Batm Advanced Communications Ltd

Batm Advanced Communications Limited (LON: BVC) is engaged in research and development of data communication products for medical laboratory systems.

Investment Highlights - Batm Advanced Communications Ltd – Speculative Buy at GBX 94.56

• Despite the impact of the covid-19 pandemic, the Company delivered strong performance in H1 FY2020 and expects improved performance in H2 FY2020.
• In the one year, the Company delivered a significant return of ~161.50% and delivered higher returns compared to the benchmark Index (FTSE-all Share Index).
• Over the course of 4 years (H1 FY16 – H1 FY20), the Company’s revenue surged from USD 45.12 million in H1 FY2016 to USD 77.41 million in H1 FY2020, reflecting growth trajectory of ~14.45%.
• From the technical standpoint, shares were trading well above the support level of 20-day simple moving average prices (GBX 87.44), which reflects an uptrend in the stock and can move up further.

Key Risks

• The Company is exposed to the effects of political and economic risks. 
• If BVC fails to develop an IT infrastructure, it could lead to cyber-attacks or frauds and could hamper the reputation.
• The introduction of new technologies by competitors could have a negative impact on the market share of the Company.

Recent News

On 24 December 2020, BATM Advanced Communications confirmed the effectiveness of its COVID-19 test in detecting new strain of SARS-CoV-2 observed in the United Kingdom and elsewhere.

Financial Highlights – H1 FY2020 (30 June 2020) (released on 17 August 2020).

(Source: Interim Report, Company Website)

• In the first half of the financial year 2020, driven by a solid performance from Bio-Medical Division, the revenue increased by 37.7% to USD 77.4 million.
• Driven by higher revenue and gross margin for the period, the operating profit surged by 102.8% to USD 2.4 million in H1 FY2020.
• The cash from operating activities stood at USD 4.4 million for the period, reflecting an increase of 317.5%.
• The cash and financial assets surged by 161.6% to USD 44.3 million in H1 FY2020.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

The Company has shown robust financial performance in the first half of the financial year 2020 and entered H2 FY2020 with the higher backlog. Despite the improved financial performance, the operating expenses increased, which could impact the financial performance in the near future. The total revenue for the financial year 2020 is expected to surge by 32% compared to FY2019 data. BVC expects Networking and Cyber and Bio-Medical divisions to report revenue growth in FY2020. The Company’s operations were impacted by the uncertainty related to covid-19 crisis. The stock made a 52-week high and low of GBX 150.50 and GBX 30.00,respectively.

Based on the decent growth prospects, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Batm Advanced Communications Ltd at the current price of GBX 94.56 (as on 29 December 2020, before the market close at 9:00 AM GMT), with lower double-digit upside potential based on 3.90x EV/NTM Sales (approx.) on FY20E sales (approx.).

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

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