H120 adjusted EBITDA of £9.1m was the main positive surprise for us in Ergomed’s full interim report released today. We have increased our adjusted EBITDA forecasts to £18.3m (up 8.6%) in 2020 and £20.1m (up 6.8%) in 2021. A strong order book (£151.4m, up 22.0% from the end of 2019) with high visibility into 2021, continued overall business growth and a strong balance sheet should allow Ergomed to successfully navigate the COVID-19 pandemic, invest in organic growth and look for potential strategic acquisitions. Our valuation is upgraded to £409m or 845p/share.
H120 revenue numbers were released with the trading update in July 2020, which we reflected in our last update. H120 gross profit increased to £18.5m from £14.5m, with gross margin improving to 45.8% from 41.2%. H120 adjusted EBITDA increased to £9.1m, up from £6.5m in H119. We fine-tuned our expectations and now forecast total revenue of £84.1m (down 1.8% vs previous estimate) in 2020 mainly due to lower pass-through revenues due to COVID-19 pandemic. We slightly raised our PrimeVigilance (PV) segment revenue forecasts but take a more cautious view on the contract research outsourcing (CRO) segment as the COVID19 pandemic enters the winter season. Better-than-expected H120 adjusted EBITDA led us to upgrade our estimate to £18.3m (up 8.6%) in 2020.
Ergomed has proved to be a resilient business, which we attribute to a diversified and well-balanced pharma services offering (pharmacovigilance and CRO). Widespread lockdowns inevitably caused disruptions to the clinical drug development industry; however, demand for pharmacovigilance services remained high. Gross margins across Ergomed’s PrimeVigilance and CRO businesses are roughly similar once pass-through costs have been accounted for. As a result of this well-balanced services offering, Ergomed was able to successfully navigate the disruptions caused by the pandemic.
We have refined our peer group valuation methodology. While 2020 and 2021 EV/EBITDA multiples of the broader peer group have contracted 15% and 8% since our last update in July, the market continues to attach a premium to growth stocks. As a result, we believe a better comparison is Medpace, which is has a comparable EV and growth rate and trades at a c 20% premium to the sector average. Applying the same 20% premium to peer multiples we upgrade our valuation to £409m or 845p/share from £345m or 713p/share previously. The H220 trading update should be released in January 2021, as usual.