Surgical Innovations has provided some useful context to the current trading environment. Whilst revenues are significantly down in Q2 so far, they are perhaps not down to the levels initially expected and there are some encouraging if tentative signs of life as hospitals prepare to recommence elective surgeries. The group’s cash position has increased to £1.65m (from £1.28m at the Y/E) and, with an undrawn £0.5m RCF and a new £1.5m CBILS facility, the group has £3.65m of available liquidity. This should be sufficient to cover its operational requirements for several months and to fund working capital as and when activity begins to pick up. Prior to the Covid-19 shutdown, momentum had been building in terms of market share gains, with new account wins in the UK and new distributor markets opening up globally. The company’s resposable model is ideally suited to the increased focus on sustainability, particularly reducing the use of single use plastics. With a number of new products expected to launch progressively over the next few years, we believe the company has bright prospects, once the short term challenge around Covid-19 has been navigated.
Companies: Surgical Innovations Group
Revenue growth of 10% in H2 brought FY results in line and the company was looking well set for strong progress in FY20. However, Covid-19 presents a significant short term challenge, given SUN’s focus on elective surgeries. The Board has moved quickly to enact cash preserving and cost saving measures, whilst continuing to supply essential products. Cash on the balance sheet and support from the group’s bankers provides short term liquidity and other indications of financial support are being actively considered.
Surgical Innovations returned to double digit growth in H2, bringing FY19 results in line with expectations. After a difficult H1, particularly around well publicised issues with the NHS, this is a creditable performance and should reassure that the market backdrop is stabilising and Surgical Innovations is back on the front foot. We continue to see material value creation opportunities ahead and look forward to a positive 2020.
It has been a challenging trading period for Surgical Innovations, with the UK facing significant pressures resulting in many elective surgeries being postponed or cancelled. The company is directly exposed to these trends, which unfortunately show no signs of abating in the short term. We reduce our FY19 revenue expectations by £1.5m, which flows through to a £0.7m reduction in PBT. More positively, good progress is being made in opening new accounts (both in the UK and internationally), which should leave the group well placed once conditions improve. Importantly, the group remains profitable, cash generative and with net cash on the balance sheet.
Surgical Innovations has announced that CFO Melanie Ross is to leave the business at the end of the month to pursue other opportunities. Charmaine Day (Group FC and Co Sec) will assume financial responsibilities for the group, reporting directly to CEO David Marsh. In addition, the group has announced the recruitment of an experienced Head of Compliance, further strengthening its regulatory function. Steve Seed will re-join the group in September from Xiros, where he holds a similar position.
Surgical innovations has given an update on current trading that positive momentum in H2 2018 that continued into Q1 2019, has softened into Q2 2019, citing lower than expected orders in the UK and EU. Management now expects that revenue growth in full year 2019 will be lower than previously expected and for Adj. PBT in 2019 to be below 2018 levels. We have adjusted our forecasts for FY’19 to incorporate today’s announcement, and forecast revenue (downgrade vs. previous forecasts) of £12.1m (-8.7%). We have also prudently reduced outer year forecasts to £13.8m (-7.7%) and £15.2m (-4.1%) in FY’20 and FY’21, respectively, in light of a difficult environment in the UK and EU. Owing to the change in product mix and an increase in investment related to regulation and product launches locked-in for 2019, the drop-through means we forecast an Adj. PBT of £1.1m, £1.8m and £2.3m, respectively. Clearly today’s announcement is a setback to the company’s strategy towards delivering £100m+ of value to shareholders, but we maintain our positive fundamental view and expect investments made in 2019 will materially add value over the medium term as well as potential upside in the non-medical division and through M&A.
Renold plc—a leading international supplier of industrial chains and related power transmission products, announced that it will cancel the listing of the Company from the premium segment and apply for admission on AIM. Expected 06 June 2019.
Companies: MSYS BRH SUN RENX MYN AAOG PHSC KCR KDNC
Techniplas –global producer and support services company providing highly engineered and technically complex components, making the supply chain to original equipment manufacturers more efficient. FYDec17 rev $515m. Diaceutics, a data analytics and implementation services company which services the global pharmaceutical industry, is looking to join AIM late March, offer TBC.
Companies: ARE MAFL HYDG BIRD SBIZ PEN ROCK AMO SXX SUN
A strong second half has brought trading for the full year in line with expectations and leaves the business well set for 2019. An exciting pipeline of new products should supplement an already strong organic growth outlook and could lead to material upgrades in time. We continue to see a clear path for management to realise its ambition of building a £100m+ business over the next 3-5 years.
Surgical Innovations has announced the appointment of David Marsh as CEO starting immediately and four additional board changes. The changes are amicable and we believe are supportive of the company’s strategy towards a more commercially-aligned business. David Marsh held an existing role on the Board as Group Commercial Director joining in August 2017 with the acquisition of Elemental Healthcare. Current executive chairman, Nigel Rogers will relinquish his executive responsibilities moving to a non-executive chairman position. David has a strong and highly relevant CV, and his appointment concludes the successful acquisition and integration of Elemental. The three other board changes (see extract), include splitting Melanie Ross’s CFO/COO role so she can focus on her CFO responsibilities, while Alex Hogg will join from Xiros Limited as Operations Director, and Adam Power assumes all commercial and business development activities for the group. We view it positive that between David and Adam, management have an invested stake in the company of approx. 10%. We view the CEO appointment and board changes positively, playing to individual strengths and are supportive of the group’s growth strategy.
A strong second half has brought trading for the full year in line with expectations and leaves the business well set for 2019. An exciting pipeline of new products should supplement an already strong organic growth outlook and could lead to material upgrades in time. We see a clear path for management to realise its ambition of building a £100m+ business over the next 3-5 years. This note looks in detail on how this can be achieved.
Wentworth Resources— oil and gas exploration and production company, with assets in the onshore Rovuma Basin of East Africa. Introduction only. Mkt Cap c £50m . Due today
Finncap—proposed acquisition of M&A adviser Cavendish Corporate Finance and AIM admission. Offer TBA
Kropz PLC—an emerging plant nutrient producer with an advanced stage phosphate mining project in South Africa, a phosphate project in the Republic of Congo and exploration assets in Ghana. Looking to join AIM, offer TBC, market cap TBC.
Due Late October.
Path Investments— First acquisition of a 50%. participating interest in the producing Alfeld-Elze II gas field in Germany. Seeking £10m raise. Transaction aborted. Was RTO. PATH to seek lifting of suspension.
Crossword Cybersecurity PLC* (NEX:CCS)—the technology commercialisation company focusing exclusively on the cyber
security sector is exploring its options in relation to a potential move to the AIM market of the London Stock Exchange which, if it were to proceed, would likely take place over the next few months.
The Panoply parent company of a digitally native technology services group founded in 2016 with the aim of identifying and acquiring best-of-breed specialist information technology and innovation consulting businesses across Europe, is looking to join
AIM. Offer TBC, expected late November 2018.
Companies: HYDG KRM TLOU SUN KEFI ZOO ATM CRW CTP CAB
Green Man Gaming—pure play e-commerce and technology company in the digital video games industry. revenue CAGR growth of 26.7% in the last three years to £47.5m. Due 28 Sep. EBITDA Profitable. Offer TBA
Crossword Cybersecurity PLC* (NEX:CCS)—the technology commercialisation company focusing exclusively on the cyber security sector is exploring its options in relation to a potential move to the AIM market of the London Stock Exchange which, if it were to proceed, would likely take place over the next few months.
Path Investments (PATH) -RTO of a 50 per cent. participating interest in the producing Alfeld-Elze II gas field located 22 kilometres south of Hannover in Germany. Seeking £10m. Offer TBA. Due Mid September
Kropz PLC-Intention to float by the emerging plant nutrient producer with an advanced stage phosphate mining project in South Africa and exploration assets in West Africa
Companies: SCPA NCYT WRES VERS STX SUN SOU CFX HUR SML
This morning’s interims were flagged in the AGM update of 26 June with an H1 revenue outturn of £5.3m against guidance of >£5m and a 13% increase in adjusted EBITDA to £930k against guidance of “profitability slightly ahead”. Whilst H1 contained some significant headwinds, these have now largely reversed and H2 can be expected to be significantly stronger; FY expectations are therefore unchanged. Beyond H2, new product launches both within SI itself (extensions to the Elite range and a new optical trocar) and through CELLIS (for breast reconstruction surgery) give increased excitement to the pipeline.
Murgitroyd Group (MUR LN) Finals in line, dividend increase ahead of forecast | Oxford Instruments (OXIG LN) AGM update in line | Surgical Innovations Group (SUN LN) Challenging H1 navigated, outlook strong | Vectura Group (VEC LN) Solid H1 results
Companies: MUR OXIG SUN VEC
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Much has been written about the effects of the virus on the world and on the stock market. Here is one analyst’s take on some of the likely impacts on the way we should look at companies. This article was originally produced as a blog, “10 Changes Post Virus”, which was published a few weeks ago.
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Further to the announcement on 9 April of Omega’s participation in a UK Rapid Test Consortium (UK-RTC), a point-of-care COVID-19 antibody test programme, the UK-RTC confirmed today that it is on track to reach a design freeze in June, following early results from 66 samples, which indicated the test to be in line with design requirements. Omega stands ready to mobilise both people and facilities at Alva, Scotland, to produce tests for the consortium. We are leaving our base forecast unchanged (reflects the non-COVID business only), but placing target price under review given the difficulty of forecasting potential COVID-19 related sales with any degree of accuracy.
Companies: Omega Diagnostics Group
LiDCO’s AGM statement makes for pleasing reading. Whilst the exceptional conditions in Q1 have abated somewhat, Q2 is seeing signs of a return to normality as hospitals start to prepare for the return of elective surgeries. Sales orders in May have been consistent with last year and, whilst the situation remains fluid, we take that as an encouraging sign for the rest of the year. With £4.4m of revenues booked in Q1 and recurring revenues expected to continue at the FY20 exit run rate level, we have sufficient confidence in the outlook to upgrade our revenue forecasts for the year by £0.4m and EBITDA/FCF by £0.3m. Postupgrades, the shares trade on a Yr1 EV/Sales of just 2.1x. With scope for further upgrades and the company at an inflection point in sustainable profitability, we view this as exceptionally attractive.
Companies: Lidco Group
Novacyt (NCYT.L): COVID-19 update
Futura Medical is approaching a key point as the first of the regulatory filings for its novel erectile dysfunction (ED) treatment, MED3000, is expected within the next few months. MED3000 is a fast-acting gel that has proven clinical efficacy, a fast onset of action, and an attractive commercial profile. The ED market opportunity is sizeable, especially once MED3000 becomes widely available over the counter (OTC). Optimally addressing the various elements of the demographic segments and needs of the different geographies will, in our view, require careful selection of commercial partners. We expect the partnering discussions to start in earnest once the status of the regulatory approvals is known. Our DCF-based model, using conservative assumptions, values Futura Medical at £153.8m, equivalent to 60.9p a share.
Companies: Futura Medical
Avacta is leveraging the antibody-like properties of Affimers for Therapeutic and Diagnostic applications across multi-billion dollar markets, including testing and treatment for COVID-19, building a differentiated pipeline and global partnerships. The near-term key is the roll out of its SARS COV-2 antigen tests, including potentially one of the first Point-of-Care tests to-market, offering game-changing commercial scope, sufficient to significantly accelerate the clinical development of its Therapeutic pipeline.
Companies: Avacta Group
Kromek has received a material order from DARPA to further develop a biopathogen detector totalling $5.2m. This is an incremental market opportunity for the company and the majority of the contracted value is likely to be recognised in the company’s new fiscal period to April 2021.
Companies: Kromek Group
Many of the world’s best and most important products (eg Space exploration, nuclear medicine/power & the internet) were originally invented by the military. It’s happened again – but this time to combat airborne pathogens like Ebola, SARS/MERS and all manner of other biological nasties doing the rounds. You see on 10th December 2018, Kromek was awarded a $2.0m contract by DARPA (research arm of US Dept. of Defense) to develop a vehicle-mounted bio-threat detector. The idea being that this should be able to rapidly identify (within 1 hour) any dangerous germ that might have been released into the environment, say by terrorist groups, organised criminals &/or rogue states.
The potential of cell therapies is starting to become clear, and MaxCyte’s technology lies at the heart of many of these next-generation treatments. The pivotal role its platform plays is shown by ten major partnership agreements formed with leading cell therapy players over the past 18 months. These can earn pre-commercialisation milestones in excess of $800m, transforming MaxCyte’s medium- and longer-term revenues as the underlying programmes advance through clinical development. CARMA, MaxCyte’s proprietary cell therapy platform, is nearing a key inflection point, with Phase I data from its lead asset due in 2020. Management is targeting CARMA to be self-financing by 2021. We raise our valuation to £260m (340p/share), from £195m and 341p, with the core business alone valued at £158m (206p/share).
This morning’s announcement reports that FY2020 revenues are expected to be in line with consensus at £1.1m (Zeus Capital estimate of £1m) and cash at £4.2m (vs our £4.9m estimate) the difference reflects one-off costs associated with the Protagen, Biodesix and IPF transactions announced at H1 2020, with FY21-24 unchanged. The Company is mid-way through its 3-year strategy which included an initial period of fundamental restructuring and realignment covering Operational, Technical and Research, and Commercial targets and presents a confident message of building on this strong foundation to fully leverage the value of both the Oncimmune Germany proteomics platform and the EarlyCDT product pipeline.
The specialist cancer drug discovery and development business has today announced a deal which is set to crystallise value and near term cash generation from what was viewed by many to be a non-core asset for Sareum. Sareum has entered into an agreement with a Shanghai main market-listed Chinese specialty pharmaceutical company; the Licensee will make an initial upfront payment of £50,000 to Sareum, with a further Development Payment of c. £0.9m due on the earlier of achieving certain milestones on the oral bioavailability of the Compounds or nine months from the date of the agreement.
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.
Companies: EKF Diagnostics Holding
Synairgen (SNG.L): Preliminary 2019 results | Yourgene Health (YGEN.L): COVID-19 testing service launch and business update
Companies: Synairgen Yourgene Health
LiDCO provided a trading update, in which revenues in May are said to have returned to normal levels after an exceptional Q1 FY 2021 (£4.4m, some 26% higher than H1 FY 2020). With indications that elective surgeries, which fell during the peak of the COVID pandemic in its key territories, are beginning to rise again from recent lows, the outlook is for sustained growth during the rest of FY 2021. We have adjusted our FY 2021 forecasts to reflect the exceptional Q1 performance (primarily capital sales to NHS), but with scope to raise forecasts further as evidence of rising elective surgery rates occurs, coupled with the prospect that the recent capital sales should drive incremental per-use disposables. With cash balance of £3.2m at 28 May (£1.4m at FY 2020 year-end), the company is well positioned to explore additional sales & marketing opportunities in its key markets as customer hospitals exit lockdown and sales reps are able to access hospitals for evaluations. We upgrade target price to 12p.
Companies: AVO AGY ARBB ARIX BUR CMH CLIG DNL GDR HAYD PCA PIN PHP RE/ RECI RMDL STX SHED VTA