Novacyt reported FY16 results on 27 April. Headline sales announced in January showed that total FY16 sales grew 25% y-o-y to €11.1m (38% at a constant exchange rate, CER). The acquisition of Primerdesign (consolidated from May 2016) added to total group H216 sales, which grew an impressive 47% (68% at CER) y-o-y. Novacyt’s earnings showed that sales growth was accompanied by a substantial expansion in gross margin from 48.1% in FY15 to consolidated 54.9% in FY16 or 59.0% pro forma. All this boosted consolidated EBITDA close to break-even at -€0.7m in H216 versus €1.6m in H116. We find the combination of a continuing high growth trend and near break-even EBITDA comforting and supportive for the share price.
On a pro forma basis, Primerdesign’s FY16 sales were £4.2m (€5.1m), constituting 46% of the total Novacyt revenues compared to £3.9m (€5.3m) in 2015. While still a recent acquisition, Primerdesign (innovative real-time qPCR equipment and consumables) is profitable with a gross margin consistently in excess of 80% and an EBITDA margin of 40% and we expect it to be one of the key growth drivers for Novacyt in the short term. Lab21 represents an established business within Novacyt with FY16 sales of £5.0m (€6.2m), a decrease of 8% at CER mainly due to a series of one-offs including lumpy tender awards, challenging emerging market conditions and a strong comparator period. Notably, Lab21’s H216 sales were stronger by 7% at CER versus H116. NOVAprep’s (innovative, proprietary liquidbased cytology platform) FY16 sales were €1.6m, up 24% y-o-y, with the Asia region growing the fastest at 116%.
When discussing the outlook for 2017, management pointed to a strong start with Q117 sales growing 70% mainly due to a combination of Primerdesign acquisition and organic growth of NOVAprep (up 45% y-o-y) and Lab21 (up 15% y-o-y). Novacyt’s distribution partner Cepheid aims to launch NOVAprep in the South American market after regulatory registrations are complete in H217, which could add to sales momentum.
Based on the consensus sales estimates for 2017, a price/sales ratio of just 1.1x seems undemanding. Novacyt reiterated its intention for dual listing on AIM, albeit no specific timing was provided yet. 2017 could be transformational if Novacyt manages to achieve profitability, while Primerdesign’s expansion into the clinical testing market (see below) is one of the most significant near-term catalysts.