Stock Pitch - Novacyt (LON:NCYT, EPA:ALNOV)

9th Oct '20 by Keelan Cooper

123 comments 15219 reads

Novacyt was pitched to the Stockopedia Staff Investment Club (SIC) in early October. On Wednesday (8th October) shares were purchased for the club at the price of £7.24.

Novacyt has been the best performer on the UK market over the past 12 months. The shares have just reached all time highs, and shareholders this time last year have seen an astonishing 10,865% return on their investment.

The momentum has picked up in recent weeks, on the back of transformational financial results and a large contract win with the Department of Health and Social Care (DHSC) in the UK as noted in Jack’s Small Cap Value Report on the day.

Novacyt looks to be a company at the forefront of our fight against the Covid-19 pandemic at the moment, and its impressive set of financial results saw its StockRank soar from 41 to 96 last month, which meant that the company finally met all of our SIC criteria.

As a highly speculative, high flying, mid cap, we will evaluate why we decided to add Novacyt to our SIC holdings, but also what potential risks may lie ahead.

Profile/Category/Style

The company’s name is Novacyt, ticker symbol LON:NCYT and EPA:ALNOV. It is dual-listed and trades on the London AIM market and French Euronext exchanges (share capital currently split 30% UK & 70% France). The company operates in the Healthcare sector, more specifically the Biotechnology & Medical Research industry.

After a stellar year, the shares are trading just off their all time highs, at 762p at the time of writing. The total market capitalisation has just reached £538 million, putting it comfortably in the UK mid cap size group. Liquidity is not a major issue, with an exchange market size (EMS) of 5k meaning that you can invest just over £38,000 (5000 * £7.62).

The stock is categorised as Highly Speculative according to our risk ratings. So potential investors should be wary of share price volatility.

baknkRZMLeU59eAABtma1LCUZQD9iAF8VKkBlm_n5kxSqt8_2VfPXB1apcK_BPqjAZ2FpTaxjnpOrejyuQacpB8OvCA14cptUy1Rc11Bk4EKKP_kKdWuSXUvqXWqUPpkJ_UwP431

What is the opportunity style/type/classification?

Due to the strong price momentum and excellent profitability metrics, Novacyt currently qualifies as a High Flyer. However, whilst the Value Rank may languish behind the high Quality and Momentum Ranks, this might improve in the near future.

IFx8X96NQ1eC4JDOy9eVX4ine8Ui94l9Wo5MmrQW8lVUBnP_qeHAhUF37xHq2Gsnw4sqJL-2H8AtPFRU152QBjikf9oZNPSCnXM-lUUMop_7QPzQfTNUy3vZNyHX_1QIkHvXyFhI

Unlock with Email

Unlock with Google

Already have an account?
Login here

JB87

30th Oct '20

Why not just hold less of it in your portfolio?

pka

31st Oct '20

"Why not just hold less of it in your portfolio?"

That is an option, of course. But if one thinks Novacyt will perform well in the long-term if one can cope with its volatility, why hold less?

Memoimoi2017

1st Nov '20

What do you guys think of Boris Johnson's speech talking about rapid covid tests being the way things will be progressing with testing ? negative effect on novacyt price ?

Snowbum

Imo, not long term, maybe short term wrt sentiment. Rapid testing will be LAMP based testing. Diagnostic confirmation will be via PCR testing. Primerdesign supply one of the two CE marked PCR tests being used nationally in the UK, afaik.

Based on the suppliers of these tests, it is likely they will be servicing worldwide demand.

john652

relatively speaking those are low volatility but they are not really, volatile markets!

There's an article published today on the Sharebuyers website with a list of ‘COVID stocks’ that the author likes and Novacyt is the first stock mentioned:

https://www.sharebuyers.co.uk/shares/the-rise-of-covid-stocks-big-likely-winners-revealed/

Imo, more like Randox than Yourgene.

5th Nov '20

Public Health England has published a tender notice for a National Microbiology Framework which will be worth about 22 billion pounds over the next two years:

https://bidstats.uk/tenders/2020/W45/738328646

I would expect some percentage of that money will be spent on equipment and reagents provided by Novacyt. Even a very small percentage of such a huge amount would be highly significant for Novacyt's profits.

18th Nov '20

Here is some recent news about Novacyt (which I hold):

CEO acquires £497k worth of its shares:
https://www.stockopedia.com/share-prices/novacyt-sa-LON:NCYT/news/novacyt-sa-directorpdmr-shareholding-urn:newsml:reuters.com:20201112:nRSL0564Fa/

R&D update:
https://www.stockopedia.com/share-prices/novacyt-sa-LON:NCYT/news/novacyt-sa-rampd-update-urn:newsml:reuters.com:20201116:nRSP3501Fa/

To put the R&D update into some context, here is an article (on what some might consider to be a 'fanzene' website) about the interim results of the UK government's care home trial of Novacyt's products:
https://novacytinsider.com/carehome-interim/

laurie

20th Nov '20

I am having difficulty obtaining information from Novacyt, and was wondering if anyone had worked out the correct figures concerning the payout on the LTIP? This is material, as profits made from COVID 19 could be considered a windfall/temporary, and the company was not profitable before COVID. I would like to estimate the amount of cash Novacyt will have when the bonanza is over so that I can value the company more accurately.

My best guess is here, but it may be materially off, and Novacyt has not directed me to the exact terms of the phantom option scheme. I worry that obfuscation is deliberate. Is there a regulatory reason why the company cannot give an accurate statement concerning the terms of its LTIP? —

A previous poster suggested that the phantom options issued to two directors were worth 4% of the company. I have not been able to verify this despite an extensive search. I am surprised that documentation is not available on the Novacyt website. I have verified that these options would be paid in cash around November 1^st 2020 based on the grant price set on Nov 1^st 2017. Novacyt opened at 61p on Nov 1^st 2017 and opened at 10.50p on Nov 1^st 2020. I’ll use these figures as they will be close. 4% of Novacyt was c. 1.5 million shares (…assuming that 4% of the company is correct, that this 4% was based on the share count on Nov.1^st 2017 and not based on the market cap Nov 1^st 2020, and is not altered by any warrants, convertible bonds, and contingent consideration, etc.). So 1.5 mil times (10.50-.61)= c14.8 million pounds payout in cash to two directors for the LTIP.

I have no doubt that the company could meet this bill on Nov 1^st. I am slightly concerned about the size of the payout, but there is no question that management has been quick to seize an opportunity here. The company before COVID did not look like it would survive, and was riddled with dilutive warrants and convertible bonds, and burdened with loans and contingent consideration. Most, if not all of this has been paid off, unfortunately resulting in serious dilution.

Here is my correspondence with Investor Information at Novacyt, including information in italics taken from RNS:

Dear Mandy Cowling,

How much cash did the LTIP payout? I am having difficulty calculating this from available information.

Can you confirm that this was paid on November 1st?

Are there currently any other LTIPs in existence?

Thank you,

Laurie xxxxxx, private investor

Long Term Incentive Plan

Novacyt granted certain employees 'phantom' shares under a long term management incentive plan adopted on 1 November 2017. The exercise price is set at the share price on the grant date and the options will be settled in cash. The options will fully vest on the third anniversary of the grant date.

Dear Laurie,

The current LTIP scheme is explained in our Annual Report & Accounts (see 2019) https://novacyt.com/financial-reports/#1600339350926-e05b413e-b49a

The pay-out under this scheme in 2020 will be disclosed as part of the 2020 accounts.

Kind regards,

Mandy

Yes, I saw that, but there isn't enough information to work out how much the payout was. My estimates varied between £23million and a bit over £29 million paid to two directors this November. I suppose I can ask if my estimate is correct by posting on a bulletin board or public share blog, but I would rather have accurate info from the company. Was it 4% of Novacyt's market capitalization on Nov. 1st, minus c. 58p a share?

Long Term Incentive Plan Novacyt granted certain employees to purchase shares under a long-term management incentive plan adopted on 1 November 2017. The exercise price is set at the share price on the grant date and the options will be settled in cash. The options will fully vest on the third anniversary of the grant date. The payment expenses are calculated under IFRS 2 “Share-based payments”. The accounting charge is spread across the vesting period to reflect the services received and a liability recognised on the statement of financial position

Morning,

Apologies if our answer is not detailed enough but we are not prepared to disclose further details in relation to the LTIP at this stage. These amounts will be disclosed in full as part of the 2020 accounts when they can be viewed in the context of our overall financial performance.

Westway001

22nd Nov '20

If they turn in full year profits of £300m plus (might be £400m plus) then who is complaining? Not me. They have earned it in my view.

29th Nov '20

https://www.independent.co.uk/news/health/coronavirus-rollout-of-rapid-testing-machine-in-english-hospitals-to-be-halted-b1762732.html
Bit of a row going on about this article in the Independent. There is a statement in the article itself that the government refutes the headline, has no plans to replace the machines (which have been validated) and is continuing the rollout. One wonders how journalists can get away with it.

2nd Dec '20

There was an RNS today saying funds managed by Blackrock now own 3.54% of Novacyt's shares:

https://www.stockopedia.com/share-prices/novacyt-sa-LON:NCYT/news/novacyt-sa-holdings-in-company-urn:newsml:reuters.com:20201202:nRSB3086Ha/

22nd Jan '21

Novacyt (which I hold) is expected to provide information about its 2020 annual revenues before the end of January, i.e. sometime next week:

https://novacytinsider.com/2020revenue-expectations/

They have also released a new Covid testing product called Promate which is easier to use in non-laboratory environments:

https://novacytinsider.com/promate-revealed/

4th Feb '21

Novacyt's new testing product, Promate, which is easier to use in non-laboratory environments, has now been validated by the UK government:

https://www.gov.uk/government/publications/assessment-and-procurement-of-coronavirus-covid-19-tests/coronavirus-covid-19-serology-and-viral-detection-testing-uk-procurement-overview#products-in-the-pipeline-tvg

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/957995/TVG_Report-PROmate.pdf

As I wrote previously, there is a useful article about the significance of Promate here:

https://novacytinsider.com/promate-revealed/

In my opinion, this increases the probability of Phase 1 of DHSC's contract with Novacyt being extended and also of Phase 2 being awarded.

Here are links to last week's trading update from Novacyt (which I hold) and to an RNS it issued earlier this week about new test products it has created which can detect and distinguish between the new Covid variants:

https://www.stockopedia.com/share-prices/novacyt-sa-LON:NCYT/news/novacyt-sa-full-year-2020-trading-update-urn:newsml:reuters.com:20210129:nRSc2952Na/

https://www.stockopedia.com/share-prices/novacyt-sa-LON:NCYT/news/novacyt-sa-launch-of-pcr-assay-portfolio-urn:newsml:reuters.com:20210202:nRSB6347Na/

ls2g08

5th Feb '21

I have been reading that it will take up to 7 years for the globe to reach herd immunity. That to me means we will still have travel restrictions and testing requirements for nearly the next decade. While that is a incredibly depressing thought, I guess it will be good for Novacyt.

Ref: https://www.bloomberg.com/grap...

7th Feb '21

Novacyt's house broker SP Angel has issued a new note on the company following its recent trading update:

https://novacyt.com/wp-content/uploads/2021/02/SP-Angel-Update-04.02.2021.pdf

Wilbraham

8th Feb '21

Thanks! I blow hot and cold . The savage drop around the recent trading update and lack of institutions buying-in dents confidence that this is more than a one-trick pony. Looking at the SP Angel numbers, a very crude, cautious, guestimate per share would be:

Cash at 31.12.20: 130p

'Underlying'/'Sustainable' business: EPS 65p x P/E 10 = 650p

'Windfall' 2021 EPS: 130p

which totals 910p, not a lot above the current 780-800p range.

Clearly the Windfall element could be a lot higher, but news on the large DHSC contracts is still awaited. Phase 1 may be extended; phase 2 might happen. Against that, there seems a clear push in the UK towards rapid LFT testing and the decline in new cases (now 20 to 25% a week, looking at Worldometers figures for each day compared with 7 days ago) is strong, despite the more transmissible new variants, and that's before the main benefit of the vaccination program. Margins I'd guess are more likely to fall than rise with any new contracts. The UK may wish to encourage more competition, given the publicity over some covid-related contracts. I know Novacyt Sa (LON:NCYT) say they have an LFT nearing release - this should be materially 'better' than existing LFTs (otherwise they would have stopped development). So they may have a new revenue channel for mush of 2021. PCR testing for travellers may also extend the runway and this should be a high-margin activity. International sales may take up a fall in UK revenues but international competition is surely strong. The Winterplex thing sounded a winner a few months ago, but flu sounds to have been largely eliminated this year, so perhaps there's not much demand.

As for the Sustainable element, there's massive uncertainty. They clearly have the ability to develop a suite of new diagnostic tests rapidly, but arguably are a new player in an existing pool, competing with established firms. SP Angel suggest somewhat north of 10% pa EPS growth after 2023 (which they project as slightly lower than 2022) and obviously a higher P/E would be warranted if they can achieve that - but I don't see it as a given that they will at this early stage. Interesting also to read the weak update from Yourgene Health (LON:YGEN) whose sp rose on covid testing hope sin the summer but has now dropped far back.

So I'm left thinking it's all too difficult - there's such a range of possible outcomes! Never say never, but I'd hope the downside isn't too far below the current sp.

As for 'Novacyt Insider ' - I'm very wary. Why should someone go to the expense of developing and updating a flashy website unless it's to ramp the share price? I don't see a lot of critical views. And 'Insider' is a worrying term in a share trading context!

24th Feb '21

Novacyt (which I hold) issued an RNS today with what I think is a very encouraging research and development update:

https://novacyt.com/wp-content/uploads/2021/02/Novacyt-RD-Update-24.02.2021-correction-ENGLISH.pdf

Kifran10

21st Apr '21

Hi, Does anyone know if the Club still hold this share? The recent news were bad however I believe ( hope) a recovery can happen and the risk/reward ratio is attractive. Cheers

Stock Pitch - Novacyt (LON:NCYT, EPA:ALNOV)

Profile/Category/Style

Unlock the rest of this article with a 14 day trial

About the Author

Keelan Cooper

123 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...