The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
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Granted. But not an easy thing to achieve as seen by the current alternatives being rubbished after a huge fanfare. And Omega already has design freeze. HUGE first mover advantage.
Given the global population... there's more than enough room for others.
Doubled my allocation above and beyond the 5%.
Your "What do we need for this to happen?" para doesn't seem to consider the possibility of substitutes or alternatives. Omega are not the only firm active in this area.
It's all free cash flow. Even the low end model - which would basically require really poor sales and i dont expect for a second this to be the case - would generate something like £75m of free cash by the end of 2021.
At the top end you'd be talking around £225m of free cash.
At a time when a lot of even establish stocks will be loss making, scraping around for cash, recapitalising to stay afloat.
Hi MB - all fair points I concede.
My gut feel is that the market will put a lower number on it, but will be interesting to find out!! My average is mid fifties so a fair bit down at the moment, but very happy to hold now. Despite the low SP, a fair amount of risk has been removed over the last few days.
PK - This was my response to a similar comment. I stand by i am comfortable using 5.
Because:
a) Its a very low multiplier as i noted regarding the uncertainty
b) This will be sustained for a minimum of 3 years IMO. The disease will be prevalent for at least another 18 months and testing will go on beyond the point where we start to consider the virus is no longer a risk.
c) The free cash flows that will be generated will be highly significant and these free cash flows could either go into further investment, share buybacks or dividends which would further increase the return to investors
d) As noted in the presentation the increased capacity will be put to use further down the line once covid is defeated with other tests. CD4 tests will grow, they have 2 new development tests of their own. The manufacturing capacity has value therefore they can market that capacity to other companies like they have done for Covid.
e) The Government have a clear strategy in Pillar 5 to grow the diagnostics industry. This growth is not just for Covid but to improve the UKs infrastructure for healthcare and diagnostics.
I am happy using 5 x earnings as a guide.
Hi MB - excellent post!
I would question your p/e of 5 though for the covid parts of the business, seems a little high given the length of time this will be going on is uncertain. Can't argue with the maths of the rest of it though.
For anyone new, I ran some numbers a couple of days ago to highlight the potential.
So if everything goes to plan, all the tests come to market on time and capacity utilisation is 100%:
£3 average selling price x 2m tests per week x 52 weeks a year = £312m revenues
Add Food tolerance and CD4 = £350m revenues. Average margin of 55% = Gross profit of £192.5m
Lets say admin and selling costs double call it £12.5m = Net Profit £180m.
5 x Earnings would be £900 MCAP. £5.30 per share
Opposite end of the scale, assume the bare minimum happens from what is already promised:
Based On 200k RTC tests, 46k per day Elisa tests and 200k per day Mologic tests by end of Sep, £1.50 average selling price annualised earnings would be £106m revenues at 55% average margin £58.3m gross profit. Say admin and selling up 50% = £9m. Net profit = £49.3m.
At 5 x earnings valuation £246m. £1.44p per share
Low ball is nailed on by the end of Sep in my opinion, and i find it highly unlikely baring a miracle that capacity utilisation wont be nearer the top end rather than the 10% scenario above.
To get to the top end we need the Antigen Elisa tests up and running by Oct and the POC tests by Dec. I prefer to treat these as a bonus at the moment.
My expected scenario:
Assume we will use 80% capacity for Lateral flow antibody test and 50% capacity for Elisa antibody. = £141m revenues @ 55% margin = £77.55m gross profit = £68.55 net profit = £343m @ 5 x earnings. = £2 a share.
This is my minimum expectation by year end. With just antibody tests and no antigen tests. Just an announcement that the lateral flow antigen tests are good to go, then double my valuation in the above scenario.
Instead of saying xyz share price is not possible do some sums. It's not a difficult company to put a valuation on. Even if you don't like some of the numbers put your own in. I bet you you get a lot higher than 40p.
What do we need for this to happen?
RTC test approval - highly likely given the process and people involved in design and the fact the whole consortium have already move forward with capacity expansion.
Lateral flow utilisation of 80%. Well RTC is 200k minimum. I'll be shocked if they do not want more. Mologic lateral flow tests will come on board shortly, with 75 countries available to distribute. Capacity should achieve 100% but im confident 80% is guaranteed.
50% Elisa tests - Mologic agreement of 46k per day is already 30%
Food tolerance - China self test approval - highly anticipated to come soon
CD4 WHO approval and continued orders - delayed from start of the year due to covid. Highly anticipated.
This is not pie in the sky this stuff is already all happening and will come together in the next couple of months.
BTW 5 x earnings is conservative based on the unknown time of this virus and the fact i have ignored tax. A higher multiple is achievable it could be anything from 5 to 30.