Instem has released a trading update in lieu of FY 19 results scheduled for March 30. The announcement confirms the FY 19 outcome was in line with both the Jan-20 trading update and our forecasts. With COVID-19-driven disruption to the global economy ongoing, the release provides no commentary on outlook - we therefore maintain FY 20E and FY 21E forecasts at this stage and will revisit estimates in due course. We continue to consider Instem well placed to weather macro turbulence and note the £6m cash position – the business is, in our view, defensively positioned.
The release confirms FY 19 revenue at £25.7m (+13% YoY) and adjusted EBITDA of £4.9m. Both are in line with our forecasts (but remain subject to audit). As heralded in the January update, FY 19 performance was driven by good momentum across the business. All three of Instem's key business areas (Data Collection, Regulatory Solutions and Informatics) performed well during the year, with each benefitting from a positive market backdrop and strong market positioning. The closing cash position was confirmed at £6.0m - this figure is prior to IFRS 16 lease liabilities, and also before deferred consideration for Leadscope. Despite the c£1.9m initial consideration for Leadscope being paid during 2019, the closing cash is still some £2.4m stronger than the prior year.
The release provides no commentary on the outlook for FY 20E. We therefore maintain FY 20E and FY 21E estimates at this stage but will revisit in due course.
There are currently a record number of drugs in development (source: Pharmaprojects Annual Review 2019) and historical data points demonstrate that the pharma market is resilient in times of macro-economic uncertainty. We note the drug pipeline is a key driver of demand for the types of services offered by Instem. In our view, the group has strong market positioning and a solid platform with no supply chain dependencies. It is therefore well-placed to weather macrodriven turbulence. Furthermore, with a cash balance of around 10% of the current market capitalisation, the Instem investment case is underpinned by a strong financial position.
Clearly COVID-19 continues to impact the global business environment. However, we believe that Instem has a number of defensive qualities in these challenging times. Given the business’s core competences in facilitating new drug and vaccine development, it stands to be a beneficiary from the urgent demand for a solution to the COVID-19 pandemic.