I'm following Paul Scott's example of creating some general discussion threads for individual companies, so that we can share news & views any time.
Please feel free to post anything about Novacyt (LON: NCYT) in the comments to this thread.
Rational bull & bear views welcomed. Please keep it civil!
Like Paul, I'm fed up with the poor quality of nonsense on free bulletin boards elsewhere, so hope we can have a more constructive discussion here instead.
Novacyt has rescheduled its AGM, which was due to take place today, to a new date that will be announced:
https://www.stockopedia.com/sh...
The consensus on the LSE chat board for Novacyt is that this happened because not enough shareholders have voted. There is apparently a French legal requirement to have at least 25% of shareholders votes for an AGM to be held.
nice increase today. I am sure this stock is oversold as the Stockopedia value rating would confirm
Yes a dramatic move up from around lunchtime on apparently no news. Not sure if it is possibly related to the rising infections in the UK or some sort of leak, hopefully find out soon.
So probably a couple of things to consider
1) todays product registrations are clearly a positive for the group as a whole
2) the new variant shows that testing is unlikely to fall away anywhere near as dramatically as people had assumed. That feels positive for the Novacyt Sa (LON:NCYT) covid part of the business.
Yes, about the only good news today. I take it by registrations you mean approval of GENESIG PCR test? Looks positive, I will continue to hold.
I can see why they call it Black Friday.
haha - very good!! Yes, it's about the only positive around today.
yes, sorry I meant the approval of the GENESIG test so it can go on the register and sold in the UK.
I find it somewhat surprising that Novacyt Sa (LON:NCYT) isn't up considerably more given the level of PCR testing that must be going on both here and abroad. I would imagine that rather than seeing PCRs dropping gradually over the next 2 years we are now seeing vastly increased testing. Whilst that may prove to be a one off boon it translates to cash on b/s and significantly enhances the value? Maybe I'm missing something.
Agree with you on this, don't understand why this share isn't reacting more to the news that PCR testing demand has increased to the highest level and lateral flow test kits are running out due to massive demand. Trading must have been better than they forecast a few months ago.
You assume that Primer Design are supplying that demand... recent RNS's mention approvals; however, approvals are not orders.
https://www.stockopedia.com/sh...
And from RNS dated 30 Nov....
The Belgian lab that detected the Omicron variant used a Thermo Fisher testing machine, but it is unclear how widespread its use is in Europe. The company declined to say how many tests it had sold and to how many countries in Europe, citing its policy not to disclose customer data.
Not to say that Novacyt Sa (LON:NCYT) is a poor investment but this could go someway to explaining your query....
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What are people's views about the strategic review and trading update issued today? It's clear that the market has reacted badly, but is that a fair reaction or an emotional response that presents an opportunity to buy at a discount to the fair price??
Today's strategy and full year 2021 trading update can be read here:
https://www.stockopedia.com/sh...
At today's closing price of 184 pence, Novacyt's market capitalisation is £170 million, which is not much more than the company's cash position of £102 million on 31 December 2021 (according to today's trading update). Furthermore, the latest figures do not include all the profits from supplying tests for the current Omicron variant, Covid is by no means over around the world, and there is the possibility of a favourable resolution to the dispute with the DHSC which could add tens of millions of pounds to Novacyt's cash position. The market seems to be valuing the company's R&D and manufacturing expertise in non-Covid diagnostics and its ability to grow by acquisitions using its cash pile at almost zero, so I can't help thinking that Novacyt is greatly undervalued at the current share price.
John Eustace has just posted this on today's Small Cap Value Report:
"There’s a full page Private Eye Covid Investigation on Novacyt Sa (LON:NCYT) and their company Primerdesign in the current edition which holders may want to read."
Here's a link to that Private Eye article:
The current share performance at #NCYT is far from ideal especially given three profit warnings in 9 months which was always more than likely to happen after the blockbuster 2020. However, the forward looking statement and strategic vision outlined in the recent trading update provided investors with much needed clarity for the future. I’ll cover a couple of points below linked to valuation, future growth, business agility and Organisational change.
The key questions the market is asking the business are: How are you going to wisely use your cash pile of £100 million? How are you going to account for the loss of your main recent revenue stream that has transformed the company?
1. Valuation
The current valuation of #NCYT is particularly low on two major fronts:
Market Cap - As at time of writing (Share price £1.80), the market cap is equivalent to cash position (£102 million) + £25 million for the rest of the business. For a business that has shown strong innovation and the ability to seamlessly scale up the production of world leading products, that seems low.
P/E Ratio - The P/E ratio at time of writing was also remarkably low. (1.80) / (36 M/71M) = c.3.5. This is well below the industry average of 20. If the industry average of 20 was taken then fair value for #NCYT on a P/E ratio basis would be £10.
2022 P/E Ratio - The 2022 P/E ratio should also be considered cheap. The company provided an outlook for future Covid revenues going forward and outlined they prudently expect them to half year on year going forward. Given 2021 saw revenue of c.£80 million attributed to covid we can assume this will be c.£40 million in 2022. As the company shifts towards non-covid revenue both from a manufacturing and sales perspective, I have assumed annual revenue of c.20 million. Given the current margin of c.70%, this would give a total net income of c.£40 million: (1.80) / (40 M/71M) = c.3.2. This again is well below the industry average of 20.
In summary #NCYT seems to be trading at a particularly cheap price given the large cash pile, relative market cap and low P/E.
2. Future Growth
As the business looks to accelerate growth past covid it has highlighted three key pillars of strategic growth (test expansion, geographic and instruments) underpinned by a switch from ‘product led development’ to ‘market led development’. This will essentially enable the business to produce products for particular customer needs knowing that when they take a product to market it will sell rather than the other way round. This is likely to lead to higher margin, more extensive customer relationships and a smoother supply chain.
Results showed a significant decrease in the reliance on the U.K. market which is a positive for the company as they start to diversify revenue streams both from a geographic and customer perspective (private labs vs centralised).
A key aspect which underpins the business case of the business, is the growth of the wider IVD market which is forecasted to grow from $69 billion in 2020 to $114 billion in 2030. A significant portion of this will be focused on infectious diseases and point of care testing - two areas #NCYT are market leaders in. The pandemic has moved the diagnostics forward by 5-10 years .. people now expect to be able to take tests at multiple locations and PCR is saved on autocorrect in many smartphones highlighting how comfortable people now are with the technology.
Covid will continue to drive sales for the company and will enable working capital going forward - this has always been a huge problem for the company and meant they were forced to focus on RUO tests as opposed to more profitable CE marked tests. Their war chest of 550 different types of RUO tests can now be wider commercialised driving increased sales in key areas of unmet demand (anti microbial, transplant and future diseases).
In summary the company is well positioned to capture a share of the ballooning diagnostics market through their innovative experience, world class products and regulatory expertise.
3. Business Agility
The final year results showed that the company has been resilient against a constantly changing back drop of testing requirements and resulting demand. As we have seen with other diagnostic companies, the DHSC have caused a number of problems which have been verging on fatal to some British diagnostic companies but #NCYT managed to shake off the dispute and still turnover c.£100 million which should be applauded.
The business now has a robust supply chain for product development and has significantly increased both it’s distributor network and customer base. This has largely been thanks to a focus on scaling up a direct sales force in key geographic locations starting with the U.K., expanding into Europe and with an initial focus on the US underway.
A key change outlined by the new CEO was a focus on understanding customer needs both from a current and future perspective. The simplicity of developing products that will definitely be sold rather than developing a product for a problem you think exists is something that should not be underestimated. Thus will enable better cross selling, improved commercial reputations, enhanced ability to attract talent and ultimately stronger sales performance at high margins.
4. Organisational Change
The company has undergone a significant re-shuffle in key leadership positions over the past 12 months with a new CEO, COO, CFO and CCO now in place. These are significant changes for any company to deal with, especially one experiencing significant growth during a global pandemic.
The need to simplify the business model and re-align brands under one umbrella has been called out by the new CEO as a key area of focus over the coming year. This will help the company both from a marketing angle but also from a brand reputation perspective.
Risks
Investing in #NCYT at the current price might seem compelling given the above but it does not come without risk. The company has never been in the position to spend £100 million let alone spend it wisely. How they invest this in scaling the business, organic R&D and inorganic M&A will be a key driver in long term value creation.
The other key risk is that the company fails to translate it’s market leading ability in Covid-19 product development into other diagnostic areas, thus failing to expand revenue streams and ultimately failing to scale.
Conclusion
#NCYT looks like a very attractive investment at the current price given the cheap valuation both from a market cap and P/E ratio perspective. The business finds itself in a ballooning diagnostics market and has the potential to put its expertise in innovative point of care diagnostics for infectious diseases into action across other areas aside from Covid-19. The operational agility that now underpins the business will provide good foundations as the business pivots to a commercial focused one as opposed to a product focused one. Experienced new leadership in the executive positions across the business should also help the business as it looks to accelerate growth post Covid. If the company can wisely spend their large cash pile, diversify into other diagnostic markets and effectively scale the business to service unmet customer demand then the Share Price should rise. The company should also try and stay out of Private Eye which seems to have a fixation with British diagnostic companies!
Based on the strategic update I’m estimating £60m revenues for 2022 producing ebitda of around £20m. COVID revenues to drop to £40million and non covid revenues to grow significantly towards £20million. ( not including £40 million in dispute)
The dispute being resolved will be a boon to the share either way as it is surely preventing Novacyt from being able to make acquisitions or be considered for a bid itself.
There’s clearly value here. With £100million cash at the current price of £1.67 it could buy 60million of the 70 millions shares outstanding leaving us with a company producing £20 mill ebitda. 20/10 million shares = £2 a share and then apply a multiple. Could easily see £10-20 a share once sentiment shifts.
What needs to happen for sentiment to shift. NCYT needs to show it’s more than a covid stock OR covid revenues find a stable base. It also needs to maintain revenues of £45million to avoid an operating loss and dipping into cash reserves.
Novacyt's share price was up 24% on 15/2/2022 after the company released an RNS saying: "it was notified by Biosynex SA ("Biosynex") on 14 February 2022 that, as at 10 February 2022, Biosynex's holding in the Company on a voting and capital basis is 3.0012% (2,119,627 shares)."
https://www.stockopedia.com/sh...
Why that RNS caused such a big percentage price rise is not clear to me.
Some recent news:
7 March 2022: Biosynex's holding in Novacyt has reached 5.54%: https://www.lse.co.uk/rns/NCYT...
15 March 2022: Novacyt's CFO has bought 39,670 shares in the company:
https://www.lse.co.uk/rns/NCYT...
16 March 2022: Announcement about the introduction of CO-Prep, Novacyt's automated liquid handling system designed to eliminate the manual pipetting process that was required in the PROmate Covid assay workflows:
https://twitter.com/NovacytGro...
There will be an investor webinar presentation by Novacyt's CEO and CFO at 12pm BST on Thursday, 28 April 2022.
Current or potential investors can sign up for the webinar at:https://www.investormeetcompany.com/novacyt-sa/register-investor
The investor webinar set out a 5 year plan today with a view to growing sales to £100 million from circa 35 million expected 2022. What’s interesting is they stated this is their organic growth target and that aquisitions may accelerate this. That sort of growth would see it back in £10-15 share price territory. If they deliver.
So the £NCYT Novacyt AGM has been cancelled at a moments notice due to a lack of a quorum. Dont they know how to run a company and plan for it? I wonder if they plan their drugs in the same way?
