Ergomed PLC

Ergomed PLC (LON: ERGO) is an FTSE AIM 100 index listed Company focused on rendering specialised services to the pharmaceutical industry. Moreover, the diversified services encapsulate all clinical development phases, post-approval pharmacovigilance, and medical information.

Investment Rationale – Speculative Buy at GBX 1,266.00

• Strong Growth in Order Book: The Company has impressive revenue visibility illustrated by strong year-on-year growth of around 24.2% in order book to £239.7 million as of 31 December 2021.
• Resilient Financial Position: The Company had strengthened its net cash position and shown an improvement from £19.0 million as of 31 December 2020 to £31.2 million as of 31 December 2021.
• Significant Operational Progress: The acquisition of ADAMAS will expand ERGO’s global reach in the US, Europe, and APAC. The acquisition of MedSource drove the CRO division’s revenue higher by around 85.6% to £58.1 million in 2021.
• Technical Indicator: On a daily chart, the stock price is sustained between the lower Bollinger band and the middle Bollinger band. Hence, there could be an uptick in the stock price in the near term.

Risk Assessments

• Weak Global Growth Forecast: The World Bank had reduced its global growth forecast for 2022 from 4.1% to 3.2%.
• Ukraine Tension: The mounting concern over the Russian invasion in Ukraine can continue to weigh on the equity market. The soaring energy costs can squeeze household spending.

FY21 Financial Highlights (for the year ended 31 December 2021, released on 29 March 2022)

(Source: Company Website)

• Top-Line Business: The top-line revenue had witnessed a jump of around 37.3% to £118.6 million during FY21.
• Profitability: The Company’s basic earnings per share had shown a significant improvement of around 59.3% for FY21.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22E)

Conclusion

ERGO has strengthened its presence in the largest pharmaceutical market globally in the US and delivered excellent operational execution. In a nutshell, ERGO had a long-term strategy to generate superior return through its geographic expansion, robust order book and strategic acquisitions.

Please note, markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Based on the solid FY21 results, strong order book, and favourable valuation conducted above, we have given a “Speculative Buy” stance on Ergomed PLC at the closing market price of GBX 1,266.00 (as of 20 April 2022), with a lower double-digit upside potential based 41.29x Price/Earnings (approx.) on FY22E Earnings Per Share (approx.). The stock has not traded on 21 April 2022 as of 09:18 AM GMT+1.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for 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 is subject to the factors discussed above.

Note 3: Target Price refers to a price level that 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 4: ‘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 the 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 unfavourable movement in the stock prices.

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