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EKF H1 interims to June are in line with the detailed update in July and our revised estimates. Although revenue was flat overall, the quality has improved with better margins and growth from the focus areas of hematology and BHB. The outlook for fermentation is improving with the indication that a significant partnership is targeted by the end of the year and a pipeline in discussion. EKF is undervalued based on the core business, with significantly reduced risk compared to recent years in our view. It is trading at a significant discount to diagnostic peer group multiples with the potential for further upside should fermentation contracts materialise.
EKF Diagnostics Holdings plc
The EKF trading update is broadly in line with expectations, albeit revenue is flat, as the lower margin products continue to roll off and there is a slight currency headwind. However, the strategy is resulting in improving margins and the company is demonstrating stronger growth in the key product areas, hematology and BHB, in addition to good cash generation. Discussions on contracts for the fermentation facility are progressing and these could generate upside for future years. The shares remain undervalued trading at a 28% discount to diagnostic peers.
A solid H1 update characterised by strong growth from the key Haematology and BhB ranges, good cash generation and a building pipeline of opportunities. The increased focus on higher margin products and services is paying off and cash generation remains strong. We make no change to our forecasts and look forward to a further update at the Interims in September. The shares remain attractively valued on 8.2x EV/EBITDA, falling to 6.6x, supported by a 5%+ FCF yield and a strong and growing net cash position. We reiterate our Buy recommendation of 37p Target Price.
The EKF AGM statement indicates trading in the early part of the year is in line with management expectations with headwinds from tariffs and exchange rates manageable. Encouragingly the pipeline for contract manufacturing and fermentation has ‘significantly improved’ with a number of high value prospects in discussion . Cash as at 9th May is £15.7m, following the completion of the £1m buyback. The shares remain undervalued, with delivery in the face of headwinds looking achievable.
The new EKF five-year strategy is aiming for sustainable growth with a ‘stretch target’ of 10% revenue and EBITDA 12% CAGR 2024-29. Well funded for the relatively modest investment proposed to deliver this growth EKF is also commencing a £1m buy back. EKF is good value at the current price, trading at a significant discount to peers. The strategy makes for a more interesting investment prospect, albeit we do not expect the new focus to translate to a significant uptick in growth until 2027.
Results are in line with the update provided in January and confirm a significant improvement in cash generation. The outlook remains robust, with management bringing greater commercial focus to bear on the key Haematology Point-of-Care portfolio and driving growth in Life Sciences. We make no change to our forecasts other than to reflect the additional investment in the commercial team. This shows sustained double-digit profit growth as margins benefit from the increased focus. In this context, the recent sell off looks overdone and the valuation is compelling. We reiterate our Buy recommendation and 37p TP.
FY results are in line with consensus revised following the January trading update. As expected, revenue has declined slightly due to the discontinuation of low margin product lines, but this in combination with further cost savings, results in a step up in EBITDA margin and improved cash generation. The outlook is more focused on growth than recent years, with the new 5-year strategy bringing the expectation of investment in hematology, BHB and commercial operations to improve the longer term growth rate. The more forward-looking approach is encouraging, the shares cheap on all metrics.
Following a slightly weak trading update in January we expect EKF to report in line with the revised consensus. A reduction in low margin product has resulted in a rapid improvement in EBITDA margin over the past year and also strong cash conversion. Ending the year with £14.3m cash the company now has options on how it drives future returns for shareholders. The results give management the opportunity to update the strategy, with options including internal investment, M&A or a share buyback.
The FY trading update was slightly light on our forecasts in both revenue and EBITDA. However, EKF demonstrated strong momentum in both margin improvement and cash generation in 2024 with YE cash substantially ahead of expectations. This puts the company in a good position to move on from its transitional/reset phase and return to a focus on growth. The final line of the update indicates a more forward-looking approach than seen from EKF for some time and with a highly cash generative, stable platform as a base we see a more interesting outlook. As a consequence, todays share price fall looks overdone.
The strong improvement in margins and cash generation evident in H1 continued into H2 as self-help measures and strong execution from management took effect. Whilst revenues were slightly behind expectations, this is down to an acceleration in the decline of non-core low/no margin product lines and as such, the impact on profitability was muted. The key highlight was stronger than expected cash generation and the significant improvement in the strength of the balance sheet over the year. As a result, the board is looking at options to deploy excess cash to increase shareholder value via accelerating growth and/or returning cash to shareholders. We look forward to hearing more details on this at the prelims in late March. We stay at BUY, with an unchanged TP of 39p.
Interims results show a strong improvement in margins and cash generation as a result of self-help measures and strong execution from management taking effect. The outlook remains positive, with H2 looking well underpinned by orders already received in the Point-of-Care division and further growth from the newly commissioned Life Sciences manufacturing plant in South Bend. We make no changes to our forecasts at this stage and flag the mid-teens EBITDA growth outlook and attractive earnings multiples as being supportive of the investment case at currently share price levels. We reiterate our Buy recommendation and TP of 39p.
EKF interims show H1 revenue fractionally light, but EBITDA ahead and encouragingly strong cash conversion compared to our estimates. FY is expected to be in line with market expectations. However, although operationally performance is significantly better than in recent years, we are mildly disappointed with the core point of care performance, and conversion of interest in the fermentation facility is slow. Order timing is responsible for some of the discrepancies and a strategy for internal use of South Bend has potential. The shares remain cheap, but near-term rerating unlikely.
Interims from EKF are expected on the 17th September. We expect results to build on the strong July update and reiterate the improving margins and a return to strong cash flow as the business resets, through terminating low margin activity and streamlining its cost base. The diagnostics operation remains at a discount to peers with the fermentation facility remaining as upside, a positive update on the latter could deliver significant upside.
A solid trading update, showing delivery on revenues, improving margins and better cash generation shows the restoration of EKF to pre-COVID levels of growth and profitability is in sight. EKF remains cheap compared to peers on the core business alone, with further upside possible from success with the new fermentation facility, though this will take longer to come through. We update our estimates to include the better profitability and cash.
EKF is now showing clear evidence that the increased focus on core products is having a beneficial impact on gross margins, earnings growth and cash generation, building on the initial positive signs from Q1. H1 Adj EBITDA is expected to be at least 20% up YoY, backed up by strong cash flows, with £5.1m generated in the period. This improvement is expected to be sustained into H2 and, as a result, management remains confident in the full year outlook. We make no material changes to our forecasts at this stage and look forward to a further update at the Interims on 17th September. The shares remain good value on <11x FY24 EBITDA falling to <9x, with a 6% FCF yield. We stay at Buy, with an increased TP of 39p.
EKF has released a trading update ahead of its AGM which takes place later today. Overall Q1 trading is in line with management expectations with the improvements in both EBITDA and cash generation expected during the year on track. Despite the enthusiastic tone of the statement we maintain our forecasts, but increase our target price to 37p (previously 35p) putting the company on a par with diagnostics peers on a EV/EBITDA basis. Trading for the first quarter is in line with management expectations, following the discontinuation of low margin products during 2023. High margin product lines have demonstrated improved performance as expected. BHB sales increased 7% on Q1 2023, closer to historic growth rates following a disappointing performance in the prior year due to destocking. Following the disruption the switch to White Label contracts with both Thermo Fisher and Cardinal is now having a positive impact giving increased confidence in FY performance. HemoControl sales have returned to growth, growing 12% in the quarter. A resumption of orders from key distributors in Peru in addition to the reopening of Womens and Childrens clinics in the US have both contributed to the improvement in performance. This bodes well for the FY following a slower 2023. Fermentation services at South Bend continue to progress. Work continues with both existing and new customers. Sales are up 156% year on year, albeit from a very low base, but the company has reiterated guidance for a gradual build up of revenues. We are forecasting sales of £3.0m for FY 2024 (£0.1m FY 2023) from the South Bend facility, weighted towards the second half. EBITDA margins in Q1 increased 20% over Q1 2023, this is a strong start to the year. However, Q1 is the easiest comparative as EBITDA margins strengthened throughout 2023. Our estimates currently assume an 11% increase in EBITDA margin for the year as a whole to 21.5% (18.6% FY 2023A). The statement does not give a figure for Net Cash, but notes an improvement from the year end (FY 2023 £4.7m). Dividend payments from Russia continue, steadily reducing the amount of cash tied up in the region. In addition, EKF has received the expected $2.7m tax refund from the US. In our view, EKF is good value on the basis of the core business alone (the point of care division and BHB sales) with no contribution from the new fermentation facility. We expect the shares to respond as the point of care division returns to historic growth rates and the new fermentation facility begins to deliver. We increase our target price to 37p (previously 35p) as the improvement in both BHB and HemoControl sales underpin our FY estimates. Our 37p is equivalent to a 3.2x multiple of sales (30% discount to peers 2024E) and 14.8x multiple of 2024E EBITDA (in line with peers FY 2024E). In 2024 we do not expect the South Bend fermentation facility to contribute positively to EBITDA, hence the remains as upside to our valuation. We believe shares will be driven by continued delivery on profitability and clarity on progress with fermentation.
EKF reports a positive start to the year, as the focus on higher margin and higher growth potential areas begins to pay off. Initially, this is being seen in improving margins and Adj EBITDA in Q1 is reported to be up ~20% YoY. Key business lines in both Point-of-Care (HemoControl) and Life Sciences (BhB) have both returned to growth and activity levels in the new fermentation facility are scaling up as expected. We make no change to our forecasts at this stage, but should the current trading patterns be sustained, we should be in a position to upgrade later in the year. Even on our conservative estimates, EKF trades on an FY24 EV/EBITDA of 10.9x, falling to 8.8x in FY25 (equivalent to a 3% FCF yield, rising to 5%). We therefore reiterate our Buy recommendation and 36p TP.
EKF FY results mark the end of the post-pandemic transitional period in our view. The company has restructured, reset expectations and restored its growth trajectory. In addition, the completion of the South Bend fermentation facility gives a second pillar for expansion, with early indications of demand encouraging. We update our estimates and maintain our 35p target price. We believe risk to forecasts is now on the upside, with much of the Point of Care revenue underpinned by longer term tender contracts, BHB sales back to long term growth rates following a change in contract with Thermo Fisher, and no confounding revenues from COVID. In addition, a pipeline of early contracts for the new fermentation facility gives increasing clarity to the potential revenue build. The windfall from the pandemic unbalanced underlying operations and has taken some time to unwind. A restructuring removing close to £3.5m from the COVID inflated cost base is now largely complete, resulting in margin recovery which we expect to continue into 2024 due to both annualization of the cost savings and an ongoing in-depth review of expenses. Cash conversion is also improving. Increasing utilization of the fermentation facility offers the potential for further expansion in margins in addition to revenue growth. We assume only £3m of revenue in FY 2024, building to £10m over the following two years, close to capacity. Reaching these levels is dependent on success of scaling production to 14,500L. The first batch is expected to be run in June, if successful, with appropriate yields, capacity could be reached earlier. However, the technical hurdles of scaling from 3,000L to 14,500L are not inconsiderable and more than one run may be required for optimization. In our view EKF is good value on the basis of the core business alone (the point of care division and BHB sales) with no contribution from the new fermentation facility. We expect the shares to respond as the point of care division returns to historic growth rates and the new fermentation facility begins to deliver. Following update to our forecasts we maintain our 35p target price. This is equivalent to a 3.0x multiple of sales (29% discount to peers 2024E) and 14.0x multiple of 2024E EBITDA (10% discount to peers FY 2024E). We believe shares will be driven by continued delivery on profitability and clarity on progress with fermentation.
Underlying growth in-line with January trading update EKF has this morning announced FY’23s in line with our forecasts and consensus, with revenue and adjusted EBITDA of £52.6m (-21% YoY) and £10.4m (FY’22: £14.9m), respectively. As previously flagged, the YoY decline represents former Covid-related revenue. As highlighted in the full-year trading update on 29th January, the core Point-of-Care (POC) and β-HB manufacturing businesses (the latter as part of the Life Sciences division) delivered steady growth (+2.1% and +2.0%, respectively). FY’24 outlook flags expected gradual increase in fermentation revenue Although fermentation revenue declined YoY due to the timing of customer shipments, the capacity expansion project is now complete, and increasing order intake is expected over the coming year. The site is expected to be running at close to optimal capacity by the beginning of 2026. The company expects the increased focus on higher-margin products to drive EBITDA margin enhancement in FY’24, in line with our expectations. Our view An in-line FY’23 result, flagging a positive outlook for the existing core offering and scope for increasing economies of scale in US fermentation. We expect a 5-year CAGR in revenue and adjusted EBITDA of 8% and 12%, respectively. We place our target price under review and reiterate Hold.
EKF’s FY23 results are in line / slightly ahead of expectations. Growth drivers remain intact in both Point-of-Care and Life Sciences and, with a greater focus on core products, margins should continue to improve from here. This is key to supporting a re-rating and we see considerable value at current levels. With profit forecasts unchanged, we roll forwards our valuation to FY24 and increase our TP to 36p, reiterating our Buy recommendation.
FY results are in line on revenues and slightly ahead on profitability and cash. This is driven by a significant improvement in margins in H2, following cost cutting measures. A more focused operation, with discontinuation of less profitable product lines is expected to result in a continuing improvement in margins into 2024 and beyond, though potentially more measured top line performance in the near term. EKF looks circa 30% undervalued on the basis of the Point of Care division alone, encouraging progress with customers in the new fermentation facility offers the potential for further upside. Emerging from its transitional period EKF is well positioned for a return to more consistent performance and a strengthening cash position. EKF Diagnostics FY results to December are in line with revenue expectations and slightly ahead of both EBITDA and cash (See Table 1). Overall revenue was £52.6m (£53.0m PG est and consensus), a decline on FY 2022 (£66.6m), which included COVID related revenue. Excluding COVID and discontinued Clinical Chemistry operations, sales were flat at £48.7m (£48.6m FY 2022). Headwinds in some product lines disguise strong performance from core products. Point of Care, underlying revenue £32.4m (+3.5%, 70% sales). Performance in Point of Care has been consistent overall with outperformance in key products balanced by some predictable headwinds. In hematology revenues increased 2% with particularly strong performance from Diaspect Tm, +34%, driven by sales into Africa and the Egypt Vision 2030 programme. EKF is encouraging use of this device in some markets, contributing to the fall in sales of Hemocontrol, which declined 5%. This is also attributed to the late reopening of Women, Infants and Children (WIC) clinics in the US post-pandemic and the timing of some new tenders. Diabetes products declined 3%, with strong performance from Quo-test and Quo-Lab (+19% and 6% respectively) being moderated by exchange impact on Biosen sales. Sales of the latter are primarily in Russia, as such the growth opportunity is currently limited. EKF’s position in Point of Care continues to be strong with a 10% increase in consumable sales over the year, with over 95 million test consumables sold and 12,000 analysers. Tender activity overall has strengthened with EKF seeing substantial contracts from multiple different countries and across different product lines; the EKF Link data connectivity platform, launched in mid-2022, has increased the win rate. Life Sciences, underlying revenue £14.8m (-2.6%, 30% sales). Life Sciences includes both BHB reagent and fermentation revenue. BHB sales grew 2% in the year, well below its historic CAGR, as transfer to a new white label contract with Thermo Fisher resulted in some destocking, this is expected to reverse in 2024. The white label agreement with Cardinal continues. In addition, the company discontinued a portable BHB instrument, which it had not supported for some years. This has been replaced with a whole blood meter currently showing good growth. Fermentation revenue declined slightly due to the timing of shipments to customers at the year end. Transfer of fermentation activities from the Elkhart site to the new facilities in South Bend is now underway, this is expected to improve margins in 2024, due to the increased scale of the fermenters available. The South Bend site has been operational since October, with two customers in active engagement. Three fermentation runs have been completed. The company is on track to at least meet our current £3m revenue estimate for the facility in 2024, and expects to be close to optimal capacity by 2026. Gross margin recovery. The ongoing reorganization of the portfolio has resulted in an improvement in gross margin, which increased from 45% to 36% (underlying), with a particularly strong uplift in Q4 which we expect to carry into 2024. A winding down of Clinical Chemistry activities (£1.7m revenue to be discontinued) and further manufacturing automation should aid the improvement. Cost savings improve EBITDA margin. A focus on operating costs, which had expanded significantly during the pandemic period, has resulted in circa £3.5m of savings during 2023, from both headcount reduction, a rationalization of sites and the disposal of ADL Health. This resulted in EBITDA coming in slightly ahead of our expectations at £10.4m (£10.0m PG estimate and consensus) and we expect this to carry forwards into 2024. We expect to update our estimates shortly. EBITDA margin rose to 19.7%, there is room for further gains to reach closer to pre-pandemic levels of 27%. Improved cash conversion H2. The improved margins are reflected in an improving cash conversion in H2, with group Net Cash coming in ahead of our expectations (£4.7m vs £3.0m PG estimate). £1.7m remained in Russia at the year end (£2.4m FY 2022), EKF has released £0.4m over the past six months. The company paid a dividend of 1.2p, £5.4m, in December 2023 relating to FY2022. A decision has been taken to pause future dividend payments. We see this approach as prudent given the current macroeconomic environment and limited yield. EKF is trading at around 2.5x core sales of £48.7m, this is 30% below diagnostics sector multiples (3.6x EV/Sales, 14.1x EV/EBITDA), leaving the fermentation activities as upside. We believe the demonstrable progress within this new facility is likely to result in a rerating of the shares as the year progresses, which look good value even without this contribution. We believe the clearer guidance provided alongside the results could increase confidence in this delivery.
EKF is expected to announce FY results to December on the 20th March. Following a comprehensive trading update in January we expect the focus to be on the outlook for the newly opened South Bend fermentation facility which is expected to drive top line growth. In addition, we expect an update on progress towards tighter cost control enabling delivery of the the expected improvement in margins. EKF Diagnostics released an update in January which indicated that trading for FY 2023 was in line with management expectations. Our forecasts, in line with a tight consensus, assume revenue of £53.2m, and EBITDA of £10.0m for FY 2023E. The company noted Net Cash at the period end of £4.4m, slightly ahead of our £3.8m expectation. Headline revenues will show a fall, as revenue for FY2022A was £66.6m due to COVID related sales which did not recur in 2023. However, we expect the company to report an underlying growth rate of at least 4.5%. The trading update did not give any clarity on divisional performance, only noting that revenue growth from the PoC division and BHB sales remained steady. In H1 2023 these products grew 12.8%, PoC +8% and BHB growing at 26%, aided by a particularly weak comparative period. We do not expect overall growth rates to reach this level in H2. The new fermentation capacity generated its first revenue at the end of 2023. Purchase orders for precision fermentation services in the new facility have since been received and a number of customers continue to be on-boarded. However, no details on scale, value, type of customer or likely recurrence have yet been given. The company anticipates ‘a steady build of revenues’ through 2024. Revenue growth is likely to be measured due to the time taken to scale up production for a new customer to the largest fermenters. We understand it is the ability to manufacture in the largest size fermenter (14,000L) which is attracting customer interest. Currently we assume £3.0m of new fermentation revenue in 2024, on top of the revenue currently generated at the older Elkart site. This older site is expected to be closed over the next 12 months with contracts moved across to the new South Bend facility, removing the need for further investment in the Elkart facility. Guidance on progress with this facility is key to a rerating. We expect the company to report EBITDA of £10m, though the slightly higher than anticipated cash position, may indicate a slight outperformance. We anticipate an EBITDA margin of 18.8%, a fall on both 2022 (22.2% FY 2022) and significantly lower than the pandemic (27.4% FY 2019). We expect an update on cost cutting initiatives at the results; these are expected to result in improving margins from 2024 onwards. However, we currently expect it to take until at least 2025/2026 for margins to return to pre-pandemic levels. In particular, we look for confirmation that the closure of the Clinical Chemistry operation, expected to complete in 2024, is on track. This is expected to have a positive impact on EBITDA. EKF is trading at around 2.5x core sales of £46.3m, this is 30% below diagnostics sector multiples (3.6x EV/Sales, 14.1x EV/EBITDA), leaving the fermentation activities as upside to the current share price. We believe demonstrable progress within this new facility is likely to result in a rerating of the shares, which look good value even without this contribution. Clearer guidance on the performance of this division at the results could increase confidence in this delivery.
A succinct FY trading update from EKF indicates that trading for FY 2023 was in line with management expectations. The trading update does not give any indication of divisional performance, only noting that revenue growth from the PoC division and BHB sales remained steady. We believe clarity on outlook for 2024 is required for the shares to perform, but they remain good value in the interim, attributing no value to the new fermentation facility. We maintain our BUY recommendation. A succinct FY trading update from EKF indicates that trading for FY 2023 was in line with management expectations. Our forecasts, in line with a tight consensus, assume revenue of £53.2m, and EBITDA of £10.0m for FY 2023E. The company notes Net Cash at the period end of £4.4m, slightly ahead of our £3.8m expectation. Guidance for 2024 is expected to be announced alongside the results in March. Our £53.1m revenue expectation compares to £66.6m FY 2022. FY2022 included £15.6m of COVID related revenue which did not recur in 2023, therefore we estimate an underlying growth rate of at least 4.5%. Consensus and our forecasts assume EBITDA of £10.0m for FY 2023, giving a margin of 18.8%. This is substantially lower than that achieved in 2019 prior to the pandemic (27.4% FY 2019). The cost base was significantly expanded during the pandemic period and the company has only recently taken steps to address this aggressively. The higher than expected cash position gives us confidence that 2023E EBITDA may ultimately prove to be slightly above current consensus. We expect improving margins from 2024 onwards, but expect it to take until at least 2025/2026 for margins to return to pre-pandemic levels. In particular, the closure of the Clinical Chemistry operation, expected to complete in 2024, not only simplifies the business but also should have a positive impact on EBITDA. The trading update does not give any clarity on divisional performance, only noting that revenue growth from the PoC division and BHB sales remained steady. In H1 2023 these products grew 12.8%, PoC +8% and BHB growing at 26%, aided by a particularly weak comparative period. We do not expect overall growth rates to reach quite this level in H2. We believe EKF’s success in its point of care division is because of the relatively limited competition, we expect this to continue as the markets are not sufficiently large to attract interest from larger players, and EKF’s dominant share makes it difficult for smaller operators to compete. It is not a high margin industry therefore there is little room for maneuver on pricing. Faster growth is expected to be generated through the Lifesciences division as the new fermentation capacity is brought on line. The first revenue generating batches were run at the end of 2023. Purchase orders for precision fermentation services in the new facility has since been received and a number of customers continue to be on-boarded. However, no details on scale, value, type of customer or likely recurrence have been given. The company anticipates ‘a steady build of revenues’ through 2024. Revenue growth is likely to be measured due to the time taken to scale up production for a new customer to the largest fermenters. We understand it is the ability to manufacture in the largest size fermenter (14,000L) which is attracting customer interest. Currently we assume £3.0m of new fermentation revenue in 2024, on top of the revenue currently generated at the older Elkart site. This older site is expected to be closed over the next 12 months with contracts moved across to the new South Bend facility, removing the need for further investment in the Elkart facility. EKF is trading at around 3x core sales of £46.3m, this is 20% below diagnostics sector multiples (3.6x EV/Sales, 14.1x EV/EBITDA), leaving the fermentation activities as upside to the current share price. We believe demonstrable progress within this new facility is likely to result in a rerating of the shares, which look good value even without this contribution. We expect the company to give clearer guidance on the performance of this division at the results in March.
FY trading update indicates trading and cash in line with expectations EKF Diagnostics has this morning released a trading update, highlighting FY’23 revenue and adjusted EBITDA in line with management expectations, with net cash at period-end (excluding lease liabilities) of £4.4m, in line with our £4.0m estimate. The scale-up of fermentation capacity continues to progress, with a steady build-up of revenue expected through 2024. Our view We look forward to higher visibility on the fermentation revenue trajectory at the time of FY’23 results, expected in late March. We are not making any changes to our estimates at this time. We place our recommendation and target price under review.
EKF’s in line FY23 update should reassure the business is back on track, with continued growth from the established Point-of-Care and B-hB businesses, and new customers onboarding into the Life Sciences fermentation plant, after the site opened in Q4. We make no change to our estimates at this stage and continue to see further upside to the shares as the core business continues to grow and capacity in the new facility is filled. We look forward to further updates in due course and reiterate our Buy recommendation.
Solid long-term performance from the core product lines has been maintained, with mid-single digit growth expected to continue. The new fermentation facility is progressing towards completion, we believe following rebased guidance estimate risk is to the upside. New/returning management are focused on returning EKF to historic levels of profitability, as the higher cost base accumulated during COVID is brought back under control. The execution risk is already in the price, with the shares looking good value based on the (very consistent) core product lines. We update our estimates for revised guidance, resulting in a fall in TP to 35p (prev. 45p).
Interim results are slightly ahead of our revenue expectations but light on profitability, with costs expected to be a focus of management. The core business continues to perform well, more than justifying the current valuation and the new fermentation facility is expected to come on-line in late October, with some revenue now expected to be booked in 2023. Management maintains FY guidance.
Interims are in line and show strong growth from key product lines, which bodes well for future sustainable growth. Having already rebased our FY23 estimates to remove any contribution from the delayed South Bend facility, we reintroduce FY24 & FY25 forecasts to reflect the revised schedule of revenues ramping up. These show group revenues on an improving trend and EBITDA margins strengthening towards 22%. The shares trade on an FY24 EV/EBITDA multiple of sub-10x, falling to 8x in FY25. There is clear value at current levels and, at ~25p, we believe there is a strong buying opportunity.
Trading in line with recently revised expectations Revenue for the period was £26.9m (-28% YoY) with underlying (non-Covid) revenue of £24.9m (+7% YoY) and adjusted EBITDA of £4.4m vs. £9.7m in H1’22. Today’s results follow post-period trading updates on 26th July and 12th September, highlighting a strong point-of-care (POC) performance (H1’23 revenue £16.6m, +10% YoY) during and after the period, with trading in the Life Science division (£8.5m, -44% YoY) supported by continued strong Beta-Hydroxybutyrate (BHB) reagent sales. As previously announced, however, only limited revenue from the fermentation capacity scale-up project is anticipated during the current financial year (although a first purchase order has been signed), with a steady build-up of fermentation revenue expected over FY’24. Guidance (issued on 12th September) for FY’23 revenue and adjusted EBITDA of around £53m and around £10m, respectively, remains in place. Reiterate Hold Today’s well-flagged results are in line with our expectations, and we are not making any changes to our estimates at this time. We look forward to higher visibility on the fermentation revenue trajectory in due course. We reiterate Hold, target price 25p.
Operational fermentation delays: The trading update on 12th September highlighted that, due to initial validation and verification requirements, only limited additional revenue is expected in FY’23 from the ongoing scale-up of fermentation capacity in the US. As a result, EKF expects to deliver FY’23 revenue of around £53m with adjusted EBITDA in the region of £10m. A strategically sound investment: The upscaling of manufacturing capacity represents a core element of EKF’s post-pandemic growth strategy, first unveiled in June 2021. We continue to believe that the investment in fermentation capacity is strategically sound, against a backdrop of market capacity shortage in mid-scale bioprocessing. However, the project has been the subject of management change, cost overrun and several delays. Forecast downgrade, move to Hold. As shown overleaf, in anticipation of more detail on customer contracts, we take a more conservative stance on the short-to-medium term fermentation revenue trajectory. We stress that our FY’24e-25e estimates are somewhat indicative at this stage, and subject to further revision based on additional information expected at the time of EKF’s upcoming interims on 26th September. Our updated DCF-based valuation implies a target price of 25p (from 42p). We move to Hold.
Yesterday’s unscheduled trading update from EKF downgraded 2023 guidance due to the new fermentation facilities taking longer to come on-line than expected. This is disappointing, though a known risk to forecasts, however the change in guidance suggests some additional impact of inflationary pressures. We expect more clarity at the interims on 26th September. The clarification of management situation, with a new CFO and greater commitment from the Executive Chair, gives some comfort these issues can be addressed. The core business continues to perform well, this more than underpins our target price, hence we believe the shares remain good value despite the challenges.
Despite continued strong revenue growth from the existing Point-of-Care and Life Sciences activities, it is now apparent the new capacity expansion programme for enzymes fermentation will not contribute to revenues this year. As a result, management is now guiding to FY23 group revenues of ~£53m and Adj EBITDA of ~£10m, both around £4m lower than previous expectations. We update our forecasts accordingly and expect more information around the shape of the revenue ramp up in FY24 at the upcoming interims later this month
Trading update flags fermentation revenue delays EKF highlights that due to initial validation and verification requirements, only limited additional revenue is expected in FY’23 from the ongoing scale-up of fermentation capacity in the US. As a result, EKF now expects to deliver FY’23 revenue of around £53m (vs. our £57m forecast) with adjusted EBITDA of approx. £10m (vs. our £13.7m). In addition, Julian Baines has confirmed that he will remain Executive Chairman, and the process of recruiting a new Chief Executive Officer will be halted. Finally, Stephen Young (formerly interim CFO of Trellus Health) has been appointed CFO. Our view Although we remain positive on the outlook for the point-of-care business, the fermentation scale-up in Indiana represents, in our view, an important growth area for EKF, hence delays are disappointing. We place our forecasts, target price and recommendation under review.
EKF diagnostics H1 trading update to June was in line with the Board’s expectations and slightly ahead of our estimates, showing strong performance from the core business. Build-out of the new fermentation facilities continues and is expected to drive faster growth from 2024. Although there remains some uncertainty on timing of completion, which gives downside risk to our 2023 EBITDA, we maintain our forecasts for the moment. The shares look good value on the core operations (Point of Care and BHB); fermentation potentially provides significant upside from 2024. We reiterate our BUY recommendation and 45p target price.
H1 performance is reported to be in line, with double digit underlying growth in revenues and capacity expansion in Life Sciences on track for a Q4-23 launch. As previously flagged, results this year are expected to be more H2-weghted than usual, with the FY23 results dependent on the timing and value of new contract wins and continued growth and margin improvement elsewhere. We make no change to our forecasts at this stage, but will review more fully at the interims in late September. Irrespective of the FY23 outturn, the set up for FY24 remains on track, when the group should benefit from the first full year of growth and margin improvement initiatives and on that basis, the shares continue to look highly attractive, trading on 7x FY24 EV/EBITDA and a 6% FCF yield.
Refocusing on the core - the Point of Care, Central Laboratory and Life Sciences operations – plays to EKF’s historic strengths. Although construction of the new fermentation facilities is slower than hoped, in our view the shares look good value based on the core business alone, with the new South Bend site offering the potential for substantial upside from 2024 onwards. We retain our BUY and 45p target price.
Positive POC and Central Lab momentum. FY22e revenue and adjusted EBITDA were -19% and -44% YoY, respectively, in line with indications in the trading update on 6th February. The results highlighted, in particular, strong positive momentum in Point-of-Care / POC (+13%) and Central Laboratory (+11%), offset by continued weakness in Contract Manufacturing (-78%) and Laboratory Services / ADL (£2.5m FY22 revenue vs. £1.0m in Q4 2021). In Life Sciences (+60% to £3.2m), the capacity expansion project in Indiana is well underway, with installation of the largest (14,500l) fermenter anticipated in Q3 2023. As a result of the restructuring, £17.5m of exceptional costs were incurred in FY22, including a £9.8m impairment of ADL Health assets (acquired in Q3 2021), and we expect a further £1.8m charge in FY23e. Active forecasts reinstated. Our new forecasts, shown overleaf, reflect the business change first outlined in the trading update on 6th February, in addition to FY22 results and the sale of the Advanced Diagnostic Laboratory (‘ADL Health’) subsidiary, announced on 23rd March (which we reflect as a discontinued operation from FY23e). Valuation implies Buy. Following significant consensus downgrades over FY22, the shares are trading at an approximate 30% discount on FY24e P/E to a global peer group of suppliers of diagnostic and reagent products and services. We believe the discount could close, over time, assuming increasing commercial traction in enzyme manufacturing in line with guidance and continued positive core business momentum. Our revised DCF-based valuation implies a target price of 42p. Buy.
FY22 results are in line with revised estimates. Management continues to intensify its focus on the growing, profitable and cash generative Point-of-Care and Life Sciences activities, where confidence in the latter opportunity is increasing. We make some modest changes to our forecasts to reflect further streamlining post-period end and point to the strong growth outlook from FY24 onwards. We believe this is being overly discounted by the market and view the shares as being in deep value territory and presenting a compelling entry opportunity.
EKF Diagnostics FY results are in line with our downgraded expectations post the February trading update. The business is to be refocused on the core the Point of Care, Central Laboratory and Life Sciences divisions, significantly simplifying the structure, and playing to the company’s historic strengths. We believe this should enable consistent performance over the longer term. In our view, the shares look cheap based on the continuing core business, excluding the potential upside from Life Sciences expansion. We retain our BUY recommendation and 45p target price.
FY’22 in line with indications in the February trading update FY’22 revenue was £66.6m (vs. £81.8m in FY’21), with adjusted EBITDA of £14.9m (£26.5m), in line with indications in the trading update on 6th Feb. Cash & equivalents at period-end stood at £11.6m (£2.4m of which restricted as held in Russia), post a £3.9m share buyback and £4.4m of primarily expansionary CapEx in Indiana during the period. Results highlight continued positive momentum in the core Point-of-Care (£30.8m revenue, +13% YoY) and Central Laboratory (£14.5m revenue, +11%) segments. In Life Sciences (£3.2m revenue vs. £2.0m in FY’21), the capacity expansion project in Indiana is progressing broadly on track with previously revised guidance, with an acceleration of growth expected post validation of the largest (14,500l) fermenter, currently anticipated in Q3’23. As previously announced, the slower than originally anticipated transition to non-Covid revenue in Contract Manufacturing (£9.5m revenue vs. £36.3m in FY’21) and Laboratory Testing (£2.6m vs. £1.0m in FY’21, post the Sept’21 acquisition of ADL) constituted a drag on YoY financial performance during the period, and measures are underway to reduce costs and improve operating performance. The disposal of ADL was announced on 23rd March. Our view The core POC and central laboratory segments, combined with the ongoing capacity expansion in Life Science, represents, in our view, a solid platform for growth, with strong positive momentum into 2023. Our forecasts, recommendation and target price remain under review.
EKF has announced a clean solution has been found for the non-core Laboratory Testing business ADL Health, selling the business back to one of its management team. Having pared back our estimates for this division in February, we expect no further material impact on earnings from this move. Strategically, we view it as positive, removing a distraction and further re-focussing activities back towards the core established Point-of-Care & Central Labs business and the growing new Life Sciences activities, where the attractions are significant. We will update our forecasts at the FY22 results on Tuesday next week. After recent weakness, the shares are in deep value territory and offer a strong buying opportunity, in our opinion.
EKF Diagnostics is expected to announce FY results to December 2022 on 28th March. We expect the headlines to highlight a fall away in COVID-19 sales, with our estimates showing a reduction in both revenue and profits following the slowdown in pandemic related sales at the start of the period. The February 2023 trading update highlighted continued growth in the core point of care division, but a slower transition to the post-COIVD model, with delays in the build out of the of new contract fermentation facilities and slower introduction of non-COVID diagnostic tests in the Laboratory Division. We expect results to give greater clarity on the outlook for 2023 and beyond. The price fall since the update means, in our view, the shares look good value despite the delays. We reiterate our BUY and 45p target price.
EKF is using the cash windfall from activities during the pandemic to expand its activities in fermentation, laboratory services and contract manufacture. The transition is taking longer and costing more than initially anticipated and consequently we downgrade our estimates. However, we believe the long-term vision remains attractive, and the core Point of Care division continues to perform. Management changes should go some way to increasing focus on the problem areas, and the share price has fallen sufficiently to incorporate the longer timelines, hence we retain our BUY recommendation, though we reduce our target price to 45p (previously 60p). We look to H2 2023 for evidence the broader transition is on track.
EKF has issued an FY22 trading update, with the established Point-of-Care and Central Lab segments growing strongly and ahead of expectations, but growth initiatives coming through slower than forecast. CEO Mike Salter has stepped down, but will remain with the group to focus on delivery of the latter, with Julian Baines returning temporarily as Exec Chair whilst a new permanent CEO is recruited. We pare back our growth expectations in FY23, with additional cost saving measures underway to protect margins. We expect a strong return to growth in FY24. The business has made significant strides in repositioning its offering post-pandemic, and we view the current share price weakness as a Buying opportunity.
Strong point-of-care and central laboratory performance, offset by lag in contract manufacturing and non-Covid testing EKF Diagnostics has this morning released a FY’22 trading update, highlighting a revenue performance in line with market expectations but with EBITDA slightly below expectations as a result of growth in non-Covid related Laboratory Testing and Contract Manufacturing lagging previous expectations. Meanwhile, the core Point-of-Care and Central Laboratory segments delivered a strong performance, which is expected to continue into FY’23e. Net cash at period-end stood at £11.4m, below our £14.0 forecast, mainly as a result of higher capital expenditure relating to fermentation capacity expansion in Indiana, the total cost of which is now expected to be $14.2m vs. $9.7m previously. In addition, delivery of the largest (14,500l) fermenter has been delayed, with installation and validation now expected in July 2023 (from early 2023). £2.4m of the cash at year-end was held in Russia (in EKF’s 60%-owned subsidiary O.O.O. EKF Diagnostika) and cannot be distributed at this time due to external restrictions. Mike Salter will step down as CEO with immediate effect to focus on optimising operational performance in Services and the delivery of key growth initiatives, including the ongoing fermentation capacity expansion. Deputy Non-Executive Chairman Julian Baines will temporarily assume the role of Executive Chairman until a permanent CEO has been found. Our view Although the delivery and installation of the largest fermenter (under the terms of an agreement with ABEC, a leading provider of bioprocessing solutions) will be delivered later and at higher cost than previously expected, we continue to believe that the investment is strategically sound, against a backdrop of market capacity shortage in mid-scale bioprocessing, as illustrated by a strong YoY organic performance in Life Sciences (+60% YoY). The slow growth in new business uptake in contract manufacturing and laboratory testing is disappointing, and we expect more detail of the outlook for this, and other business lines, to be released with FY’22 results in late March. We place our forecasts, recommendation, and target price under review.
EKF is in a transitional period, with COVID revenues falling away post Q1 2022, and the uplift expected from investment in the Life Sciences division yet to come through. However, as the year progresses the risk is reducing, with the new fermenters delivered, installation on-going and early discussions with potential partners beginning to result in small scale pilot studies for technology transfer. In our view the shares are 26% undervalued based purely on the existing core, excluding the future growth in Life Sciences. We believe progress towards the new revenue stream from Life Sciences adds the potential for further upside which we expect to begin to crystalize from the turn of the year. We maintain our 60p target price, BUY.
EKF results were in line with the July trading update, showing a good recovery in the underlying business, whilst headline figures show the shortfall as COVID revenues declined. Progress in building the new fermentation facilities, which are expected to drive growth from 2023, remain on track. The transition is progressing well, and with guidance maintained we believe the company remains well positioned for future growth. We retain our BUY recommendation and 60 target price.
Interims show a strong underlying performance with “core established” revenues +11.5% in the period. As previously discussed, the business is in the process of transitioning away from Covid-related work and implementing the growth strategy of the new management team. Initial indications are positive and investment plans are on track, which should set the business up for strong growth in FY23 and beyond. We make no material changes to forecasts and continue to see substantial potential upside on successful execution. We stay at Buy with a TP of 60p, offering a potential TSR of 50%.
H1s in line, reflecting business transition. As reported in the trading update on 1st August, revenue for the period was £37.5m (-2.8% YoY) including £3.5m of non-recurring revenue. Adjusted EBITDA (before £1.7m of transition-related exceptional charges) was £9.7m, with adjusted PBT of £5.8m (£4.1m reported). Net cash (incl. lease liabilities) at period-end stood at £17.2m. Divisional trends as expected. POC diagnostics (37% of H1 revenue) performed strongly (+9.7% YoY) supported by a normalisation of testing patterns and the launch of EKF Link. Central Laboratory revenue (17% of H1 total) was flat YoY, held back by a temporary, fully resolved β-HB supply issue. In Life Sciences, the planned capacity expansion in the Indiana facility remains on track. Laboratory Testing revenue (for the first full 6 months of CLIA laboratory ownership) was £2.1m, with multiple assays planned for near-term launch. Finally, as expected, Contract Manufacturing revenue (23% of H1 total) declined by 51% due to the fall in Covid testing. Minor forecast changes. For FY’22e, we add the £3.5m non-recurring item to trading revenue but leave adj EBITDA materially unchanged, excl. a further forecast £(1.5)m exceptional in H2’22e. For FY’23-24e we make minor adjustments to revenue mix, leaving total revenue and P&L financials broadly unchanged. We continue to expect the upscaling of life science manufacturing capacity in particular to drive top-line growth and margin enhancement. Attractive valuation, reiterate Buy. Our 10-year DCF valuation implies a target price of 96p (from 94p). In our view, the strong cash generation and growth potential outside the Covid space is not recognised by current discount multiples (FY’23e P/E 21.8x vs. 25.7x for the global peer group). Buy.
EKF interim results are expected on 20th September. We expect a positive update given the July trading statement which indicated that the company was on track to meet FY expectations for both revenue and EBITDA. However, headline numbers will show a decline, due to the strong COVID driven comparative period. We expect management to focus on the core business growth and update on the investment in the new fermentation facilities. EKF is currently trading at a substantial discount to the diagnostics peer group. We believe this is unjustified given underlying performance and the progress towards driving faster growth through investment of the COVID windfall. We reiterate our BUY recommendation and 60p target price.
EKF has reported a strong H1, with revenues of £37.5m and double-digit growth in underlying non-Covid related business. Management reports it is trading in line with expectations for the full year and we make no change to our profit forecasts at this stage. New growth initiatives are proceeding to plan and should lead to accelerated core growth from FY23 onwards. We continue to see substantial upside on successful execution with the shares trading on an FY23 P/E of 13.1x and an EV/EBITDA of just 6.8x, supported by a FCF yield of 6%. We stay at Buy, with an unchanged TP of 62p.
EKF trading update to June 2022 highlights the company is on track to meet FY expectations, indicating it is successfully navigating the transition from its pandemic activities. The company is currently trading at a substantial discount to the diagnostics peer group. We believe this is unjustified given underlying performance and the progress towards driving faster growth through investment of the COVID windfall. We reiterate our BUY recommendation and 60p target price.
Solid H1’22 trading update. Trading since the AGM trading update on 18th May has remained strong, with H1’22 revenue of £37.5m (vs. £38.6m in H1’21), including £3.5m of previously reported, non-recurring Covid-related inventory revenue, and adjusted EBITDA in line with expectations. On an underlying basis (excluding all Covid-related revenue), H1 revenue growth was in double digits. Strong cash position. Net cash (excluding IFRS16 Leases) at period-end stood at of £18.9m (vs. £19.6m at the FY’21 stage); notably, this is post the previously announced £3.9m share buyback and £2.5m investment in VericiDx. Progress across all business areas. Sales in EKF’s well-established Point-of-Care and Central Laboratory businesses made further gains in Q2, supported by post-Covid recovery in healthcare activity. Meanwhile, Contract Manufacturing and Laboratory Services are showing encouraging signs of commercial traction outside the Covid space, in line with expectations. In Life Sciences, the installation of larger-scale fermenters remains on track and are expected to drive significant revenue growth from FY’23e. Attractive valuation, reiterate Buy. EKF has been repositioned for sustainable growth in the diagnostic products & services space, and the company’s strong cash generation and potential for growth outside the Covid space is, in our view, not recognised by current discount multiples (FY’23e P/E 20.0x vs. 27.2x average for a global diagnostics & reagents peer group). We leave our forecasts and DCF-based target price of 94p unchanged.
The AGM statement indicates that 2022 is continuing in line with expectations and the post-pandemic transformation remains on track. The company has a clear strategy to expand the business beyond Point-of-Care into contract fermentation and redeploy its pandemic acquired contract manufacturing expertise into new areas. EKF is currently trading at a substantial discount to the diagnostics peer group which we believe is unjustified, and we expect the shares to outperform as the company transitions to the new strategy. We retain our BUY recommendation and 60p target price.
AGM statement strikes a confident tone EKF has this morning confirmed a strong Q1 performance, and trading in line with expectations for the full year. Importantly, strong progress is being made to re-position the business as a provider of a range of high-quality products and services in the broader diagnostics space. Sales in EKF’s well-established Point-of-Care and Central Laboratory businesses were higher YoY in Q1, supported by post-Covid recovery in healthcare activity. Meanwhile, Contract Manufacturing and Laboratory Services are being re-positioned for growth in non-Covid related areas, with encouraging signs of commercial traction. Finally, in Life Sciences, the installation of new fermenters is on track and expected to drive significant revenue growth through to 2024 and beyond. Valuation attractive vs. peers: reiterate Buy We are not making any changes to our estimates at this time. We continue to believe that normalising demand patterns in the life science and diagnostics industry will drive sustained demand for EKF’s offering, with a continued near-term tailwind from higher level of point-of-care testing post-Covid. In our view, the company’s strong cash generation and potential for growth outside the Covid space is not recognised by current discount multiples (FY’23e P/E 18.6x vs. 24.4x average for a global diagnostic peer group). We reiterate Buy.
Following in-line results for 2021, 2022 should be a transformative year, with new management, a refocusing away from Covid and expansion into new areas. As evidence of growth in the new divisions (specifically Life Sciences and Laboratory Services) comes through we expect the shares to outperform. We reduce our target price to 60p (previously 87p) in line with our revised forecasts.
EKF has delivered very strong FY21 results, ahead of upgraded expectations. The core business is performing well (+14% YoY) and the investment in expanding the offering is beginning to pay off. However, pandemic-related sales look likely to slow materially and ongoing sales into Russia are proving difficult. We rebase our forecasts accordingly, reducing our FY22E revenue & EBITDA by 26%/40% and by 17%/25% respectively in FY23E. We adjust our TP to 62p (from 86p) and would view any share price weakness as a strong buying opportunity.
FY results to December were in line with our expectations and consensus. Underlying performance of the core business was strong and it is now trading above pre-pandemic levels; though a change in divisional reporting makes year on year comparison challenging. In addition, new management is taking a much more cautious approach to COVID related revenue guidance, essentially assuming no revenue post Q1 – this will result in a dramatic (25%+) reduction in consensus estimates, though should provide a clearer indication of underlying growth. In the meantime, a circa £4.0m buyback announced today should support the shares, although following the recent fall these look good value even assuming one third of current 2022 consensus profit relates to COVID.
FY’21 results slightly ahead of estimates. Revenue for the year was £81.8m, in line with our £81.6m forecast, with adjusted PBT of £21.5m and adjusted EPS of 17.7p being 5% and 8% ahead of our estimates, respectively. The solid performance has continued through Q1’22, with revenue for the quarter broadly flat YoY. Worsened outlook for contract manufacturing. Customer orders for Covid sample kits (previously expected -35% for FY’22e) from key customers have reduced dramatically, and we take a more conservative view on the expected transition into non-Covid applications (in part through EKF’s partnership with a leading, global distribution company). Steps have been taken to right-size the cost base, and EKF plans to, over time, instead expand its laboratory service offering with at-home testing for a range of chronic conditions. Forecast downgrades, mitigated by buyback. We have reduced contract manufacturing revenue from £36.3m in FY’21 to £10.0m in each of FY’22e and FY’23e (from £27.6m and £21.3m, respectively), removing all Covid-related contract manufacturing revenue from FY’23e. In addition, we have removed £3.5m of expected Russia & Belarus revenue (primarily from the Diabetes point-of care business). The impact on forecasts, summarised overleaf, is mitigated at the EPS level by a planned up to £4m share buyback, announced today. Strategic repositioning for value creation. Although the near-term contract manufacturing outlook is disappointing. EKF has, in our view, been re-positioned for sustainable growth in the diagnostic products & services space. With estimates cleansed from Covid exposure, we see forecasts as conservatively framed, and reiterate Buy with a revised TP of 94p.
We expect EKF Diagnostics to announce FY results on 29th March. We expect the company to report a strong outturn to 2021, and expect this to have extended into Q1 2022. This will be the first formal results from the new management team, and we expect the statement to focus on the longer term strategy and new areas of growth, including expansion of the fermentation facilities and contract manufacturing. The shares look good value and we believe the broader platform offers the potential for more diversified growth. We reiterate our BUY recommendation and 87p target price.
We upgrade our estimates following EKF’s positive trading update earlier this week. The company has benefited from the pandemic, ending the year in a strong cash position, and with a broader business base. Sample collection kit revenue continues to grow, and though some slowing is likely as the pandemic eases, we do not expect this until the latter half of 2022. New management come in with a focus on new areas of growth, including expanding fermentation capabilities, contract manufacturing and acquiring an in-house diagnostics laboratory. The shares look good value and we believe the broader strategy offers the potential for more diversified growth. We reiterate our BUY recommendation and 87p target price.
Continued strong trading means FY21 results will be ahead of upgraded expectations. Trading in the core business is reported to be robust and demand has persisted for the group’s sample collection devices through to the end of the year. Further investment is expected in FY22 to drive core business growth, which remains a key strategic objective for the new management team. Last week’s announcement of a strategic partnership with Yourgene will help broaden the offering and underpin future growth expectations of the recently acquired ADL Health business. Having upgraded several times over the course of the year, we push through a further 2% upgrade to FY21 PBT/EPS. We reiterate our Buy recommendation and Target Price of 86p.
EKF has announced a partnership with Yourgene Health. EKF is to use its newly acquired CLIA laboratory to supply non-invasive prenatal testing (NIPT)services into the US. We maintain our forecasts for the moment, though believe the extension of services positions EKF well for trading post the pandemic. We reiterate our BUY recommendation and 87p target price.
We believe EKF will see a long-term benefit from the pandemic. It has used the rapidly changing environment as an opportunity to capitalize on its regulatory and manufacturing expertise in diagnostics. The recent diversification into CLIA certified laboratory services, through the acquisition of ADL Health, gives vertical integration which could bring additional opportunities. We upgrade our estimates and raise our target price to 87p (previously 74p) and recommendation to BUY (previously HOLD).
EKF has made its first acquisitive move under the revised strategy, acquiring ADL Health, a USbased CLIA-accredited diagnostic service laboratory. It is paying $10m up front in EKF shares, with a performance-based three year earnout. In the 6m to Jun-21, ADL generated $6.3m revenues and $2.6m EBITDA giving an attractive initial purchase multiple of 1.3x Revenues and ~2.0x EBITDA. The acquisition provides EKF with a platform to complement and broaden the group’s existing diagnostic capabilities and should enhance its overall growth prospects.
EKF has announced interim results in line with expectations. The core business has returned to growth, contract manufacturing has performed strongly and there is better visibility of revenue over the longer term, leading to increased investment. In addition, EKF is expanding its CDMO facilities with a $9m investment offering a new growth opportunity. We see the outlook as increasingly positive.
EKF has delivered another strong set of results, with the step change in the scale of the business firmly consolidated. H1 revenues increased 46.5% driven by an ongoing recovery in the core business and strong demand from a number of public and private sector customers for sample collection devices. The outlook remains positive and progress is being made against the new strategy set out earlier in the year. We upgrade our FY21 revenue forecasts by 7% and EBITDA by 13% noting this still implies an H1 weighting to results, which may again prove to be overly conservative. With growth opportunities on a number of fronts, we continue to see a strong investment case for EKF.
EKF Diagnostics is expected to report interim results on 14th September. We expect the company to use the opportunity to provide more detail on its revised strategy as it invests further in its CDMO activities. A recovery in point of care diagnostics, in addition to continuing strong sales of PrimeStore, point to a strong first half and high cash generation; cash also being aided by the performance of the Mount Sinai spinouts. However, mid-term forecasts remain at risk as sales are highly dependent on specific revenue streams. With the revised strategy at an early stage we maintain our 74p TP and HOLD recommendation ahead of the results.
We are significantly raising estimates, but there remains risk to forecasts as sales are highly dependent on specific revenue streams. EKF is taking advantage of the windfall from COVID and its Mount Sinai relationship to shift away from its core point of care diagnostics to new potentially faster growth areas, adding enzymes and contract manufacturing as a further growth platform. However, with the strategy at an early stage we upgrade our TP to 74p (prev 65p) but retain our HOLD.
EKF recently unveiled a strategy for driving growth in the business over the next few years. It will be led by a refreshed executive management team and board, building on renewed strength in the core business and opportunities in developing wider contract development and manufacturing activities. Accretive bolt-on acquisitions will also be considered, all funded by the current strong net cash position of the group. Overall, the ambition is to deliver sustainable double-digit EBITDA growth into the medium term. This note takes a detailed look at the growth drivers and opportunities now in prospect. In addition to introducing conservative formal FY22 & FY23 estimates for the first time, we also look at a range of potential scenarios, one of which shows how EBITDA could reach £45.9m by FY24. Putting that on a multiple of 13- 15x implies a potential Enterprise Value of £597-688m, against a current EV of £314m. Successful delivery should therefore lead to material value creation.
A comprehensive AGM statement from EKF has unveiled a strategy for driving growth in the business over the next few years. It will be led by a refreshed exec management team and board, building on renewed strength in the core business and opportunities in developing wider contract development and manufacturing activities. Accretive bolt-on acquisitions will also be considered, all funded by the current strong net cash position of the group. Overall, the ambition is to deliver sustainable double-digit EBITDA growth into the medium term. Current trading remains strong, with the core business (excl Covid-19 test kits) returning to FY19 levels of activity. On the back of this, we upgrade our FY21 forecasts again (+8% to revenues and EBITDA) and see further potentially material upside to forecasts given the ongoing strength in the Covid-19 test kits business.
Having upgraded several times in the year, EKF’s FY20 results are as expected and show a step change in the performance of the business. Whilst this has been catalysed by the pandemic and sales of sample collection devices, the core business has held up relatively well and is showing an encouraging return to growth in Q1. The main new news this morning is a significant multi-year, multi-million dollar contract expansion for sample collection devices with a multinational private sector partner. We push through further material upgrades to FY21E revenue and PBT of 23% & 40% respectively and see further upgrade potential if demand persists and continues to grow.
Ongoing strong demand for EKF’s products, both in the core business and the Primestore MTM Covid-19 sample collection device, means the FY20 outturn will be “comfortably ahead” of already upgraded expectations. This pattern is expected to persist throughout Q1’21 and beyond and management is confident that the performance in Q1 will be materially ahead of expectations. Having previously left FY21 estimates untouched, we are today putting through the first in what we expect to be a series of material upgrades. Given the dynamic situation around Covid-19, we expect regular updates throughout the course of the year and will adjust our forecasts accordingly as visibility over ordering patterns increases.
EKF has confirmed it expects a strong Q4 from both the core business and ongoing demand for the Primestore MTM sample collection device. As a result, FY20 performance is now expected to comfortably exceed market expectations, which have already been upgraded several times through the year. We upgrade our FY20 EBITDA forecasts by a further 6% to £24.4m and look forward to further updates in due course. EKF is a Best Idea for 2020 and we expect strong momentum to continue.
Aided by a strong improvement in trading in the core business and ongoing demand for the Primestore MTM device, EKF has indicated it is on track for a record monthly performance in October. In addition, Primestore MTM has recently been successfully evaluated by Public Health England in a peer-reviewed comparative study, which concluded it was the only commercially available sample collection device where no residual virus was detectable out of 23 tested. We believe this may bode well for wider UK market adoption in future. Having upgraded several times already this year, we make no further changes to our estimates, but continue to see sensitivity to the upside.
Whilst headline H1 revenue growth of 23% is eye-catching, for us the most comforting factor is the robust performance of the underlying business in the most challenging of circumstances. Sales of the Primestore MTM sample collection device contributed £6.5m, meaning the core business was -8% in the period, well ahead of internal expectations. Highlights include strong performances from BhB, DiaSpect Tm and the Clinical Chemistry portfolio, all of which grew revenues in the period. Whilst there were challenges in certain geographies, this is a very creditable performance and testament to the strength and defensiveness of the core business. We make no further change to our forecasts at this stage, having upgraded regularly in recent months. Given we have only included firm orders for Primestore up until the end of this month, we remain confident further upgrades are likely for the rest of this year and into next. In the meantime, latent growth potential in the core business is building with, inter alia, Chinese approval of Quo-Test, strong momentum with DiaSpect Tm, the Trellus health investment and a variety of contract manufacturing orders in the Central Lab/Life Sciences segment adding to the medium term growth outlook. Given the continuing scope for upgrades, we continue to see upside potential in the shares – EKF remains one of our Best Ideas for 2020 (up 66% YTD).
Johnson & Johnson acquires Momenta Pharmaceuticals for $6.5b | EKF Diagnostics Holdings plc (EKF.L): Strategic Investment
EKF has made a $5m seed investment for a 31% stake in Trellus Health, which has licensed a novel digital health platform for the management of Inflammatory Bowel Disease and associated conditions from Mount Sinai Health System. EKF has a partnership with Mt Sinai to commercialise novel technologies, following the successful spin out and IPO of Renalytix in 2018. We make no change to our forecasts at this stage. If successful, we believe Trellus could deliver substantial returns for EKF shareholders over the next few years.
EKF has secured its first order in the UK for the Primestore MTM sample collection device, worth £3m over the next 7 weeks. The purchaser is a partner from the private sector, with the device being used in a Covid-19 testing programme for UK staff. With these increasing orders, EKF has expanded its production line in Cardiff and now has capacity for 25,000 sample collection tubes per day. In addition, the production line in Germany is now up and running. We increase our FY20 revenue estimates by a further £3m and EBITDA by £2m. Given the nature of the device, which is agnostic over which molecular test is used, we expect demand to continue at elevated levels for the duration of the pandemic and continue to see further upside potential to our already materially upgraded estimates. EKF remains one of our best Ideas for 2020.
EKF has delivered another positive trading update, with outperformance in H1 and further orders for the Primestore MTM sample collection device prompting further material upgrades to our FY20 estimates. Despite a lot of noise around potential Covid-19 diagnostics and therapeutics. EKF remains one of very few UK-listed companies actually generating material revenues. Given the nature of its offering, which is agnostic over which molecular test is used, we expect demand to continue at elevated levels for the duration of the pandemic and continue to see further upside potential to our already materially upgraded estimates. EKF remains one of our best Ideas for 2020.
Following on from the Primestore MTM orders announced in April, EKF has received further orders worth $9.4m to be fulfilled between now and the end of July. This results in further upgrades to our already upgraded estimates, by 34% at the PBT/EPS level in FY20, with scope for further upgrades as and when additional orders are received. The Primestore device is proving its worth during the current Covid-19 pandemic. It deactivates viruses, bacteria, fungi and mycobacterium tuberculosis allowing safe sample handling and transport, greatly reducing risk of infection and enables samples to be transported at ambient temperatures, simplifying the significant logistical burden involved in transporting millions of samples. It is also worth reiterating that the sample collection device is agnostic as to which test is carried out on the patient sample, making this something of a picks and shovels play on the current environment. In addition to these US orders, EKF has now commissioned its facility in Wales and shipped its first product into the UK market this week. It has also begun the process to start manufacturing in Germany and will bring additional capacity on stream in the US in the near future. All of this is yet to be factored into estimates and represents additional potential sources of upgrades in due course. We continue to believe EKF is exceptionally well positioned in the current environment and is forming a crucial part of the supply chain required to significantly increase diagnostic testing capacity globally. EKF remains one of our Best Ideas for 2020, supported by a positive short and medium term outlook, strong fundamentals and a track record of meeting and beating expectations.
In a further sign it is business as usual in the core business, EKF has announced it has signed a new distribution agreement for its Quo-Test point-of-care analyser with Tosoh, one of the world’s leading supplier of HPLC equipment for HbA1c measurement in the central lab setting. Quo-Test was selected after an extensive evaluation to fulfil a growing requirement for a Point-of-Care solution amongst Tosoh’s customers. As such, it facilitates EKF’s entry into new diagnostic settings outside its current focus on Doctors’ Offices and specialist clinics. The agreement covers the Middle East and Africa and will run for an initial three years with options to extend both the duration and scope of the contract. No financial details were given, but we assume this is a further incremental positive, providing additional support to our recently upgraded estimates, with scope for upgrades in due course as the relationship grows. In our opinion, EKF remains attractively valued even after the recent share price strength, with the prospect for further, potentially material upgrades to come this year from the Primestore sample collection device, and next year from today’s announcement and other growth initiatives in the core business that should start bearing fruit from late 2020 onwards.
Following on quickly from yesterday’s announcement regarding the establishment of a UK manufacturing line for the Primestore MTM sample collection device, EKF has announced its first UK commercial supply agreement. It will supply the devices to Source Bioscience, a UK business that provides laboratory testing services to the NHS and private sector. Source Bio is working with a number of businesses in the UK providing Covid-19 testing services and has selected Primestore MTM device as its preferred sample collection device, given the numerous benefits it brings. It is too early to establish the precise commercial benefit to EKF, hence no change to forecasts at this stage, but it provides an additional revenue stream, which could become material over time. We continue to believe EKF is exceptionally well positioned in the current environment and can form a crucial part of the supply chain required to significantly increase diagnostic testing capacity, both in the UK and internationally. Our current year estimates are therefore a base case and are likely to be significantly upgraded in due course as further contracts are awarded and we get a clearer line of sight on the full year outturn. The direction of travel is clearly very positive. EKF remains one of our Best Ideas for 2020, supported by a positive short and medium term outlook, strong fundamentals and a track record of meeting and beating expectations.
Global demand for the Longhorn Primestore MTM sample collection device has increased significantly due to the Covid-19 pandemic and this has led to an additional $3m+ order expected in May, in addition to the initial $1m order which has already been fulfilled. The majority of these orders are for the core reagent within the device, implying it is a high margin revenue line for EKF. We upgrade our FY20 EBITDA estimates by £0.75m, but see further upside potential this year as and when additional orders are received. We continue to believe EKF is exceptionally well placed in the current environment and should be regarded as a core portfolio holding.
ReNeuron Group (RENE.L): Research agreement with major pharma | EKF Diagnostics Holdings plc (EKF.L): Trading update
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With the moratorium on publishing audited preliminary results in place, EKF has instead provided a comprehensive trading update with headline FY19 financials and an update on the outlook, including regarding the potential impact of Covid-19. In short, no impact has been seen to date and, whilst ordering patterns may experience some short term disruption, the testing of vulnerable groups such as Diabetes and Anaemia patients is more important than ever. Added to that, EKF has recently entered into a contract manufacturing agreement to produce sample collection tubes for Covid-19 testing in the US, with initial orders of $1m expected to grow significantly in the coming weeks. At the very least, this should compensate for any short term hiatus in ordering patterns in the core business. Net cash of £14.3m gives a substantial financial buffer and news the board still intends to pay a maiden dividend of 1p (>5% yield) is a strong signal of confidence. In short, we remain extremely confident in EKF’s business model and prospects.
Fundamentally, EKF is an attractive investment proposition but its shares have been range-bound for the last couple of years. This note previews the upcoming results and looks at a number of potential catalysts that could add materially to revenues over the next few years. Combined, they provide scope to lift top line organic growth towards mid-high single digits and lead to margins trending towards a viable target of 25% over time. Ultimately, this should lead to double-digit organic EPS growth. In addition, there is effectively a free carry on the Mt Sinai relationship, which offers further potentially material prospects for shareholder value creation.
EKF has delivered a FY’19 revenue and EBITDA performance in line with the market’s recently upgraded expectations. Cash generation remains strong in H2, and the company continues to gain momentum delivering its strategic goals. The outlook for 2020 remains positive with development initiatives carried out in recent periods expected to start to bear fruit towards the end of the year. Further upside is expected due to, amongst other things, the launch of the Glycated Albumin test, the distribution of DiaSpect Tm in the US via McKesson-Surgical and the enzyme manufacturing contract with Oragenics. Trading on 9.9x FY20 EV/EBITDA, we continue to view EKF to be undervalued given the multiple opportunities ahead.
A strong margin performance in H1 and positive outlook statement leads us to upgrade PBT/EPS expectations by 6%, continuing the recent track record of outperformance. Cash generation remains strong and a maiden dividend of 1.0p is expected, equating to a useful 3.2% yield. Following the success of the Renalytix AI spin out and IPO, EKF has deepened its relationship with Mount Sinai, signing a Preferred Provider Agreement to give it early access to new commercial opportunities. The first of these is a novel digital care pathway platform for patients with IBD, a significant chronic disease burden. We believe this represents an exciting potential opportunity for further value creation in due course, adding to the already strong organic growth opportunity from EKF itself. Now trading on sub-10x FY20 EV/EBITDA, EKF is looking increasingly undervalued given the multiple opportunities ahead.
EKF has issued a positive H1 trading update, continuing the recent pattern of raising and beating expectations. Revenues were in line but EBITDA ahead on good cost control. Cash generation was again strong and the outlook for H2 is described as encouraging. Including the RenalytixAI stake (which is up 172% since IPO last year), cash and marketable securities exceeded £20m, prompting the intention to declare a maiden dividend this year. We prudently make no changes to our estimates at this stage and will revisit these at the interims in September. The shares continue to look attractive and we see fair value of 43p.
EKF has continued its recent pattern of raising and beating estimates by delivering results slightly ahead of expectations, despite some revenue headwinds after the ending of a large Saudi tender in FY17. Significant shareholder value was created during the year (EKF was an N+1 Singer Best Idea for 2018), delivering a total return of 27% including the 5.5p/share in specie distribution of shares in Renalytix AI, which IPO’d on AIM in November. The outlook remains positive, supported by new product launches (particularly DiaSpect Tm in the US) and we make no material changes to estimates at this stage. The shares continue to look good value, standing on an FY19 EV/EBITDA of 11x and a FCF yield of 5%+.
EKF Diagnostics (EKF LN) Positive H1 trading update & OEM deal for DiaSpect Tm with McKesson | Elektron Technology (EKT LN) Forecasts upgraded on strong H1 trading
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EKF has reported a strong set of figures, slightly ahead of expectations. Revenues increased 8% to £41.6m and the margin profile of the business has been transformed, with gross margins significantly improved and EBITDA +52% to £9.3m. With the recovery phase now complete, attention is turning to driving the next leg of growth. We see a number of short and medium term growth opportunities over and above our published forecasts although, as ever, precise timing and quantum is uncertain.
EKF Diagnostics Flash : Update to estimates
EKF Diagnostics Flash : Positive 2017 trading update, shares up with events
EKF Diagnostics : Positive 2017 trading update, shares up with events (11-Jan-2018)
EKF’s strong H1 results reflect the operational improvements implemented over the last 18 months. Recovery is now firmly established, with revenues +23% and EBITDA more than doubling in the period. After upgrading 6 times in the last 15 months, we prudently make no further changes at this stage. Growth prospects remain attractive, supported by additional product launches in new territories. We see further mileage as the group remains materially undervalued vs its closest peers and the investment case is further underpinned by the newly granted authority to buyback up to 15% of the ISC.
EKF interim results were broadly in line with expectations, demonstrating strong growth across both point of care and clinical chemistry. There has been a successful refocusing on core products and western markets over the last 18 months. Continuing strong growth is dependent on product approvals in new markets. With margins reaching close to industry norms, and forecast top line growth falling to 5.5% into 2018 as EKF moves out of the recovery phase, significant upgrades are required to justify trading at a premium. Given we do not expect to make any major changes to our estimates, we maintain our HOLD recommendation.
Interim results are expected on 11th September, these follow a very positive 6 month trading update in July where we upgraded FY EBITDA estimates by 8%. We expect further positive commentary at the interims, however, in our view the EKF share price has grown into its potential and without substantial upgrades the shares are trading at fair value. We maintain our HOLD recommendation ahead of the results.
The positive trading experienced in Q1 has continued into Q2, with EKF now expecting 2017 adj. EBITDA to be comfortably ahead of market expectations. We upgrade our EBITDA forecasts (after upgrading 2017 and 2018 EBITDA by 7-8% in May) by 9-10%. EKF has clearly had a strong H1 2017 and we believe the momentum will continue in H2 and beyond.
EKF has announced a very positive trading update for the 6 months to June, indicating that trading for the period was ahead of expectations. We raise our FY 2017 EBITDA forecast 8% to £8.6m (previously £8.0m); primarily due to margin improvement. The increased focus on the core product lines, has resulted in EKF beginning to grow into its potential. Following the upgrades to our forecasts we increase our target price to 25p (previously 24p). p
We are terminating coverage of EKF Diagnostics with immediate effect. All forecasts have now been removed.
Trading in the first quarter has continued well with both the Point of Care and Laboratory Diagnostics divisions performing ahead of budget. We upgrade estimates slightly. A further change in strategy means EKF will retain its listing on AIM with restructuring restricted to the subsidiary level. Given the change in strategy we upgrade our recommendation to BUY (from SELL), and increase our target price to 24p (previously 21p).
EKF Diagnostics FY 2016 results are slightly ahead of expectations, with both higher revenue and better EBITDA. Management has also announced plans to split the company into two separate companies, Point of Care and Laboratory Diagnostics, with the prospect of a delisting to manage the process. The primary metric for valuation of the two businesses is different consequently we believe that the separation is likely to generate significant value. However, in anticipation of the volatility likely given the restructuring announced this morning, despite the strength of the results, we reduce our recommendation to HOLD and maintain our 21p target price.
We expect EKF Diagnostics to announce FY 2016 results on 21st March. EKF has had a transformational year and has released three positive trading updates since the interim results in September. We expect the results to give more granularity on where the improvement has come from enabling us to have more confidence in future growth rates. We maintain our 21p target price and BUY recommendation ahead of the results.
The strong recovery in trading has continued, meaning the outcome for the year just ended will exceed market expectations (which had already been revised up twice in the year). We push through further upgrades of 10-11% at the EPS level and see scope for further top and bottom line progression. In our view, the shares remain very attractively valued at 1.9x EV/Sales and 10x EV/EBITDA. With a rapidly strengthening balance sheet and margins improving towards industry norms, the business is well set for a positive 2017.
Continuing strong trading across the final months of 2016 has resulted in a further increase in guidance and an upgrade to our estimates, the third since September. Recurring sales across a number of product lines increases our confidence in the sustainability of this performance and we also raise our forecasts for both 2017 and 2018. We maintain our BUY recommendation and increase our price target to 21p (previously 19p).
EKF Diagnostics (EKF LN) Positive momentum building | Ergomed (ERGO LN) Asarina agreement provides upside potential | Redcentric (RCN LN) Accounting misstatements
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Another strong month of trading has resulted in a rise in guidance and a further upgrade to our estimates. The outperformance is partly due to currency, but encouragingly EKF has also continued to see strong trading across BHB, Hemo Control and QuoTest. We upgrade our estimates slightly and reiterate our BUY recommendation and 19p target price.
We update our forecasts following the trading update and also introduce our FY 2018 estimates. The revenue upgrades come from improving performance across the business with BHB, Hemo Control and the Quo-products all performing particularly strongly. In addition to improving revenue, EBITDA margins are expected to be higher than previously forecast. Following the upgrade to our estimates we increase our price target to 19p (previously 17.5p).
EKF has released an early and very positive Q3 trading update indicating that both sales and EBITDA are expected to be ‘materially above budget’ with the expectation that FY16 will ‘exceed the high end of forecasts’ for both revenue and EBITDA. Our current forecasts of £33m revenue and £3.9m EBITDA, are already at the high end of previous guidance (revenue of over £30m and EBITDA of £3.5 – 4m). We will update our forecasts shortly, maintaining our BUY recommendation and 17.5p price target (2.5x 2017 sales).
EKF has reported a strong set H1 2016 results, with good performance from both Point of Care (+13%) and Central Laboratory (+23%). Restructuring has resulted in a return to positive EBITDA and we expect profitability to continue to improve in H2. We expect a Q3 trading update from EKF in October. In our view the long term outlook remains encouraging. We increase our target price to 17.5p (previously 14p) and make minor upgrades to our FY revenue estimates. We reiterate our BUY recommendation.
We expect interim results on 12th September to illustrate that EKF has made good progress towards overcoming many of the issues which have disrupted the business over the past couple of years. In the past six months management has re-established sales channels, reduced the cost base and the streamlining of manufacturing is ongoing. Assuming the positive first half momentum outlined in the July trading update continues we believe there is the potential for further upgrades of both our estimates and target price. We maintain our BUY recommendation ahead of the results.
A positive H1 trading update from EKF shows that following the reorganisation and refocusing of the business around the turn of the year, growth has resumed across both the Point of Care and Central Lab divisions. In addition, full year EBITDA guidance has been raised to the top end of the £3.5 - 4.0m range. We have upgraded our estimates (5% FY 2016E revenues, 19% EBITDA) though believe these remain conservative if the progress seen in H1 continues into H2. We maintain our 14p price target and BUY recommendation.
The transformation of EKF continues with a reduction in debt through a £4.75m placing (gross) and a positive update highlighting that both sales and EBITDA remain ahead of budget. We retain our FY forecasts for the moment but are increasingly confident that our estimates are achievable, with the prospect of upgrades later in the year. Ongoing restructuring should ultimately improve profitability, though we highlight the potential for near term disruption. We maintain our BUY recommendation and 14p price target.
Following the disposal of Selah in November, EKF is undergoing significant change. Management is focused on driving growth of the point of care (PoC) portfolio and returning the company to profitability. We expect the significant restructurin started in November to be extended under the new board. The changes may create some near term volatility, but we believe the company is in a better position than it has been for 18 months. We reinstate forecasts and replace our Under Review with a 14p target price and BUY recommendation.
Following the disposal of Selah in November, EKF is undergoing significant change. Management is focused on driving growth of the point of care (PoC) portfolio and returning the company to profitability. We expect the significant restructuring started in November to be extended under the new board. The changes may create some near term volatility, but we believe the company is in a better position than it has been for 18 months. Please see our longer note ‘Focus on the point’ published this morning. We reinstate forecasts and replace our Under Review with a 14p target price and BUY recommendation.
These results draw a line under a difficult period for EKF and early signs of recovery are there. The focus will be on driving further efficiencies and focusing on organic revenue and profit growth and improving cash flows. Guidance has again been issued for core revenues of ~£30m and adj EBITDA of £3-4m, which should provide some comfort that trading in the core group has stabilised. We will reissue our forecasts shortly.
EKF has reported FY 2015 results to December, with headline sales, excluding discontinued operations, of £30m (£37.1m FY 2014 restated) and EBITDA losses of £0.3m (£6.7m profit FY 2014) excluding discontinued business. In our view the historic results bear little read through to 2016, but draw a line under a turbulent 18 months. More encouragingly, following the reorganisation at the end of 2015, trading in the first quarter has begun strong, with Q1 revenue expected to exceed £8m. Although the company remains a work in progress, a route back to sustainable growth and profitability is now visible.
The appointment of Christopher Mills as Chairman of EKF is in our view a very positive development. He has a long track record of successfully investing in companies in the sector and, importantly, driving and unlocking value for all shareholders. Examples of this include Ferraris and Celsis, which were both taken private at healthy premia, and he has successfully invested in a number of other companies in the lab services / diagnostics space.
Christopher Mills has been appointed Non-Executive Chairman of EKF Diagnostics with immediate effect. The statement does not give any further comment on the strategy. However, Mills, who has accumulated a 19.2% stake in EKF, has a track record as an activist investor. He also has experience with companies in the diagnostics sector. Consequently, we believe a period of organic growth followed by a trade sale is the most likely outcome for EKF. Rescheduled results are expected Tuesday 12th April.
EKF Diagnostics (EKF LN) Appointment of Christopher Mills as Chairman | Infrastructure India (IIP LN) Asset disposal and DLI update | Liontrust Asset Management (LIO LN) Positive flows in volatile Q4, Euro income acquisition | Minds + Machines Group (MMX LN) Transformative outsourcing contracts | Senior (SNR LN) High quality Aerospace manufacturer
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EKF gave guidance for 2016 with its 2015 trading update in January. Following the appointment of Ron Zwanziger as Chairman in November the company has been refocused on point of care, new distribution networks, and a restructuring program implemented substantially reducing running costs. We expect a detailed update on the outlook on the rebased and reenergised business at the results on 5th April. We expect to reinstate forecasts and recommendation following this announcement.
EKF has issued a trading statement emphasising the total focus now on Point-of-Care. Trading for FY2015 is expected to be in line with guidance previously given in EKF's 26 November 2015 trading update (c.£32m) with the overall loss impacted by the asset write-downs (c.£55-60m subject to audit review). The Board now anticipates core FY2016 revenues without tender wins of ‘just over £30m' with an adjusted EBITDA between £3m and £4m.
EKF has announced the disposal of Selah Genomics for a nominal sum. The divestment was widely expected, as the withdrawal from molecular diagnostics has been well flagged. The rapid sale highlights the highly proactive approach taken by the new Chairman, Ron Zwanziger, since his appointment in November and we expect the rapid pace of change to be maintained.
This morning EKF has announced that Doris-Ann Williams and David Toohey have resigned as Non-Executive Directors with immediate effect.
A significant profit warning from EKF, implying the hoped for tender wins have not materialised in H2. Revenues of £32m are a long way short of previous expectations and a loss for the year now looks inevitable. No comfort is given on the Balance Sheet – Net Debt at the end of H1 was £5.2m and a number of exceptional charges are expected, including a provision against or write off of specific debtors.
On trading, the company states that it expects to achieve full-year revenues of £32m, materially lower than market forecasts (we believe the current range is c.£42-45m – our own forecasts have been under review since the strategic review update in August 2015). Meanwhile, the Board is to be reduced to two execs – currently four – while maintaining 5 NEDs.
This morning, Ron Zwanziger has been appointed as Non-Executive Chairman with immediate effect, further to the company's announcement on 23 October. David Evans, outgoing Executive Chairman, will become Non-Executive Chairman. The business, as previously flagged, is to be refocused on point-of-care as the company looks to spin off or close the molecular diagnostics division.
This morning, news from EKF has highlighted the presentation of new data at the Kidney Week event (San Diego 3-8 November, organised by the American Society of Nephrology) in support of the use of soluble Tumour Necrosis Factor Receptor 1 (sTNFR1) as a biomarker to predict progression of Diabetic Nephropathy (Diabetic Kidney Disease). Today's news is an interesting step forward in terms of the development of EKF's position within kidney, not only in terms of supporting the clinical trial cycle but also in paving the way towards the opportunity for potential development of a companion diagnostic product.
Further to the acquisition of Selah Genomics, Inc. in March 2014, this morning EKF has announced the release of escrow shares to EKF, a Waiver of Right to receive earn out consideration shares and waiver of potential warranty claims in connection with the acquisition.
With no offer forthcoming, EKF plans to appoint 8% shareholder and industry veteran Ron Zwanziger as Chairman with a mandate to accelerate growth, presumably through further M&A. It is unclear whether the plan is still to demerge the Molecular Diagnostics division. The immediate focus however needs to be on stabilising the business and landing some of the tender orders that remain outstanding, thus helping restore some confidence in forecasts and the outlook.
Late on Friday afternoon (23 October) EKF management noted the announcement by Jinjing (Group) Co., Ltd. that they do not intend to make an offer for EKF. The statement noted that the company is no longer in an offer period under the City Code. As outlined in EKF's announcement of 18 August, the Board now intends to invite Ron Zwanziger as Chairman. With further activity likely, as signalled in August, we maintain our forecasts and recommendation under review, pending further updates from the company.
Uninspiring results, as flagged at the pre-close. Revenues were flat YoY and EBITDA was down to £0.7m (from £2.2m last year). Net debt increased to £5.2m. No news yet on the outstanding tenders due in H2 (on which FY results are reliant) or on the sale process, which remains ongoing.
EKF Diagnostics: Interims (BUY) | Camco Clean Energy*: Solid 2015 interim results (CORP) | 7digital*: Monthly recurring revenue up 55% in H1 (CORP) | Vmoto*: New supply agreement (CORP) | Transense Technologies*: Full-year results (CORP) | Ithaca Energy: FPF-1 contract modifications update (BUY) | CityFibre*: Interims on track (CORP) | Horizonte Minerals*: Significant project acquisition (CORP)
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EKF DIAGNOSTICS HOLDINGS PLC (EKF LN) Interims leave a lot to do in H2 | M J GLEESON PLC (GLE LN) Time to look beyond the 1,000 home target | PINEWOOD GROUP PLC (PWS LN) Reassuring AGM update | TEN ALPS PLC (TAL LN) Optimising the assets and creating value
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LiDCO*: Forecast revisions (CORP) | EKF Diagnostics: Tender wins (BUY) | Alumasc: Better-than-expected FY results (BUY)
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LiDCO*: Forecast revisions (CORP) | EKF Diagnostics: Tender wins (BUY) | Alumasc: Better-than-expected FY results (BUY) | BATM*: Bio-Medical opens agricultural market (CORP)
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EKF’s H1 trading update indicates profits will be heavily (i.e. almost all) H2 weighted due to some tender delays (again). Some of this is due to the Mexican orders from last year and some new opportunities, e.g. a large potential order in the Middle East for the Quo-test product. Of more interest is the result of the strategy review. A few options are still available, but the most likely seems to be a $110m offer on the table for the Point-of-Care business, which looks to have put a floor under the current share price, with the Molecular Diagnostics division effectively in for nothing.
Domino’s Pizza UK & IRL (DOM LN) Up with events short-term but German momentum bodes well for securing mid-term growth | EKF Diagnostics (EKF LN) Trading update & results of strategic review | John Menzies (MNZS LN) Amended forecasts
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This morning, EKF Diagnostics has announced an interim trading update and, separately, a statement relating to the company's recently-undertaken strategic review (see our note of 2 April 2015)With regards to the strategic review, for regulatory purposes we place our target price and recommendation under review.
