Instem’s trading update for the twelve months ending December 2019 confirms that all three key business areas (Data Collection, Regulatory Solutions and Informatics) are performing well. The business is expected to deliver revenue growth of c12% for the year – in line with our forecasts, and the closing cash balance well ahead of our expectations. Management commentary on the outlook is positive; we make no changes to earnings estimates following the announcement but upgrade cash forecasts.
The release confirms c12% revenue growth versus FY 2018, with improved revenue visibility and earnings quality from the ongoing transition to SaaS delivery. Net cash closed the year at £5.9m, c£1.4m ahead of our forecast (see below) and a £2.3m improvement on FY 2018.
The release confirms that all three of Instem's key business areas (Data Collection, Regulatory Solutions and Informatics) continue to perform well, with each benefitting from a positive market backdrop and strong market positioning. Growth in the SEND business remains strong, driven by a favourable regulatory environment and strong repeat business volumes. Increasing industrywide adoption of artificial intelligence solutions continues to drive growth in the Informatics division, with November's Leadscope acquisition complementing the growing demand for Target Safety Assessments delivered by Instem's KnowledgeScan platform. The Study Management business saw increased order volume and high renewal rates.
Management herald their confidence that momentum delivered during 2019 will continue into the current financial year, highlighting that continued organic revenue growth, margin improvement and accretive M&A all represent key opportunities.
We make no changes to earnings estimates following the announcement. We understand the closing FY 2019E cash position benefitted from the combined effects of: 1) option exercises (c£200k), 2) early cash collections from certain clients, and 3) a more favourable working capital position within the Leadscope business. We adjust our FY 2019E cash forecast accordingly and increase our forecast FY 2020E and 2021E cash balances by £200k in both years.