Member Info for GW2014

Revenues of £92.4m. That's a lot more than we expected. I think Liberum estimated £86m with a 190p price target! I just think this company is so undervalued.

So how does he buy millions of shares "on the open market"? You can't do that because the float no big enough.

We pretty much know for certain that SBI will post full year revenues of £85-£90m - and with ebitda 30% it likely gives them £45-£50m in cash in bank after tax. We also know that opening of the California lab is imminent which would add 2000 pcr tests per day. it’s how you value that on the presumption that the pandemic goes away in 2022. Market cap is currently £120m and I can see why Liberum’s PT is 190p but seems conservative.

Certainly good value but value doesn’t always translate to share price

Nice presentation and analysis. You indicated that the anonymous institutional investors should stop selling soon which would mean that the share price should resume its upward trajectory, but why should we presume that? From a charting point of view the SP has come down to below breakout on Friday which seems incredibly oversold. The last sustained buying/upward trend after earnings/ex dividend commenced around 6 weeks after earnings which would mean we are looking mid December. Does the share buy back programme have a fixed date that it starts buying ? How does that work? Is it continuous? Who controls it?

I think some folk on here don’t really understand how share prices move. In the short term the market “is a voting mechanism” - BP sold off after earnings because they’d had a big run up from about 300 to 360 - pretty much in a straight line. Short term and swing traders in the market would sell for profit after a big run like that with only long term holders left. Also short sellers will push it down a bit when they see the momentum and jump in- but these are short term trading moves. Usually a stock will sell down to its next level of support or breakout - certainly until the downside momentum has dried up which is a short term phenomenon. Once the selling pressure is relieved then the volatility stabilises and value investors will step in and buy the shares and that will be supported by company buybacks. Then there will be momentum on the upside with traders going long again because it’s going up. The short term moves are not about valuation. The same thing happened in the summer and the shares went down briefly to 280p. The last time the downside momentum stopped about 3 weeks after earnings and the major upward move started about 5 weeks after earnings. Of course oil price selling off can affect it as well, but the stock is so cheap compared to cash flow that I can’t see that it doesn’t go back to 2019 SP level.

By whom though? Who would be in the business of buying lab services companies?

i just watched that. Jessica Uhl is just so unconvincing. her answers are full of stumbles and she sounds uncertain. Terrible.

apologies but having looked at their Sept statement Ebitda was only just over 30% in the first half of the year ( I had previously read that covid ebitda was about 40%) so this may be lower because maybe the NHS tariff is less than private price. With that we could adjust full year EBITDA at £150m revenue to £45m. That would give them an EV to Ebidta ratio of around around 2.2 and about £50 m in the bank at the end of the year.

That is true but they were only doing about £20m in revenue from their 3 other businesses in 2019. Now they are a quality company and provide excellent service and they only started Covid testing in May 2020. They did £51m in revenue in 2020 in total and £37m in the first 6 months of 2021 and it looks as if their Covid testing is significantly more in the second half of 2021. They said in their half year report that they were doing 14,000 covid pcr tests per day in September and now he is saying they are doing 20k per day in October so my previous average estimates are probably way down on current revenues because that is £500k per day in Sept and £800k per day in October and with this third wave it looks like the NHS demand they have is not decreasing any time soon. So lets say they have on average £500k per day Covid revenue in the second half of 2021 that would be £90m in covid revenue in the second half of the year and £10m other revenue, - full year revenue of around £140 to £150m about £55m to £60m in full year Ebitda 2021. take off tax etc that's about another £40m in the bank so they end up with around £60m in the bank at the end of the year and probably continuing high numbers of testing well into 2022. At 130p share price (£100m market cap) that is essentially giving no value to the covid/ID business into the future and valuing the pathology/refrigeration and NGS business at 2x revenue (about £40m). it's very much a value play but until they post the numbers in January I don't think the share price moves much. Now they are in the process of setting up the lab in San Diego and they were estimating an extra 2000 pcr tests per day from that lab, but they were waiting on final USA approval (?FDA approval) to get that lab up and running which has been in the pipeline for a long time. So who knows. Certainly, if I had £100m in my back pocket, it would seem like an absolute bargain. You'd basically get your money back in revenue back in less than a year with a 40% Ebitda and get the whole non covid business thrown in.

Basically, the company is making lots of cash and have £20m in the bank, no debt and a thriving covid business with much smaller pathology, pharma refrigeration, and genomics businesses. The market cap of the company is around £100m. Jay mentioned in the latest interview that they have been doing 20,000 covid pcr tests per day. I think that sounds an awful lot since they were only doing a third of that in the summer. however i believe they got a big NHS request to do testing for them a couple of months ago so maybe they are doing that number temporarily. The charge about £40 per test and have an Ebitda of around 40% per test. Even if they were doing say 10,000 per day that is £400k in revenue per day which seems incredible. That is £12m in revenue per month and about £5m per month in Ebitda which means that for covid alone at 10k test per day they are making £140m in revenue per year. Now i don't think they do 10k test per day but even if they do 5k on average over the past months and into the next 6 months then we are still looking at £70m per year in revenue from covid alone. The market is basically not giving them even 1x revenue in valuation. The yearly revenue for the company is going to be well north of the market cap. The need acguire a business that has decent profit margins.

Sorry the liberum broker's note said testing would peak in mid 2021, not increase all year.

So I've been crunching the numbers on SBI. They are currently doing at least 10,500 Covid pcr per day and trying to expand. Say they do 11,000 per day. Doesn't seem like a stretch . That’s about £450k per day in revenue. That is expected to continue for around 6 months at that level and then decrease. Well that's what the broker's note from Liberum predicted and in fact it projected that this number would increase till the end of year so it could be more. Anyway if we stick with 11,000 per day average between now and mid 2021, that’s about £80m revenue in the next 6 months. The Ebitda was approx 27% of revenue last year so you'd think it’s the same or more this year (the Covid testing business has higher margins in total - 46% in the flotation document and that was before economies of scale). The ebitda could easily be 30% of revenue, given that it’s nearly all COVID. For 2021 first half revenue £81m gives ebitda of £24m first 6 months (~30% revenue). Currently share prices is 230p which is approx £175m in market cap. The company’s revenue in the last 6 months of 2020 was £40.5m. ebitda on that would be around £12.5m. That’s a market cap ebitda multiple on second half 2020 of 14. That means that at the same multiple on the first 6 months of 2021, the market cap would be (14 x 24) which is £336m . That would be a share price of 441p. It just depends on how market sees the business going forward.

Are they not allowed to say who the "high street retailer" is? Why the secrecy?

For context, even at our target price the shares would trade on just 12.5x
2023E EBITDA, or in-line with its peers despite still having a double digit
growth outlook. Should management deliver our forecasts over the next
12-18 months we believe it could garner a 20-30% premium to peers
which would imply a £2.25 value per share.

Key investment points from Broker's summary:

Well prepared for public market success: SourceBio was taken private
in 2016 with a new management team (experienced in turnarounds)
brought in to simplify the divisional structure, cut duplicate costs and
invest in revenue generating assets. The team duly delivered with excellent
underlying EBITDA growth over the past 3 years and while COVID-19 will
hit 2020, we expect it to deliver >20% p.a. growth to 2025. In addition, the
group has a unique opportunity in COVID-19 testing to generate c. £61m
of FCF over the next 2 years that can turbocharge the platform. To
facilitate this growth it raised £35m in October through an AIM IPO. We
believe that the business is now well positioned to execute on the
exceptional opportunity.
? 27% Base EBITDA CAGR to 2025: We believe SourceBio’s base business
has been successfully restructured, is fully invested and has the right
management team to deliver the 27% EBITDA CAGR that we forecast to
2025. Key to this will be the Healthcare Diagnostics business (c. 40% of
revenues) that has grown by c. 30% in recent years and is set for a
bumper 2021. Meanwhile, the highly resilient Stability Storage Business (c.
40% of revenues) should deliver mid-single digit growth and the smaller
Genomics business (c. 23% of revenues) is set for c. 20% growth having
had significant investment in recent years. This defensive, diversified base
business can more than double EBITDA over the next 5 years.
? COVID-19 revenues are real and durable with scope for diversification:
SourceBio is a leading provider of PCR testing (gold standard) in the UK.
We believe demand will continue to outstrip supply until a vaccine has
been fully deployed – something that is unlikely until the end of 2021.
Under this base case scenario, we forecast £61m of FCF from testing over
the next 2 years but see significant upside if management can expand
capacity beyond our conservative assumptions or a vaccine rollout is
slower than expected. We also understand that management is working to
add additional services to its portfolio with scope to expand into antibody
testing for example.
? Near-term FCF generation leaves base business significantly
undervalued: There are two distinct parts to SourceBio and hence we
believe a sum-of-the-parts is the best way to fully capture the value across
the business. Our DCF value for the base business is £1.21 per share while
our DCF for the Infectious Diseases opportunity is £0.80 per share. The net
result is a fair value and the basis of our Target Price of £2.00 per share.
With 15% upside from the current share price we initiate with a BUY
rating.
? For context, even at our target price the shares would trade on just 12.5x
2023E EBITDA, or in-line with its peers despite still having a double digit
growth outlook. Should management deliver our forecasts over the next
12-18 months we believe it could garner a 20-30% premium to peers
whi

So they have actually released news that they have anticipated £50m in revenue in 2020 (up from £20m in 2019) and looks like they will have revenue of £150-£200m next year according to the Liberum broker's research analysis which i will email to anyone that wants it. That doesn't include any extra sales from any vaccine related freezer sales and it probably underestimates the amount of covid related PCR business. We are looking at a price to next year's revenue ratio of 0.75 with them having cash in the bank of around £50m at the end of 2021.
At the current share price seems way undervalued to me.

Shaun, I saw your very impressive spreadsheet on Novacyt (I have quite a large position in that!). Have you done any similar research in SBI? Seems undervalued. I have the IPO liberum floatation document if you want me to email it to you.

2/2:
In addition, the Company announces that it has been accepted into the Increasing Capacity Framework Agreement for cancer testing services to NHS England. This Framework is designed to reduce the significant backlog of elective surgeries impacting the NHS due to the COVID pandemic and is expected to support the continued growth of the Healthcare Diagnostics business unit in 2021.
Due to the considerable ramp-up in COVID-19 testing revenues delivered in the second half of the year SourceBio expects to report total revenue of approximately £50.0m (2019: £21.2m) and EBITDA of approximately £14.0m (2019: £3.0m) for the year ending 31 December 2020, with the vast majority of this increase in expected earnings driven by the contribution of COVID-19 testing revenues.
Jay LeCoque, Executive Chairman, said: "A key part of our investment case has always been our positioning to deliver against an unprecedented COVID-19 testing opportunity. The funds from our IPO are enabling us to further scale our COVID-19 testing services, to successfully deliver against expected increases in future testing. We believe we are in a very strong position for the Lot4 bid, and when awards are made in the New Year we have the potential to increase our testing volumes over the course of this framework."

So here is the trading update from end of November. I got this from research-tree.com who cover SourceBio:
1/2
SourceBio International plc (AIM: SBI), a leading international provider of integrated state-of-the-art laboratory services and products, provides the following update on its testing contracts, its capacity for COVID-19 antigen RT-PCR testing services and an update on trading for its current financial year, ending 31 December 2020.
Highlights
Renewal of testing services contract with Spire Healthcare Limited ("Spire") · Over 330,000 COVID-19 tests provided under existing Department of Health and Social Care ("DHSC") contract · Public Health England's ("PHE") National Microbiology Framework now expected to be awarded to successful applicants from February 2021 · SourceBio continues to build capacity for COVID-19 testing services to support expected further demand into 2021 · Application for National Microbiology Framework has been submitted on the basis of building testing volume capacity above management's earlier expectation of 10,500 tests per day · Award of NHS England framework for cancer testing services · The Group now expects to report revenue of approximately £50.0m (2019: £21.2m) and EBITDA of approximately £14.0m (2019: £3.0m) for the year ending 31 December 2020.
Since May 2020, SourceBio has provided COVID-19 testing services as part of its newly formed Infectious Disease Testing business unit. These services passed all of the auditing requirements of the NHS and the DHSC in April 2020.
Two key customers for the Company's COVID-19 testing services are the DHSC, under which SourceBio has been contracted to contribute to the critical national COVID-19 testing requirement, and the private healthcare group, Spire. The Spire contract was renewed in early November, as expected, and under the DHSC contract, which is set to expire on 12 December 2020, the Company has successfully processed over 330,000 COVID-19 PCR antigen tests. The DHSC contract is expected to be extended through Public Health England's ("PHE") National Microbiology Framework Lot 4 - Clinical Laboratory Diagnostic Testing Services ("Lot4"), however this framework is now not expected to be awarded until February 2021, although this may be subject to further change, having originally been expected to be awarded in November 2020. This delay is expected to impact testing volumes into Q1 2021 but the Board remains confident in its financial outlook for FY21 as a whole.

Following the Company's Admission to AIM in October 2020, funds have underpinned further scale-up plans for COVID-19 testing and as a result the Company has submitted an updated Lot 4 application based on Directors' assumption of increased testing capacity beyond their original target of 10,500 tests per day. The Directors believe that the Company is well placed to bid for this framework given its capability, track record and high level of accreditation.