Novacyt – Testing is here to stay

With Covid19 still dominating global headlines, thought it time to update the valuation charts to reflect the role test/trace/isolate is having as we attempt to unlock communities and repair the economic damage.

Novacyt have launched two new products in June, Exsig™ Covid-19 Direct and Exsig™ Mag

Both of these are designed to enhance workflow in the lab. Exsig™ Direct is an innovative and proprietary RNA extraction reagent that removes the need for complex, automated magnetic extraction systems. Exsig™ Mag is Novacyt’s RNA extraction reagent containing magnetic beads to be used in laboratories which still wish to run their automated RNA extraction systems. , along with a third new product, a high throughput test called COVID-19 HT (details to be released at time of writing)

This seems to be a natural development from their gold standard PCR test launched earlier this year. Making easier the compatibility between other manufacturers’ products.

The development I think changes the game though, is the mobile COVID-19 testing solution. As per recent RNS, we know it is a combination of Exsig™ Direct and the COVID-19 test optimised to run on the Company’s proprietary q16 and q32 instrumentation. The mobile COVID-19 system will launch in July 2020.

Why am I interested in this above all else? Simple, if they can open up new markets, they increase sales. Having the gold standard Covid-19 test available where it is needed, will enable large scale events to take place again with confidence. Already we are starting to see this trend develop. Whether it is countries insisting on a recent Covid-19 antigen test result (Tunisia), or Airlines seeking ways of ensuring passengers are safe to travel (Emirates in Pakistan), the need to conduct more testing is apparent.

Mass testing will work best if it is done by professionals, using kits that are as close to 100% accurate as possible. Done in places where large numbers of people wish to congregate. If a small 5% sample is taken at every event, followed up as quickly as possible by a trace and isolate service, we can unlock the world to some extent and focus on hotspot areas as they flare up rather than a mass lockdown scenario.

Valuation Update

If testing continues at current levels, it would inevitably fall through competition alone. The new product range will enhance the attractiveness of PCR testing again, recognising the near 100% accuracy compared to other as yet unproven methods. This will offset decline to some extent, but launch of mobile testing will provide additional revenue through 2021 and maintain margins.

This could result in EBITDA around £390m for FY 2020, and £520m for FY 2021. After taxes, a large cashpile around £700m would be generated for the company to invest or return as dividends.

At current predictions, a conservative price of £5.80 per share by end of FY 2020 and then £10.45 per share by end of FY 2021 seems a minimum based on cash and little sentiment.

Next update remains key – if they are closer to £200m in revenue these predictions will gain greater accuracy, otherwise happy to remodel as appropriate.

Appendix – chart data in full

 Test Capability 2020 * inc new products
 January  February  March  April  May  June  July  August  September  October  November  December 
 Tests (m) 002481012141212126
 Cumulative 00261424365062748692
 £m Revenue 001751119204306425527629731782
 EBITDA £m 008.525.559.5102153212.5263.5314.5365.5391
 Test Capability 2021 
 January  February  March  April  May  June  July  August  September  October  November  December 
 Tests (m) 14181814101010108642
 Cumulative 14325064748494104112118122124
 £m Revenue 119272425544629714799884952100310371054
 EBITDA £m 59.5136212.5272314.5357399.5442476501.5518.5527
second wave   

What will the next RNS contain?

As entertaining as it is seeing the bot flies neutralised on certain websites, thoughts should be more to the positive, ie the next RNS and events ahead.

I’ve got a few contenders I’d like to see, in no particular order :

1. Fuller Explanation of reasons for suspension, CITIC engagement letter signed off and a date for trading to resume (could be amazing – ie bidding process starting)

2. Licence approval at WK – Tipil (seems to be done deal judging by website updates as per screenshot below)

3. Flanks approval at MT (the game changer for reserves)

I don’t think we will see more board appointments, but always open for a pleasant surprise. Some of the theories I’ve seen and heard :

a) 2 stage bidding round with 8-9 firms interested
b) special situation funds x2 taking a min 3% stake and TR1 announcements soon after relisting
c) PGM hedge funds interested in purchasing a stake
d) other banks trying to outdo CITIC and VTB to get involved as not so many M&A deals this year