary as per the stock price movement.

Note 4: 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.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’ 

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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