Small Cap Value Report (Tue 29 Sept 2020) - NCYT, SNG, CLIN, SCS, DOTD, MAB1

29th Sep '20 by Jack Brumby

88 comments 12395 reads

Good morning, it's Jack here with Tuesday's SCVR.

I'm interested in quite an exciting announcement from Novacyt SA (LON:NCYT) so without further ado let's dive in!

Novacyt (LON:NCYT)

Share price: 565p (+20.9%)

No. shares: 70.6m

Market cap: £331.4m

(I hold)

Launch of COVID-19 antibody test and New UK DHSC Contract.

I’ve been wary of buying stock in companies that attach their name to the ongoing COVID pandemic but with Novacyt Sa (LON:NCYT) it seems that the transformational trading figures are already in the bag and the market is perhaps slow to acknowledge that.

This is an international specialist in clinical diagnostics whose business now sees unprecedented levels of demand. The group’s recent half year update was extremely strong and the outlook for the rest of the group’s financial year is impressive.

Jumping back to that statement:

H1 2020 sales of €72.4m and EBITDA was €49.4m, resulting from the sale of the Company's market leading PCR COVID-19 test, and
Visibility of orders for the Company's COVID-19 product portfolio suggests H2 2020 performance on track to exceed that of H1 2020

That sounds to me like more than €100m of FY20 EBITDA vs a £220m market cap at the time (£330m now) off which you can knock c£15m of cash (and probably more by end of year)

There are a couple of companies right now where it seems as though the market is struggling to price in a COVID-related transformation that the company has explicitly guided towards and NCYT is one of them (LoopUp, for example, is another - last covered by Paul here).

Anyway, NCYT has two separate updates today.

Launch of COVID-19 antibody test

NCYT has launched a new assay (ELISA: enzyme-linked immunosorbent assay) test for the detection of IgG antibodies to SARS-CoV-2 derived from plasma and serum samples.

This test complements NCYT’s existing COVID-19 product portfolio and allows clinicians to differentiate between active and prior SARS-CoV-2 infections in patients.

Novacyt has the manufacturing capacity to deliver more than three million ELISA antibody tests per month initially and is working with its manufacturing partner to ensure this can be increased.

Graham Mullis, CEO, commented:

We continue to strengthen our product offering in COVID-19 testing as demand continues and we are delighted to launch an…

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portugull

29th Sep '20

Burford Capital (LON:BUR) is a share I hold and also Litigation Capital Management (LON:LIT) as I believe there will be an increasing demand in a complex world for Litigation Finance.

Burford Capital is headed by Americans Christopher Bogart CEO and Jonothan Molot CIO and I think the listing on the NYSE will be beneficial for Burford in several ways.

The Legal Industry is being transformed and Burford is the leader in its particular field.

In the USA litigation is very common and I believe Americans will buy the shares and Burford will become better known as a result of the listing.

The Muddy Waters attack on Burford in August last year cost Private Investors huge sums but if the NYSE Lists Burford next month it suggests that the short attack dented investor confidence but did not affect what is fundamentally a great business.

Burford is maturing as a business and after over 10 years as a Listed Company on AIM has learnt some hard lessons but for the patient investor I believe the best is to come.

Cash flow will always be hard to predict but in time this business will I feel sure maintain and increase its Market Leadership spot. Listing on the NYSE could prove to be transformational.

Jack Brumby

Hi Vsihv,

All good here thanks, hope you're well too.

I've taken a look at Mortgage Advice Bureau (holdings) (LON:MAB1) - it looks like a solid business model with long term growth potential but I would hope for a better entry point especially in these markets. Who knows if that will happen though!

On the whole it looks like a quality business and one I'll do some more work on in case there is a better buy price some time in the next 12 months. Thanks for the head's up.

Phuntt

Any clinical professionals/ data scientists feel free to answer and get into this red herring debate. I personally have no idea how much testing helps fight CV19.

As an investor, however, I have noted that every reputable medical organization worldwide continues to call for more testing, every credible professional in this field I have heard speak says that we need to do more of it and the British government is spending billions on it. It seems they have decided Novacyt Sa (LON:NCYT) is worth some of that money...

https://www.theguardian.com/wo...

Nebraska1977

Jack / Paul - an idea for you. It would be great to hear your perspective on how investors should think about CVAs in the current climate given that we are likely to see a lot of them, especially in hospitality. My instinct would be to value the shares of such companies at zero but I am guessing it can be much more nuanced than that. Paul has commented extensively on Revolution Bars (LON:RBG) in recent months so it would be good to hear his perspective on the rumoured CVA for them. I am sure the topic of CVAs would be of interest to several other readers on here. Thanks

Snowbum

The PCR test is not a simple process. You need an instrument and an assay plate (the test). PCR instruments are not universally compatible with different assay plates (different developer, different assay). By offering a 'complete' solution, IMO Novacyt are now playing in the 'champions league' of Covid response; i think the UK goverment contract win confirms this. Similar players in the space would include: ThermoFisher Scientific, Illumina, Hoffman LaRoche etc.

Agree with the point raised by another that worldwide production capability for any vaccine developed (if one proves to be effective enough to gain MHRA / FDA certification) will limit the speed of any roll out, therefore testing of populations will be here for a while imo.

UK_Investor_8888

XLMedia (LON:XLM) - On "jam next year - perhaps - rather than today" results, there's a modest (depending on spread) uptick in the share price with 1,221,715 shares traded today.

JohnEustace

I think the motivation for the US listing is in part that US investors are less likely to panic and run for the hills as easily as the UK investors did in response to Muddy Waters.

Richard Goodwin

I don't think that zero is correct - otherwise they would simply be in Administration rather than doing a CVA. CVA may include negotiations on financial strength etc to share the pain but it must be better options for investors otherwise it wouldn't be used.

Camtab

I was hoping for some insight rather than just a tick down!! I am not pushing a stock I am just trying to understand why Novacyt are pursuing an antibody option. To me the key to getting people back to normal in the absence of a vaccine (which is what we really need but seems unlikely at this time) is a test in the present not the past, which suggests these antigen tests are better suited. Anyway I will leave it because I am clearly upsetting a few Novacyt share owners. The reason I have always liked this site is Paul has encouraged discussion. For the record I hold a small amount of a number of stocks in this sector having identified ages ago it will be next to impossible to spot the winners. Thanks for your help!!

Chriskay

Many thanks for this. I thought IG was only for spread betting but appears not to be the case as this is a conventional share dealing account with live pricing too.

Yusuf Samad

Jack

Thanks for your comments. If possible, could you please elaborate on your comment re the EBITDA decline being greater than expected.Best Regards#

I am just trying to understand why Novacyt are pursuing an antibody option

Perhaps there is a demand and therefore a commercial opportunity?

Once a Pharma supplier has been approved by a client there are very limited reasons for them to go through the onerous supplier qualification process for someone else if the products they want can be supplied by one already vetted.

Just my two cents of course.

Hope it helps.

Many thanks. I could live with availability issue and use them to compare price offers. On line trading platforms vary immensely and the only way of really comparing seems to be to try a few.

Rusty2

How can you compare prices if markets are not available. One problem with some of the smaller brokers is being able to sell when Things go wrong. Even selling Anglo Asian Mining (LON:AAZ) was difficult today with a major broker.

JonBirdy

Hi Jack
Thanks for your SCVR today. I have always enjoyed Paul’s reports and I really like your contrasting style and stock picks - and knowledge too of course!

john652

re Dotdigital (LON:DOTD) dotdigital

“If so, DOTD only has to coast to by default achieve a double digit% sales increase/annum. Ian”

i hold but this isnt a massive conviction because I have thought the is huge but always has been and they have never smashed it, so i have a niggling thought that they are riding the wave but with a mediocre product??

And het the edit button working in mobile stoko techies please, mi spalling isnt the beast

Hydro31

Reviewing the NCYT numbers, with the addition of the new contract we should be looking at guaranteed full year revenues of at least £223million.

H1 - 73Million

New Contract - £150 million (14 weeks till Dec)

That doesn’t include any additional sales from other parties across the globe. OR any sales of the new antibody test. Incidentally - Does anyone have any knowledge of the cost/pricing structure for this test?

The UK government contract then has a second phase of possibly a further £100 million spend which will be in the H1 2021

Current margins at 83% and presuming that holds then they will add an approximate further 180 million to the cash pile. By December they should have 200 million in cash. Current Market cap is just over 300 million.

This is by far my biggest holding now because the contracts are in... the money is in the bank. Vaccine, no vaccine, it doesn’t really matter. NCYT will hold 2/3rds of their market cap in cash.

jcardoso

Im interested in seeing an analysis to Cliq Digital Ag

Can it be an European competitor to Netflix or HBO?

abtan

30th Sep '20

Cliq Digital

For a company that own Red27 Mobile, I can't possible imagine them having any sort of future as successful as Netflix or HBO.

Some very negative comments for your perusal:

https://www.trustpilot.com/rev...

Small Cap Value Report (Tue 29 Sept 2020) - NCYT, SNG, CLIN, SCS, DOTD, MAB1

Novacyt (LON:NCYT)

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Jack Brumby

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