Today Ergomed held its annual general meeting (AGM). As expected, no new financial details were provided, although the executive chairman released a statement with a general business update. Q120 trading was good with ‘solid overall growth in revenue’ and cash generation ‘remained strong’. In Q220, Ergomed continued to grow the order book across the business and maintained its ‘revenue growth trend’. Its staff successfully adapted to remote working conditions and no employees were made redundant or furloughed. The H120 trading update will be released in July 2020 as usual, but Ergomed stated within its AGM update (June 10) that it is confident the results will be ‘in line with current market expectations’.
We recently initiated coverage of Ergomed. Audited FY19 numbers were impressive, with revenue up 26% to £68.3m and EBITDA up 5.5x to £12.5m. The order book was up 15% to £125m in FY19, which gives over 90% visibility for 2020 revenue. We believe Ergomed is well positioned to maintain a steady course through the economic crisis caused by the onset of the COVID-19 pandemic. Its services in both its contract research outsourcing and pharmacovigilance divisions are provided under long-term contracts to meet the needs of essential medical research as well as mandated pharmacovigilance requirements. Ergomed enjoys relatively low customer concentration with its top five clients representing 24.8% of FY19 revenues.
It is noteworthy that Ergomed has been engaged to provide services for two COVID-19 clinical trials in Italy. Both these studies explore potential monoclonal antibody treatments (anti-IL-6 and anti-GM-CSF) for COVID-19 patients with severe disease. Although we do not expect a material financial effect from these engagements in H120, these are high-profile trials that showcase Ergomed’s expertise. In addition, COVID-19 is a fast-moving field for clinical trial investigators and any pharmaceutical services providers with prior experience in this area will have an edge.
The next trading update is expected in July 2020, which is when we will review our estimates and update the valuation.
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