Instem has announced solid H1 2019A results in our view. All three business areas performed well during the period, with the group once again reporting strength across the board. The Provantis and Notocord suites recorded impressive growth, as did SEND services. We make minor revisions to estimates following the announcement, reflecting the adoption of IFRS16, the ongoing transition to SaaS delivery and revised cost expectations.
Group revenue for the six months ending June 2019 increased by 11% to £11.7m. EBITDA was £1.7m, including a £0.3m IFRS 16 adjustment. Cash performance was strong. The net operating cash inflow of £3.2m reflected cash inflow from key contracts, outsourced services, tight working capital management and the R&D tax credit. With a closing cash balance of £6.0m the group’s financial position remains solid, having grown by £2.3m vs H1 2018.
All three business areas performed well during the period. Provantis reported a record performance for a six-month period, having won nine new clients across the world. Post-period end, Instem was awarded four Provantis contracts, worth an aggregate £1.7m. The KnowledgeScan informatics suite saw five new orders during the period, with four existing clients placing repeat orders. The SEND business continues to perform well, with material growth in order volumes for technology-enabled SEND services and 100% YoY growth in SEND revenues overall.
Financial performance continues to benefit from the twin effects of historic restructuring and the increased efficiency of the group’s technology and services. At a more macrolevel, there are a record number of drugs in the global development pipeline – a key demand driver for Instem’s services.
We make minor revisions to earnings estimates following the announcement, reflecting the adoption of IFRS 16 and revised assumptions on both the business mix and certain costs. On an underlying basis, we reduce 2019E EBITDA by £0.3m but upgrade modestly our 2020E and 2021E estimates.
Instem continues to see momentum across all of its businesses, and the favourable market backdrop gives further confidence in the growth story. Second half performance has traditionally been stronger than the first, and as we show overleaf, the H2 2019E ”requirement” appears consistent with prior years.