#NCYT guest post – Blackbird Investing

Disclaimer: I hold shares in Novacyt, and of course that makes me an optimist regarding its future. I am however not a financial advisor and as such the post below is merely my opinion and you should always do your own research and make your own decisions when it comes to investing.

11th April 2021

Stock: NCYT (Euronext: ALNOV)

Current share price: 424p

Market cap: £300m


At this point I think every single AIM investor has heard of Novacyt, and if you’ve found this article you for sure know who they are anyway so I’ll spare the blurb about who they are, what they do etc and get right into it. The news that landed intraday on Friday regarding disputes with the DHSC sent the shares tumbling and likely left a lot of investors with a lack of sleep to start their weekend, anticipating the future and what will happen on Monday.

Now I obviously can’t predict what the share price will do, but I can determine what my own personal course of action will be and explain why – buy and hold. It’s more important than ever in rough times to take a step back, take emotion out of the equation and get back to the basics of investing which is research. I’m not planning on holding based on some “Diamond hands YOLO” strategy, and I’m not either doing it out of pride. I’m doing it out of what I believe to be an overwhelming amount of publically available numerical data showing that this company is just way way undervalued, and that the risk to reward profile has just got a whole lot better with this drop, not worse as some believe.

For the purpose of this article, I will not be speculating on the DHSC news and trying to analyse the words to come to a speculative conculsion, I will be looking at the current and future situation from a numbers perspective.


Valuing companies on AIM is a science as accurate as crystal ball gazing, and more often than not the fundamentals of a Company seem to account for at most 5% of the valuation equation, with the remaining 95% being a mixture of so called “sentiment”, whether certain “news” outlets have posted an article (usually a strong buy signal, even if the article usually says “short”) and just plain coin flipping.

But we have to start somewhere and that somewhere is the balance sheet, especially I think with companies that are at a certain stage of maturity. And by maturity, I mean companies that are actually making money to even actually have a balance sheet worth looking at.

So quick look back to 2020. These are the unaudited numbers Novacyt ended the year with:


Now hopefully, like me you’re already thinking “whoa whoa whoa, you’re telling me this company had £277m revenue and are valued at only £300m?!”. Crazy I know.

These numbers don’t even tell the full story though of the growth of the company through the year. Let’s instead look at the split between H1 & H2 numbers:

*This is the growth in cash in H2 and does not factor in e.g cash spent on the acquisition of IT-IS

So H2 provided over 3 times the amount of each figure than H1, huge growth. Now I know what the pessimists are thinking, “yeah but that was peak covid, since Christmas its all gone down hill and the company won’t make any money anymore!”

Well luckily the main point of the RNS yesterday was to actually be a Quarterly trading update which many seem to have missed, so we now have more data to analyse and see just how bad the “drop” in revenues is. Unaudited results for Q1 2021 have come in at £72.6m. Unfortunately, we didn’t get a Q3 2020 update so we don’t know the exact split of the revenues in H2 but splitting it down the middle, and assuming ~75% of H1 revenues came in Q2 (after the covid test hit markets) the picture of the last 5 quarters is as follows:

So looking at just the last 4 quarters to create a full year of pandemic related revenue (Q2 2020 to Q1 2021), that’ll I henceforth refer to as my “Interim FY” – that’s £333.8m of revenue. And the company MCap is 10% below that.

As I said, AIM company valuations are completely disjointed from the reality of fundamentals but luckily for me, this is usually observed more in the short term, with the time eventually filtering out what’s what, and what I as an investor try to take advantage of.


A lot of the chat on various forums relating to NCYT valuation is its very low Price to earnings ratio, or the “P/E” Ratio. At this stage I’m not a huge fan of using that metric as it doesn’t take into account the absolutely huge pile of cash the company is sitting on. And it is by all measures, a huge pile of cash.

For that reason, I prefer to use the Enterprise Value/EBITDA as the calculation for enterprise value takes into account cash.

Enterprise value = Market Cap + Debts – Cash

So as we now have Q1 revenues I will keep using my special “Interim FY” in the calculations rather than 2020 FY. MCap at the time of writing is:

70,626,048 * £4.24 = £299.4m

Let’s call it an even £300m shall we?

Debts = £0, easy (however, debt ≠ always bad especially if its productive and at low interest. I personally feel NCYT should go big or go home with debt for bigger acquisitions)

To get the cash for my “interim FY” we need to do a little maths on the cash position growth from the £91.8m in Q1 2020. Starting off, we can calculate that EBITDA ratio to revenue for FY2020 was 67.5%, and in the 2020 Trading update we got the following line:

Figure 1 – quote from RNS 29/01/21

So Revenue in Q1 2021 was £72.6m, which becomes and EBITDA of £49m, which in turn becomes £39.2m pure cash added to the already massive pile.

Side note, that’s nearly half a million pounds in PURE CASH added to Novacyts bank account EVERY DAY! It’s an important observation that has to be made to understand the value of this company moving forward despite opinions on revenue direction, so important in fact I’m going to underline in, put it in bold and in font larger:

Due to the upfront cost of production ramp up and IT-IS acquisition being out of the way, the conversion of revenue to free cash flow is significantly higher than in 2020.

Don’t believe me? Just look at the numbers – £91.8m cash for all of 2020 and estimates are the company got nearly half that in the first quarter alone despite reduce quarterly revenue.

Sorry, bit of a side track from the EV/EBITDA calcs again but getting back to it we get cash = £91.8m + £39.2m = £131m

So baking it all together:

Enterprise Value = £300m +£0 – £131m = £169m

That is, again in my opinion, crazy insane low.


EBITDA is a quick one, in 2020 EBITDA conversion was 67.5% and we’re working on a revenue of £333.8m for the “Interim FY”:

EBITDA = £333.8m x 0.675 = £225.3m


So smashing these two figures together to get a ratio we get 0.75

As a number on its own, this doesn’t mean much at all, is it high? Low?. We need to compare to other companies and sector averages. Doing some good old googling:

  • Investopedia says in January 2020, the average EV/EBITDA ratio of the S&P500 was 14.2
  • Roche Holding = 11.28 (Source: gurufocus.com)
  • Thermo Fisher = 19.76 (Source: gurufocus.com)
  • Perkin Elmer = 13.94 (Source: gurufocus.com)

No the decimal is not in the wrong place.

Averaging the numbers of these 3 big players gives 15. This means at this current level of revenue, EBITDA, and cash and doing the maths in reverse, for Novacyt to also have a EV/EBITDA ratio of 15 it would have to have a MCap of £3.51 BILLION

That’s a share price of £49.69.

Ok of course that’s even in my bullish opinion a bit high of a target though as it’s especially a bit unfair to compare NCYT to huge players with multiple revenue streams, so lets instead use what is considered by Investopedia a “healthy” number of 10. This would require a share price of £33.75

What about the future

Now I can imagine the “derampers” if they were to read this (they’re probably not) would at this point scream at their monitors and furiously type on LSE “whoa who is this idiot! That’s a multibagger impossible! Covid is over! There’s no revenue left! DHSC have gone ! LFTs fo’ lyfe!!” yada yada yada.

And you know what? They have a point to a degree, who would have though. Its always good to evaluate both sides of the coin. What I mean is all this maths has been based on what is now historical returns and as the saying goes, past performance is no guarantee of future results. Who am I kidding, you all know that you’re all invested on AIM.

So we need to redo the maths to give us a range of potential options on assumptions of future revenue. So lets change some factors and recalculate.

We know from the previous RNS that of the £72.6m revenue in Q1 2021, 50% of it was DHSC. So lets assume that this is no longer applicable moving forward. That gives us a potential forward looking quarterly revenue figure in this “quieter” Covid period (in the UK at least, RoW is a different story) from private and international sales of £36.3m from private and international sales.

From here one can take several approaches, we either assume this number will:

  1. Go up quarter by quarter as the company are growing sales abroad and the private PCR sector is set to boom for international travel over summer
  2. Drop quarter by quarter as “covid goes away”
  3. Assume it will largely on average stay flat for the next year as testing requirements drop over summer but pick up again next winter

Rather than guess, let’s make a range then so we cover all bases. For the best-case scenario, I will assume Q2 2021 will have bang on £36.3m revenue which then grows by 25% quarter on quarter for the next year. For the worst-case scenario, I will start with £36.3m in Q2 and then drop the revenue 15% quarter on quarter. Why have I selected different percentages? Because we have already slashed the known revenue by 50% we are already in a predominantly bullish case, and because my personal opinion is that the former is more likely. When you do you own calculations, I urge you to use the figures you believe to be most likely. You will do your own calculations yes?

Please note, all these calcs assume that the Novacyt Group is a dragon sitting on a pile of gold, and refuses to spend any of the cash they currently have in favour of sitting on it, and also in each quarter the new cash is merely added to the pile (this changes the Enterprise value remember).

Here’s a little table outlining the “Interim FY 21 results” which would be Q2 2021 to Q1 2022. I’ve formatted such that you can try and follow along the calculations, and I’ve even also at the end shown different bullish/bearish multiples of EV/EBITDA ratio targets as this is also an unknown based on forward looking market opinion.

Again, we are trying to figure out a range of options, not a “what is it worth to the penny”.

Highlighted in yellow is the mid EV case calculated for a “healthy” company. And then averaging the bullish and the bearish cases gives a finger in the air of ~£18.50

This table shows me that potentially even in the bearish of the bearish cases, that is with a low EV/EBITDA ratio and assuming our revenue gets slashed by 50% by Q2 and drops continuously – the company is still perhaps 50% undervalued.

Keep in mind with this table that even the bullish cases slash the revenue by 50% from next quarter. This also even fits the narrative that the company outlines in the RNS that “overall 2021 revenues may be lower than market expectations”. This because he market is perhaps expecting more than the £333 over the past 12 months, and even the bullish case above only therefore assumes a £209m revenue of the next 12 months.

Another factor to keep in mind – the Novacyt Group is not a dragon. By this I mean they won’t forever be sitting on this pile of cash doing nothing, they have already said they are looking at bolt on acquisitions for the group with although will affect the companies Enterprise Value in the equations, will likely have a bigger effect on the EBITDA line. These acquisitions will also be such that they ensure this level of EBITDA remains long after Covid is gone.

Of course, with the share price being so disjointed from my calculations I have to ask myself if I have plugged in something horribly wrong. I’ll let you make your own minds up but I personally think no, as the amount I would have to tweak the input data such as revenue drop, to get to “yeah £4 is fair value” just doesn’t make sense to me.

Others may of course dispute this, and will say “your EV/EBITDA should be 2 and your quarter on quarter drop in revenue should be 40%”. But there is no strong evidence in my opinion to support that case but always happy to hear the other side of the coin. At the end of the day, undervalued companies do exist and the market isn’t always right, just look at Eurasia Mining that sat well below a penny per share despite public information being available on the resource they were sitting on.

Some Supporting data for the Bullish case

So obviously, of the options in the table I lean to the bullish case. I don’t however assume we will get to EV/EBITDA ratio of 15, and I do think until the company proves they can maintain revenues post Covid through acquisitions etc that we will be on the lower end of the range perhaps ~6-7, but I also don’t believe revenues will halve in Q2 and I think they will stay higher than the market seems to be assuming they will be without the DHSC:

Private testing

It is obvious that in the UK moving forward the cost of PCR tests seems to be set to be footed by the consumer, and not the government. This kind of makes sense as those using PCR tests will primarily be being those going on nice holidays and potentially bringing back Covid, so understandable to me that the taxpayer shouldn’t foot this bill. Also the government has been abundantly clear that the variant concern means PCR has to be used to be better safe than sorry as LFTs risk letting through false negatives. I agree also that in this case it is preferable to have false positives than false negatives.

Also, as the DHSC had clauses in their contract they had to be offered the lowest price of anyone on Primerdesign covid tests, all private tests will likely have higher margins.

Here is a link to the list of providers approved for the much stricter on quality “Day 2 and day 8” PCR test required for all arrivals. You will see the list has been updated to also include which lab each supplier uses.


It quickly becomes clear that very few specific labs are actually approved for use as all these suppliers end up sending tests to the same handful of labs, most notably:

  • Nationwide Pathology
  • Biograd
  • 20/30 labs
  • Oncologica
  • Nonacus
  • Alphabiolabs

It appears Nationwide Pathology, Biograd and 20/30 labs all use Primerdesign tests. This means that currently at least 25 of the 108 providers use Primerdesign. That is a pretty big market share in my opinion. I draw this conclusion from these sources:

Nationwide Pathology UKAS accreditation:

20/30 labs website:

Biograd employee post on Linkedin (posted by a Twitter user):

There are also many other private clinics that have been found by other investors to be using Primerdeisgn tests for other private testing applications, here is just a few I found putting nearly zero effort into Google:

Katalyst Labs






At the time of writing, other investors on twitter have uncovered many many more 3rd party suppliers.

International testing

The UK seems to be on top of cases and vaccinations for now, but that does not mean the world is Covid free. There is a big world outside the UK borders, and looking at the WHO covid meter, the second wave is unfortunately in full swing globally:

Furthermore, the company have a new Chief Commercial Officer who is based in South America. You don’t hire people on the other side of the globe in such a senior position to sell to the NHS:

Public Testing

Yes I’m actually going to dip my toe in here despite the latest news. I personally don’t believe that the government can have sufficient quantities Covid-19 PCR tests to last till 2022.

In Q4, 28 million PCR tests were conducted by the UK government. In Q1, this hadn’t shrunk as people though despite no longer being in the peak, but a higher overall daily average meant that 29 million tests were conducted. Here is a graph I have compiled from data available at https://coronavirus.data.gov.uk/details/testing. As you can see PCR testing is still very high in the UK and this could grow as the country now relaxes measures. Keep in mind, its not just those with symptoms that need to PCR test but also people like care home staff and patients in hospital for procedures and operations of which there is sure to be a huge back log.

A £35m order in Q1 is enough to buy around 3.5 million tests. At this rate of testing, that lasts 2 weeks. Of course, there are more suppliers but I believe Novacyt has held more than a 4% market share, which is what they would hold for 3.5m tests to last 365 days. My own observation is that the RNS only mentions they have bought enough PROmate, no word of what their potential plans are for SNPsig, or Pathflow.

NGOs & Other Governments

We have already seen orders from NGOs and the company have said in statements other governments also buy our products. No more needs to even be said.


I think this angle needs its own article as there is a lot of assumptions and cross referencing to look at as well as determining the case for both buyers and seller etc, but just a couple of days ago Hologic acquired Mobidiag for 18 times their revenue. Take that multiple, scroll up, and multiply it by our revenues and you;ve got one more reason I’m invested. The probability is very low, but it adds to the overall positive Expected Value I believe holding NCYT shares has from this level.



I haven’t even mentioned the ties with Astra Zeneca, the SNPsig assay, the LFTs that have been released and are currently in development. They’ll also have to wait till another day, but they all do add value.


If you’ve made it this far, well done – this ended up a lot longer than I anticipated! As shown it is my opinion that Novacyt is a significantly undervalued company even if the DHSC never orders a single additional test and even if revenues halve for the upcoming year. A situation I already find highly unlikely to materialise as people were already claiming the company would have nothing in Q1 but ended up with £72.6m in revenue.

I strongly advise people to do their own calculations on all their holdings using their own judgement on the range of eventualities that need to be accounted for. Also try and think of situations that you would otherwise not expect, take emotion out of the equation. I have some personal more specific targets on the share price at different time frames (all which remain flexible as new information is uncovered and revealed) but in the interest of “DYOR” I will not be giving these out to avoid people skim reading and then hurling abuse down the line if things go tits up. Investing is a game of probability, and probability goes both ways. My opinion at this stage though is the share is at the very least a hold, but with significant upside on the buy – hence why my holding is very likely to increase on Monday. And as new news comes out, I can update my table above e.g plugging in the true Q2 results when they arrive.

Till next time, and thanks for letting me write a guest post!

Blackbird Investing

8 Replies to “#NCYT guest post – Blackbird Investing”

  1. Thank you for this report.
    It almost exactly matches with my own assumptions and calculations.

  2. Bonjour et Bravo Blackbird, Bien que moins efficace et beaucoup moins talentueux sur le plan des calculs, j’ai publier sur les forum dans le même sens. Je reste persuadé que la dernière annonce comme la précédente en janvier ont été orchestrée à façon. je pense qu’effectivement la perte de l’extension du contrat DHSC n’empéchera pas la hausse des résultats de Novacyt pour 2021 car je suis arrivé aux mêmes choses, même en minimisant ceux-ci.
    T1=72 +T2=34+T3= 30+ T4= 30 = au total 166
    Donc Je suis entièrement en accord avec toi et j’ai déjà pris le risque en rachetant fortement Vendredi à 4,82€ il est possible que cela continue à baisser et dans ce cas je rechargerais encore.
    Bon weekend

  3. Thank you for taking the time to put the article together. Some sense through the madness. I hold NCYT and will continue to do so for the long term.

  4. Blackbird.
    Firstly thanks for such detailed research, it is very helpful and has helped flesh out my gut feel that the shares are cheap.

    One thing I think you should take into account in the calculation is that if the Q4 DHSC revenues are being disputed, this will also affect the year end cash. So to be conservative I would adjust the year end figure down.
    I suspect some agreement will be reached on the dispute as it’s clearly not in either the Governments agency or NCYT’s interest to have a protracted and costly dispute but I think a compromise will almost certainly mean NCYT having to book less revenues and therefore receiving less cash.
    This will mean the enterprise value will be affected but I don’t think it will affect the discount that you’ve highlighted but it may mean the worst case doesn’t look a ‘no brainer’

  5. Interesting analysis. Thank you.

    From the Trading Update: “Regrettably, the parties are now in dispute regarding the contract, which may have a material impact on Q4 2020 revenues. “

    Your qtrly revenues table doesn’t seem to reflect this. Did I misunderstand something?

  6. Ok – I can see what you’ve done now. “Re-starting” the prospective revenue base case from £36m looks like the right approach. You’ve captured my attention with this analysis – thanks.

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