Instem has delivered strong H1 20A results in our view. Despite the backdrop of COVID-19, all three business areas continue to perform well. Notably, the Informatics business made particularly impressive progress in the period. Management commentary on the outlook is positive and we maintain headline forecasts following the announcement. In addition, we increase our forecast FY 20E closing net cash position by £1m. This reflects revised assumptions on working capital movements in the second half.
Strong H1 20A results: Group revenue for the six months ending June 2020 increased by 20% to £14.0m, with an organic revenue growth of 12% YoY. Adjusted EBITDA was £3.0m for the period, versus £1.7m for H1 19A. Operating cash flow more than doubled to £2.7m. The closing H1 20A cash balance of £9.1m was reported prior to the £15.0m July-20 fundraise.
Solid performances across the board, Informatics a highlight: Despite the COVID-19 backdrop, all three business areas continue to perform well. The Informatics division performed particularly strongly during H1 20A, with strong organic growth in Target Safety Assessments (“TSAs”) and a first full half-year contribution from Leadscope. The Study Management business is experiencing good demand from non-clinical Contract Research Organisations (“CROs”).”), as they experience record inflow of studies from their pharmaceutical clients. In the Regulatory Solutions segment, management believes that Instem’s SEND solutions continue to be market leading.
M&A progressing: Instem raised £15.0m net of expenses in July 2020. At the time, management revealed that it was evaluating several prospects in the $2-$20m annual revenue range. The release confirms that the Board is currently progressing a range of acquisition opportunities.
Positive outlook statement: Instem continues to trade in line with the Board’s expectations and the release highlights their expectation that the momentum delivered in H1 20A will continue over the remainder of the year. With a record number of drugs in the global development pipeline, and increasing regulatory- driven growth opportunities, in our view the industry backdrop remains favourable.
Headline forecasts maintained: We maintain our headline forecasts following the announcement. However, we increase our forecast of the FY20E closing net cash position by £1.0m to £22.4m, reflecting revised assumptions on working capital movements in H2 20E.