Clinigen Group PLC – Operating with the broader client base and diversified business model.

Clinigen Group PLC (LON: CLIN) is a FTSE AIM UK 50 index listed global Pharmaceutical and Services Company. Through three areas of medicine supply - unlicensed, clinical trials, and licensed medicines, it ensures the delivery of the right medicine at the right time to the right patient.

Investment Rationale – Speculative Buy at GBX 630.00

• As per the valuation metrics, Price/Book, EV/Sales, and EV/EBITDA multiples of CLIN are currently lower than the industry average.
• From the technical standpoint, 14-Day RSI is supporting the uptrend in the stock.
• Over the past four years (FY16 to FY20), revenue has grown at a CAGR of around 10.4%.
• The long-term fundamentals of CLIN and its market appear to be strong despite short-term uncertainties with Covid-19.
• As demonstrated in FY20, the Company is well-positioned to capture further market share by growing its product portfolio in the Commercial Medicines business.

Risk Assessments

• Brexit and economic downturn can impact operational and financial efficiency.
• It operates in a competitive environment, and losing market share can affect the growth trajectory.
• Moreover, the ongoing Covid-19 mayhem can disrupt the supply chain network. It also needs to comply with stringent regulatory policies, and failure to do so could result in heavy penalties and fines.

Trading Update (as on 26 November 2020)

• Clinigen has continued to deliver good progress from a new business perspective and also seen a continuous improvement in demand for key asset Proleukin.
• The Board has reiterated the previous guidance and expects growth to be more weighted to H2 FY21 due to the impact of COVID-19.

Financial Highlights for the year ended 30 June 2020 (as on 17 September 2020)

(Source: Company Website)

• The Company delivered a strong financial performance, with an increase in reported revenue of 10%, adjusted net revenue of 15%, adjusted EBITDA of 30% and adjusted EPS (earnings per share) of 20%.
• It represented a solid second-half performance after the working capital headwinds seen in H1 FY20, with operating cash flow conversion of 123% in H2 FY20. Meanwhile, the cash generation and cash conversion in FY20 of 72% were below the historical levels.
• The growth in adjusted EBITDA was driven by strong underlying performance.
• The adjusted net finance cost increased to £11.4 million as compared with the last year (2019: £8.6 million), due to the Company's higher net debt position (an increase of 24%) following the recent acquisitions.
• The Board has proposed a final dividend per share of 5.46 pence, an increase of 15% from the previous year. Hence, the full-year dividend per share stood at 7.61 pence (2019: 6.7 pence), an increase of 14%.

Recent News

10 November 2020: Clinigen has received FDA approval to broaden the indication for Totect®, to treat incidence and severity of cardiomyopathy associated with doxorubicin in women with metastatic breast cancer.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Cash Flow Approach (NTM) (Illustrative)

Conclusion

Overall, the FY20 results were in line with the market expectations, with improved levels from the last quarter of 2020. Clinigen has remained immune to the Covid-19 disruption as its performance remained robust in FY20, and it delivered double-digit EPS growth and double-digit organic growth. In future, it will continue to focus on both the unlicensed and licensed markets, and it has pillars to accelerate growth from FY22. It has a robust cash generative business model with a significant long-term growth potential story. Moreover, it has a deep and long standing relationship with large pharmaceutical and biotech companies as customers.

For FY21, the Company shall continue to gain market share with a new asset, Erwinase. It is expecting 5-10% organic net revenue growth in the medium-term. Regarding medium-term guidance, it expects to deliver future organic net revenue growth through an expected launch of a generic Foscavir in the EU. However, revenue in H1 FY21 is expected to be below the H1 FY20 level, given the contracted Proleukin shipments. The business should return to growth in H2 FY21. The operational leverage is expected to increase in FY22. Furthermore, it is targeting the leverage of 1.0x – 2.0x within 12-18 months. Stock's 52 week High and Low were GBX 1,000.00 and GBX 350.40, respectively.

(Source: Company Presentation)

Considering the decent operating & financial performance, high level of cash generation capabilities, strong track record (~49.4% CAGR growth in diluted EPS for FY17 - FY20) and support from the valuation as done using the above method, we have given a "Speculative Buy" recommendation on Clinigen Group at the current price of GBX 630.00 (as on 27 November 2020, before the market close at 8:10 AM GMT), with lower-double digit upside potential based on 20.17x Price/Cash Flow (approx.) on FY21E Cash Flow Per Share (approx.).

Omega Diagnostics Group PLC – Witnessing early signs of recovery in food intolerance business

Omega Diagnostics Group Plc (LON: ODX) is a FTSE AIM All-Share Listed medical diagnostics company, which is focused on infectious diseases, allergy testing and food intolerance.

Investment Rationale –Speculative Buy at GBX 47.50

• From a technical perspective, 14-day RSI (33.99) is indicating an upward trend in the stock.
• Over the past five years, gross margin has remained above 64% (industry median: 60%), and debt/equity ratio has remained below 0.19x (industry median: 0.35x).
• Sales in October 2020 are expected to be nearly 20% higher than in October 2019, reflecting an encouraging early sign of recovery.
• VISITECT® CD4 received regulatory approval and made significant progress in developing products. 

Risk Assessment

• The Company may be faced with changes in the general economic climate in each territory in which it operates that may adversely affect the financial performance of the Group.
• The recent COVID-19 pandemic has created significant uncertainty on a global level.Moreover, the Growth of business is dependent on external funding, which is difficult to get amid the weak internal cash generation.

Recent News

3 November 2020: ODX announced that National Medical Products Administrationhas approved the Company's Food Detective® test for self-test use in China.

Interim results for the six months ended 30 September 2020 (as on 28 October 2020)

(Source: Company Website)

• During H1 FY21, turnover plunged 29% against H1 FY20 and expected an EBITDA loss of £1.3 million.
• The performance declined due to the Covid-19 pandemic impact over the food intolerance business.
• As of 30 September 2020, cash balance was £6.95 million, which was in line with management expectations.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

ODX is encouraged to see the early signs of recovery in the food intolerance business. It anticipates strong  performance in the H2 FY21. Moreover, the Company expects to produce up to 200,000 AbC-19™ Rapid tests per week by the end of November to support the Department of Health and Social Care. As the business has made substantial progress over recent months, the Board remains confident in the Company's prospects.

Given the heightened level of uncertainties, we recommend a "Speculative Buy" stance on Omega Diagnostics Group PLC at the current price of GBX 47.50 (as on 27 November 2020, before the market close at 9.55 AM GMT), with lower-double digit upside potential based on 7.90x EV/Sales (approx.) on FY21E Sales (approx.).

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

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