Synairgen PLC – Raised funds to support SNG001 manufacturing.

Synairgen PLC (LON: SNG) is a FTSE AIM All-Share listed Company, which is involved in drug discovery and development of therapies for respiratory diseases.

Investment Rationale – Speculative Buy at GBX 83.70

• In H1 FY20, debt/equity ratio was 0.02x. The debt/equity ratio has remained significantly below the industry median for the last three years.
• The Company is investing in supply chain activities to meet the potential drug demand.
• In March 2020, it raised £14.0 million to fund its initial COVID-19 related activities and strengthen its balance sheet.
• In the past six months, the stock has significantly outperformed the benchmark index as SNG has delivered a 71.95% return while FTSE AIM All-Share has gained 19.23%.
• From a technical standpoint, 14-day RSI (27.23) is in the oversold zone and supporting the upside potential.

Risk Assessments

• Failure to obtain a regulatory license can significantly impact the Company's value.
• The Company is still reporting a loss from operations; moreover, the loss from operations widened in H1 FY20 as compared to H1 FY19.
• The emergence of Coronavirus has halted the COPD trial and diverted their attention towards pressing concerns of the pandemic.

Recent News

13 November 2020: SNG has published the Company's SG016 trial in The Lancet Respiratory Medicine journal. The data published showed positive results for SNG001 in hospitalised COVID-19 patients.

2 November 2020: SNG raised nearly £87 million in gross proceeds by allotting 34,809,726 New Ordinary Shares.

Interim results for six months ended 30 June 2020 (as on 29 September 2020)

 (Source: Company Website)

• During the H1 FY20, loss from operations widened to £5.08 million (30 June 2019: £2.21 million loss).
• As of 30 June 2020, cash balance stood at £10.9 million (30 June 2019: £3.52 million).
• The Company received positive results from a hospital-based COVID-19 trial in July, and hence, working on the progression of SNG001 as a potential treatment for Covid-19 patients.
• The Company is in discussion with regulatory agencies for the approval of SNG001 as a treatment for COVID-19.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Conclusion

The positive interim results of SNG001 in COPD patients underpins bright prospects the Company. The net proceeds of the recent placing will be used to support SNG001 manufacturing; support the Phase III clinical trial in COVID-19 patients; generate further SNG001 data to support clinical, manufacturing and regulatory activities; and strengthen the Company's balance sheet. The Company is now fully focussed on expediting the next steps with SNG001 and in discussion with regulatory agencies. As it is trading close to a 52-week low, it could be a lucrative opportunity to invest in the long-term. Stock 52-week High was GBX 258.46 and Low of GBX 5.47, respectively.

Based on the factors discussed above, we have given a "Speculative Buy" recommendation on Synairgen PLC at the current market price of GBX 83.70 (as on 27 November 2020, before the market close at 8.05 AM GMT).

Genedrive PLC – Has growing pipeline and opportunities across a range of healthcare markets.

Genedrive PLC (LON: GDR) is FTSE AIM All-Share index listed Pharmaceutical Company, which is engaged in the development and sales of molecular diagnostics platform for the diagnosis of infectious diseases.

Investment Rationale – Speculative Buy at GBX 55.00

• The Company has signed several distributors across Africa and is in the process of registering the product locally.
• It has achieved WHO prequalification status for its HCV (hepatitis C virus) product in May 2020.
• On a YTD basis, the stock has significantly outperformed the benchmark index as GDR has delivered a 191.11% return while FTSE AIM All-Share has gained only 2.70%.
• From a technical standpoint, 14-day RSI (39.37) is supporting the upside potential.
• EV/Sales multiple of the Genedrive PLC is currently lower as compared to the corresponding multiples of the Healthcare industry.

Risk Assessments

• Failure to obtain the necessary regulatory approvals can significantly impact the growth trajectory.
• As the market is focussing on Coronavirus, GDR can face limited sales traction in the near-term for its HCV products.
• The challenges presented by Covid-19 pandemic can create supply chain concerns.

Recent News

22 October 2020: The Company announced that it had completed the assay design for the Company's Point-of-Care solution for COVID-19 testing. It also designed Genedrive® SARS-CoV-2 POC Kitto detect SARS-CoV-2. 

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

(Source: Company Website)

• Due to Covid-19 disruption, revenue declined to £1.1 million (2019: £2.4 million).
• At the end of FY20, cash balance was £8.2 million, following successful equity fundraise in May 2020.
• Through the conversion of the US$8.0 million Global Health Investment Fund bond, the balance sheet was further strengthened.
• The Company also made significant progress with the collaboration agreement with Beckman Coulter to bring a fully automated testing solution to the market.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

GDR has a growing pipeline and opportunities across a range of healthcare markets. Moreover, it remained confident in its SAR CoV-2 products and thus, it can see significant commercial opportunities ahead. It is likely to enter FY21with a stronger product portfolio and it is ready to enter a new growth phase for the Company.The Company potential to address current issues of testing for the Coronavirus. It is also signing with additional partners to expand the commercial footprints. The contract signed with US DoD shall support the new sales volume in H1 FY21. Moreover, the NHS evaluation programme has continued to run during the past few months.

As the stock is trading close to a 52-week low with substantial upside potential supported by technical indicator, it can be an attractive opportunity to punt on this AIM stock. Stock 52-week High was GBX 302.60 and Low of GBX 6.25, respectively.

Based on the factors discussed above, we have given a "Speculative Buy" recommendation on Genedrive PLC at the current market price of GBX 55.00 (as on 27 November 2020 before the market close at 9.05 AM GMT) with lower double-digit upside potential based 5.00 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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