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Whilst it is not clear how long the global demand for COVID-19 antibody and antigen tests will last, we believe that it will continue for the next 12-24 months at least. The capacity that Omega intends to build into its Alva facility following the recent fundraise will be replaced in part by new lateral flow devices that it will develop and that can be marketed alongside VISITECT CD4.
This is taken from Finncap research today
Valuation
Our target price remains under review given the difficulty at this time of forecasting the potential revenues of SARS-CoV-2 antibody and antigen tests (both lab-based as well as POC tests in the case of Mologic’s and the POC test manufactured for the UK-RTC) with any degree of accuracy.
As described in our research of 19 June, based on a capacity utilisation rate of 10-50% of the expanded capacity for COVID-19 lateral flow device and ELISA test,
?Annualised revenue and gross profits for COVID-19 lateral flow tests (before labour costs) could range from £7.9m to 39.5m and £4.0m to £20.0m, respectively.
?Annualised revenue and gross profits for ELISA antibody and antigen tests (before labour costs) could range from £16.3m to £81.3m and £8.1m to £40.6m, respectively.
Sum-of-the-parts valuation
As described in our 19 June research report, and looking out towards FY 2022 as a representative year post-COVID 19 disruption, it is easy to see how a sum-of-the-parts valuation could be substantially in excess of the current market capitalisation of c.£80m.
?The existing Food Intolerance business generated sales and EBITDA in FY 2020 of £9.2m and £4.2m, respectively, growing by c.14% and driven by a c.£1m order from China. Stripping c.£0.7m from EBITDA to account for the Chinese contribution, the underlying non-China business could generate c.£4.0m of EBITDA in two years, which could command a valuation of c.£60m (15x EV/EBITDA, given 40%+ EBITDA margin).
?Assuming Chinese NMPA approval for the Food Detective self-test in the summer, revenues could rise to £6-12m (0.5-1.0m tests) in the next couple of years with gross profit of £4.0-8.0m, potentially larger than the current Food intolerance business. Based on an EV/EBITDA multiple of 10x, this could be valued at £40-80m, with a value today of £30-60m.
?VISITECT CD4 is potentially capable of generating revenues of £8-12m in the next few years once WHO PQ approval has been received and end users have familiarised themselves with the test’s utility, which implies test volumes of 2.5-3.8m. This would generate gross profits of c.£5.5-8.5m, which could be valued at £55-85m, a value today of £45-70m.
?COVID-19 UK-RTC test is a binary event. If the test is validated and CE-marked, it is likely that over the next two years Omega will be able to supply the consortium at its production capacity. Based on cumulative revenues of c.£15m (10m tests), this is arguably worth up £30-45m or 2-3x sales.
?COVID-19 Mologic tests. Assuming that it utilises c.10% of its annualised capacity for both LFD and ELISA tests, revenues could amount to c.£22m with a gross profit of c.£11m. This is arguably worth £45-65m.
Whilst it is not clear how long the global demand for COVID-19 antibody and antigen tests will last, we believe that it will continue for the next 12-24 months at least. The capacity that Omega intends to build into its Alva facility following the recent fundr