Novacyt - general discussion

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?

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. 

There will be an investor webinar presentation by Novacyt's CEO and CFO at 12pm BST on Thursday, 28 April 2022. 

https://www.investormeetcompany.com/novacyt-sa/register-investor

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...

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.

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.

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!

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."

https://www.private-eye.co.uk/...

Today's strategy and full year 2021 trading update can be read here:

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??

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. 

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.

nice increase today.  I am sure this stock is oversold as the Stockopedia value rating would confirm 

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.

Novacyt has published its half-year 2021 results:

https://www.stockopedia.com/sh...

Here's a link to a recent 'Stock Brief' about Novacyt on Stockopedia by Keelan Cooper:

Novacyt issued an RNS today on the proposed accounting treatment of the ongoing DHSC dispute in the 2021 interim results:

https://www.stockopedia.com/sh...

The share continues to slide even though as far as I am aware there has been no adverse news since the very positive  half year update .  Have no intention of selling and am considering adding more 

Here's a video of Novacyt's recent investor event:

https://novacyt.com/investor-event-2021/

Just to square the circle, here’s a link to the SCVR of August 18th. Various comments in the discussion thread of interest about Novacyt Sa (LON:NCYT) following its trading update that will be impossible to track down in a few weeks‘ time!

https://www.stockopedia.com/co...

Gus.

Decent half year update posted this morning.

https://www.stockopedia.com/sh....

Mr. Market seems reasonably happy (makes a nice change). Shares up 15% or so in early trading.

Gus.

For anyone interested in getting information about Novacyt from the company itself, Novacyt will hold an investor meeting tomorrow, at 1 pm on Wednesday 18th August. This is what its RNS issued on 5th August says:

Novacyt (EURONEXT GROWTH: ALNOV; AIM: NCYT), a leading international specialist in clinical diagnostics, announces that it will hold an investor meeting on Wednesday, 18 August 2021, at 13:00 BST / 14:00 CEST.

Novacyt will host a presentation and Q&A session, delivered by various members of the Executive Management Team. No new trading information will be disclosed during the presentation which will focus on providing further background on the Company's operations and growth strategy, as updated in the announcement on 22 June 2021.

The presentation will be hosted through the digital online platform, Investor Meet Company, with dial-in details also available for attendees once registered.

Investors already registered to the platform and added to meet the Company will automatically be invited. If new to the platform, investors and analysts can sign up to Investor Meet Company for free and add to meet Novacyt via the following link: https://www.investormeetcompany.com/novacyt-sa/register-investor

Questions can be submitted pre-event via the Investor Meet Company dashboard up until 09:00 BST / 10:00 CEST the day before the meeting. Whilst the Company may not be in a position to answer every question it receives, it will address the most prominent within the confines of information already disclosed to the market through regulatory notifications. A recording of the presentation, PDF of the slides used, and responses to the Q&A session will be available on the Investor Meet Company platform afterwards.

Over the past couple of months the #NCYT share price has been significantly controlled by traders and MMs as Paul pointed out in early April. However, I still firmly believe this provides a patient investor with a cheap entry opportunity. There are four key positive areas and two potential areas of concern which I have laid out below. I should mention that I do hold #NCYT so please keep that in mind whilst reading although I have tried to remain impartial.

Positives

1. Fair Valuation: The current market cap and share price look cheap especially when you consider the overall market performance. Whilst writing this the market cap stands at c.£200 million which is approximately half the current cash position. The current P/E is misleading but given the recent revenue guidance (Over £100 million in FY21) and the demand for testing post COVID set to increase, a P/E of 15 in 2022 based on revenues of £70 million seems cheap given big diagnostic firms currently trade on P/Es upwards of 40. It should also be noted that #NCYT have an enviable ability to grow through M&A due to the balance sheet strength.
2. Compelling Forward Looking Strategy: The company recently released an updated growth strategy which focused on three key pillars: test expansion, instrument expansion and geographical expansion. 
   1. Test Expansion: The test expansion will focus on increasing products focused on combatting future variants of the virus whilst expanding into COVID related diseases and other non-related COVID diseases such as Sepsis. World class R&D will underpin this alongside significant working capital which previously has been a huge barrier to the growth of the company.
   2. Instrument Expansion: The recent acquisition of revenue generating IT-IS International accomplished two things: A robust supply chain and diversified revenue streams. This is a big bet on decentralised testing, making the patient journey faster, cheaper and easier. As we move away from COVID, proactive healthcare underpinned by testing will be required to manage the real pandemic across the glove - the backlog of care which will put all health systems under immense pressure. In the UK alone 14 million people require treatment ... that's roughly 20% of the population!
   3. Geographic Expansion: To further diversify revenue streams and reduce reliance on the UK market, the company aims to replicate the direct sales structure in other key markets across Europe, USA and the Middle East. Progress is already well underway in the US with a General Manager added to the Executive team, patents filed and  infrastructure built.
3. Recurring Revenue Streams: As COVID transitions to being endemic, the need for testing will continue to grow. This will include antibody testing, surveillance testing, antigen testing and genomic sequencing for variants. These continued high margin revenue streams (c. 80% gross margin) will provide the company with a constant cashflow to drive further expansion and R&D.
   
4. Strong Market Outlook: Diagnostic companies such as Roche, Eurofins etc. have all recently hit all time highs and have all upgraded revenue outlook. Commentary in trading updates has focused on post pandemic impacts resulting in constant demand for the coming years. It would be foolish to compare #NCYT to these massive companies however the market outlook remains the same for all companies - incredible growth for many years to come. We have seen this with travel, hospital trips etc. Testing will remain as lockdowns are economically unviable going forward. 

Areas of Concern

1. DHSC Dispute Hangover: Concerns still persist over the DHSC dispute. This is a significant amount of money and although he Executive team have included additional coverage in the financial outlook, uncertainty still persists which the market does not like. It is worth highlighting that the DHSC will play less of a active role going forward when it comes to purchasing products. The introduction of the NHS framework is supposed to drive dynamic purchasing agreements at the hospital / area level as opposed to the old centralised national level. However having your biggest client refusing to pay is never a good look but I do think the worst possible news is priced into the current share price. 
2. New Executive Management Team: A big question that will not be answered for some time is the ability of #NCYT to grow revenue and continue innovating at rapid pace. There have been 4/5 recent new hires to the executive team including the incoming CEO who is due to start in October 2021. How these people work together will be critical to future growth and is currently unproven. #NCYT also has a limited track record in profitability pre-pandemic largely due to working capital constraints.
   

In Conclusion, #NCYT have proven themselves to be world class innovators in the R&D space moving at pace and scale to meet a constantly changing market. The pandemic has completely changed the diagnostic market outlook and has progressed consumer trends at an exponential rate - consumers are now happy to take tests at home which previously was unheard of. A strong cash position will help #NCYT weather any storms and grow into new areas either organically or inorganically. Whilst headwinds persist this should be viewed as an incredible opportunity to buy into a company that is rich in cash, has proven R&D expertise and finds itself in a market that is braced for considerable growth over the coming years. 

Hi Forbsy,

Novacyt is certainly an approved supplier to NHS hospitals. Whether it is preferred over Thermo Fischer ($TMO) or other suppliers is another question, of course. I suspect that the preferred supplier depends on the particular application and the particular hospital.

With regards to the DHSC dispute, people might be interested in what a poster called SteveV on LSE has speculated about iton 7th August:

"I think a rough timeline of the DHSC/NCYT dispute/ scenario may be:

1 DHSC buys a lot of the original PCR tests from NCYT, with a view to handing them out to NHS hospitals

2 A lot of the NHS hospitals rejected using them because they felt they were under resourced to use the tests(lack of staff and lab facilities). DHSC are left with surplus stock.(which has a shelf life)

3 Whilst this was occurring NCYT were already developing Promate to make the work flow quicker and easier, AND without the requirement for containment cabinets within labs.

4 Whilst this was occurring the Gov decides to decentralise procurement (which they are paying for) to the newer NHS framework which comes out of individual hospitals normal budgets (so the Gov don't have to shell out any more extra money)

5 The DHSC start the dispute with NCYT because they no longer want the old tests (which are aging and not as popular as Promate is), AND, if they can get a refund from NCYT for the central DHSC budget it is saves a fortune as future costs come directly out of NHS budgets

6 NHS hospitals find they love Promate and are using whatever the can get. But eventually they run out. They could order more direct from NCYT from their own budgets BUT NCYT won't supply any more until the DHSC dispute is resolved.

Hopefully they are ALL working through a solution.!!!

I would have thought a simple way out and compromise would be for NCYT to say, IF the DHSC pay for all product ordered as per the contract they will replace any old product at cost price with Promate.
DHSC then can hand it out freely to NHS hospitals if they want ,OR, if they prefer, they could simply sell it to them until all stocks run out and then the NHS resumes ordering direct from NCYT who would be happy to supply."


To me, this seems to be a plausible explanation of the dispute.

I missed the really early moves in Novacyt Sa (LON:NCYT) and was highly reticent of chasing it higher as investor euphoria grew and grew. However, I have recently taken a position around 330p. Why?

Well, they have circa £100m of cash which is half the market cap. If they get zero sales from DHSC going forward they should still generate £150m of revenues, which should result in at least £30m PBT and probably closer to £45m. I don't see testing disappearing in the next couple of years so I can easily see cash = current market cap in that time.

Then you are left with a diagnostics company for free, which assuming it can pivot to other testing could leave it looking cheap. The network it has generated internationally should not be underestimated. This established sales channel makes it far more likely to succeed in other diagnostic testing.

Then you have any settlement from the DHSC dispute as a bonus.

Risk/Reward thus now looks highly favourable at this juncture from my perspective, so whilst I'm not looking for them to treble overnight in a wave of investor euphoria I can see a good case for 20-25% steady compounding growth over the next few years, which if I'm right, could prove to be very rewarding indeed.

Before i start to dive into the negatives, the business model and recent financial performance of this company gives them a good headwind and, subject to management's decision, going forward it has the potential to continue their track of profitability. IMO at this price, there could be value to be had in purchasing the issue.

TLDR: I was excited about this last year, but due to the recent challenges I would proceed with caution.

The CEO recent change is more of a warning sign than anything else, he has been at the company for thirteen years, and considering the recent DHSC dispute, all signs indicated to disagreements between the board that eventually either pushed Graham out or he just decided he doesn't need the hassle and just 'retired' at 54 I guess.

David Allmond, his replacement, can be the change the company needs to move them forward, and whilst he has relevant experience in the industry, he did not hold a CEO position before, which again, does not give one a lot of confidence, but everyone's got to start somewhere after all. Even so, considering his experience David could push the company forward despite all of my 'warning signs'.

Whilst Graham record is quite impressive on how he dealt with the pandemic and secured the contracts in order to stop the bleeding and turn NCYT into a profitable company, his communication with the investors and the silence prior to the failed renewal of the DHSC contract has been reflected into the 50% share price drop back in March.

We all know that testing is here to stay for the foreseeable future but that also means that the market is prone to get saturated, and if the first mover advantage hasn't faded off by now it will so in the future. The government is decentralising procurement which leaves hospitals/clinics to acquire their own supply out of their budgets. Now considering the recent DHSC dispute and the level of cronyism that is going on in the government at the moment this is not necessarily a bad thing, and can even positively impact the company as they have high quality products, they only need to bring them to the market efficiently.

I do think that the issue has been subject to trading or speculation in the market between september 20/late march 21. On forums high valuations were going about which implied the DHSC contracts contracts win, they obviously have failed to come through and pushed the share price down to its bear target. Numis has this targeted at a bear case of 450p last October, a valuation that took in consideration the loss of contract, going by that would make this an attractive issue at the current price of 300p.

No one expects a replication of the results from last year, and in time companies over-performing tend to fade towards the average. Regardless, it has gained a good amount of capital and released quality products that would synergise with the environment it operates in. The next few years will be crucial in determining how the company can respond to its recent challenges and put that capital gained to good use, since dividends are nowhere to be seen. As mentioned, I was excited about this last year, but the recent changes and challenges are causing me to me more cautious. Until the waters settle and we see some sort of stability with no lockdowns, it's hard to push a valuation on this. I do hold a position and intend to keep it if things don't turn for the worst in the next few years.

I know I have focused mainly on the downsides on here, but I'm personally in a more bearish mood than I once was regarding NCYT.

Great idea. 

They have some mighty competition, I’ll not be re-entering until the chart improves significantly.   I’d suggest taking a look at $TMO instead.   Just my 2 cents.

I bought NCYT in early July.

It has tangible value and quality.

The revenue shortfall from failure of the Govt to pay will eventually be either received or compensated by other payments.

The business model works.

Viruses are here to stay.

Beyond that I know little and do not intend to find out more. I am not expecting performance in the short term, EPS is falling. However volume is reasonable, almost a million a day, meaning it will not be forgotten.

In the sector only CLIN & SNG come close in presenting some substance but NCYT scores well above both.