Finncap note14 Jul 2020 11:59
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
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