Clinigen Group PLC: Consistently Delivered Healthy Financial Returns Because of Unique & Diverse Business Model, and Generated Strong Cash Returns

Clinigen Group PLC (LON: CLIN) is a UK based Pharmaceuticals & Biotechnology company which is involved in the activities related to distribution, sale and management of pharmaceutical products.

Recent News
On 16^th April 2020, the company has signed an exclusive licensing and distribution contract with PBL (Porton Biopharma Limited), which is to commercialise Erwinase®. Moreover, the group reported over 10% in organic gross profit at the end of March 2020, for the first nine months of FY2020.

Financial Highlights for the six months ended 31 December 2019 – Reflecting Double-Digit Revenue Growth

(Source: Presentation, Company Website)

In the first half of 2020, the company delivered a robust growth in revenues which surged by 17 per cent to £243.7 million(H1 FY2019: £208.9 million). For the first half of 2020, the company’s adjusted net revenue increased by 24 per cent to £224.6 million as compared with the corresponding period of the last year (H1 FY19: £181.1 million). The gross profit for the first half of 2020 surged by 35 per cent (up 9 per cent on an organic basis) to £108.1 million (H1 FY19: £80 million). Adjusted EPS (earnings per share) rose by 34 per cent to 30.8 pence (H1 FY2019: 23 pence).

Operating cash flow stood at £10.1 million, impacted by an outflow in working capital in the final months of the period. On 31st December 2019, the net debt stood at £322.3 million, representing pro forma leverage of 2.4x. The interim dividend per share of 2.15 pence, an increase of 10 per cent.

Share Price Performance
 
Daily Chart as at April-24-20, after the market closed (Source: Thomson Reuters)

Clinigen Group PLC’s shares closed at GBX 686.50 on 24^th April 2020 and were down by 4.25 per cent versus the previous day closing price. Stock 52 weeks High and Low are GBX 1,069.00/GBX 350.40.

Valuation Methodology


Growth Catalysts – Expecting Organic Gross Profit Growth
Positive cash generationcharacteristic of the Group remains unchanged. Working capital headwind to partially reverse, albeit sustained investment for Proleukin. Net debt is projected to increase by the end of FY20. In the medium-term, the organic gross profit growth will be in the range of 5%-10% target. The operational leverage expected to improve further beyond the financial year 2020. Investment in EU and US infrastructure set to continue to support growth opportunities for both Unlicensed Medicines and Commercial Medicines operations.

Conclusion
The group plan to increase financial performance and further plan is to build an integrated, international pharma product and services group with robust operational synergies, and working with a growing roster of multinational clients. On an underlying organic basis, the group has shown robust financial performance. The group has continued the good performance into the second half of 2020.

Based on the decent prospects which are supported by valuation done using the above method, we have given a “SPECULATIVE BUY” recommendation at the closing price of GBX 686.50 (as on 24^th April 2020) with lower double-digit upside potential based 13.50x NTM Price/Cash Flow (approx.) on FY20E cash flow per share (approx.).
 
*The “Speculative Buy” recommendation is valid for the current price as covered in the report as on 27^th April 2020.

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