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For new potential investors like me, Why would you buy Novacyt shares?
Part 2 of 2
To me one of the most interesting but intriguing pieces of additional information was regarding their instrumentation. Clearly, they intend to develop products to complement the Q machines and reduce further the amount of manual pipetting. These devices (I assume designed to fit the circular test-tube rings that are used on the Qs) can then be sold alongside their Q offering when selling new products but also to all existing customers. And this is the intriguing part. When I emailed Novacyt some weeks ago, they were unwilling to confirm the number of Q machines sold (to the NHS or otherwise) and in the report they have shown sales from IT-IS by geographical regions as just over £1.5m. However, the total revenues attributed to IT-IS are, in fact, over £7.4 million! So IT-IS sold £1.5 million worth of machines directly to customers but a further nearly £6m worth of machines were delivered through one of Novacyt's other arms, I am presuming Primer Design (as part of tests and machine packages) and it is hidden in the £50m of Primer sales. So, it's not possible to say where these have gone geographically. But my calculations based on £15k per machine would be 500 machines in H1 2021 alone (if the cost per machine is closer to £10k then it will be more like 700 machines). Using the old razer analogy, these machines will not all stand idle but require feeding.
@brochrock
Warren Buffet is overused - but whether people are fearful or just plain bored - now is the time to be greedy and load up. IMO opinion the skeletons are all out of the closet and with AGM this week, imminent product development announcements, a new CEO starting and the DHSC eventually put to bed (I suspect in the new year following GLP reviews etc) by whcih time we will have overshot teh £100m revenue predictions for the full year, the future will be far more rosey.
IMO, DYOR, GLA
Part 1 of 2
I agree there's nothing much new in this report, the bad news already having been given a few weeks ago. Everything is being presented on the overly-cautious side. In other words, absolutely the worst case scenario - although if we did get absolutely nothing more from the DHSC, we would then be due some tax rebates that they haven't yet applied - so actually, they've totally overbaked the negative - possibly as part of their grievance and negotiating tactics. IMO the bad news, and there was plenty of it, is all out of the way and we have only upside from here.
With regard to the future development, the way I have read it , is the intention to apply their new (patents pending) streamlining tech(ProMate) to the 250 odd other PCR tests, giving them a strong competitive advantage for NPT and also to use their new sales force to proactively sell their existing and expanded (soon to be announced 2 new tests) PathFlow range of LFTs. It is not clear what they mean by making 'investments' to expand their geographical range but this could be M&A activity, they certainly are not giving too much away here. As with IT-IS, any such activity will be announced when the ink is dry.
Clearly, they want to milk the covid income opportunities as much as possible and revenue streams from this could go on indefinitely, as other posters have alluded to. Whilst they have previously said this market is predicted to decline next year, they intend to take a larger share of what is left, as they have not only superior products but now also have a sales force with which to do it. They are also best placed in terms of continued surveillance with their SNPsig range for those that cannot afford the cost of, or to wait for, full genomic sequencing.
Hillseeker ,
I have been sitting puzzling over the 7.9million intercompany sales since early this morning. If Primerdesign have sold that many Q machines as packages , then there is a big installed base to sell into. Why is this not being shouted from the rooftops , what am I missing ? Views please anyone.
@HillSeeker
Great assessment and to quote Warren Buffet :
' Predicting Rain doesn't Count. Building Arks Does '.
Think this applies equally well not only to private investors but to companies too.
Novacyt certainly haven't been lounging around while the sun shines and should ride the NHSC storm with ease.
It's only a matter of time.
@Kaeren,
My only explanation is that they are not the types to swagger and are avoiding any fanfare at all cost: One, it's not good to be seen as profiteering from the pandemic and, two, they don't want to alert the competition.
Instead they want to corner the diagnostics market by stealth and take market share from under the noses of the sleeping giants.
There is a another possibility regarding the machines that has since crossed my mind. They built a load of them for the NHS and now they are sitting as part of the £15m net inventory - would they be able to put that down as intercompany sales? I hope not. But, at least they wouldn't have a sell-by date, unlike assay stocks, and could be sold or given away as part of a package deal. Probably best not to speculate on this as it's only a thought - but worth further digging.
Just to add further ref the Q machines:
There was a significant incentive plan (in the millions) for IT-IS management to hit targets. So, there is no doubt they scaled up manufacturing considerably and it is in black and white in the report that the revenue for H1 is £7,424k. So, they definitely have made them in the hundreds - the question is, where have they gone?
Perhaps this is a Q for the the AGM we should be asking.
Don't know Hillseeeker , don't know if the companies are taxed separately . I certainly want to know where they are..
OMG Kaeren, I'm not sure where I got my £10k for a machine from? I thought that was the approx price for a Q16, and Q32 would be about £15k
The only source I can find is this https://www.b3cnewswire.com/201408271104/primerdesign-launch-worlds-most-affordable-real-time-pcr-machine.html , as all current resellers invite you to give your details for a quote. This article from 2014 boasts "the World’s most affordable Real-Time PCR instrument" at £3995. So, the most they would be selling the Q16 for now is about £5k. I was out by a factor of three.
£7,424k at just under £5k each equates to about 1,500 machines sold in six months!
The significance is that, if they were all being run at full capacity (14 tests at a time) on an eight hour day, five days a week, at 90 minutes cycle time (i.e. five loads a day which allows for 10 mins change over and a lunch break), they would require:
5 x 14 (per day) x 5(per week) =350 tests per machine per week x 1500 (machines sold in H1) = 525,000 (total weekly tests)
@ 10$ a test or £7, that's over £3.5m per week to feed the machines (just the ones sold in the first six months of this year). Over the course of 50 weeks we are talking over £175m. Now that's a fairly constant use over one eight hour shift per day during an average working week. So, assume that they are only used for a quarter of this time (some will be run more, others less) we still need £45m just for the upkeep of the machines reportedly sold in H1 this year. That's enough to justify a much higher long term SP on its own.
Hence, the need to establish how many machines have really been sold since the beginning of the pandemic and to whom. IMO this is critical to calculating a substantial part of the future income predictions of the company.
For new investors, it is critical to understand that these machines can run, not just covid tests, but at least 250 other PCR tests. Labs that use these machines and Primer Design's tests (such as Katalyst Laboratories), also have an eye on the post covid scene and have already indicated a desire to expand their testing portfolios for general health check type POC screening.
IMO this is where corporate responsibly to their work force will be heading, alongside a national heath strategy to be more preemptive, as the diagnostic landscape irreversibly changes.
That's why patience is required with this investment - things are moving more quickly than ever due to the pandemic, but it will take some time to fully evolve, let alone mature, and for ii too realise what's happening in this space.
It can be scary having a large holding and seeing value eroded with the SP back at this level, but I take comfort at looking at the 5 year chart as my default. From that view, the £3 level definitely looks like a base from which the company will now grow.
IMO only. DYOR, GLA
Hillseeker , I hear you and was running calcs on diff prices for Q's , as we all are aware how important they are to our strategy of coining it in from decentralised testing. I can play with numbers but am not an accountant so wonder if there could be intercompany sales that provide a tax benefit in anyway. In other words worse case scenario the Q's now sit as inventory on Primers book for accounting purposes. Definitely need to pursue this.
Personally think they have shifted quite a few even at close to trade price would be beneficial to us because of the longterm gains.Will try asking Mandy why the intercompany sale was transacted.
I think I will put money into these. I do wonder if another 10% loss is on the cards though.
Brochrock - you clearly have some insight that none of us do as the sentiment on this board is not to touch this with a bargepole. I'm currently sitting on a 40% loss (and growing) so if you have some positive insight please do share it!!
If you can't see the positives for yourself, one asks why tf you bought in the first place and why you wouldn't sell now
From a chartist point of view there isn't much support between here & 2.50. That is if we close at this price.
I am just waiting.......
PI100 - please speak for yourself, not everyone on this BB.
To me the fundamentals continue to be extremely sound by any metrics. Whilst no company is without risk, there could be huge upside gain, whilst the downside is fairly limited, considering the 100m revenue, no debt and cash in bank. I would fill my boots if I hadn't already done so 18 months ago at similar prices.
Please don't confuse recent sentiment regarding poor communication and lack of BoD engagement with shareholders' sentiment on their company's fundamentals. The tow are quite different. The way the board has handled certain decisions, the lack of support for the SP and ineffective broker engagement with II, as well as the LTIP, are causing constipation and we are rightly concerned/protesting about it - that does not mean this is not a strong buy at these levels.
IMO, of course, DYOR, GLA
Of course you are brochrock, of course you are....
lo - consternation not constipation!
Steve - I can see the positives but I can also see the SP trend. I believed in the company hence the investment, however, other than the rally after the investor meeting, it has literally been downhill. Times have changed in 19 months and it feels like the company is well out of its depth with regards to maintaining and improving shareholder value, which is understandable given the huge growth due to the covid cash cow. Why am not selling now? Well, a 40% loss is a good place to start and I want to see if the new CEO understands how to support shareholders. The company is clearly very good at what it does but would still be a penny stock if it wasn’t for covid, however I thought they would capitalise on that cash cow to improve the company at all levels, rather than just the product lines (obviously this is key but when you enter a bigger arena you need expertise in other areas and it seems ncyt doesn’t have that). I’ve written off the money in my head and so will persevere to see how the new man in charge approaches tbjgns.
For those that have held from 1200 odd earlier this year, a 10% move at this price is equivalent to a couple of percent of their investment, its nothing. Why would anyone care what the price is right now, up our down 10-20% is utterly meaningless to may of us now.
Even though on holiday folks, couldn’t resist a few more at this level. Gla
Hillseeker,
Think you got it right the first time :-)
I agree with your thoughts on shareholder comms and iis development....although the good RNS today has had negative affect on SP.....maybe the focus of the BoD is dealing with what they can influence, which is sales, product development, topline and growth ;-)
I could not agree any more P100. My sentiments entirely.
I would only add that the market has seemingly been ahead of the news on every occasion.