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A share buy-back may seem counter intuitive if you intend further M&A activity, but when your SP is materially undervalued and you are hampered from making any purchases for the time being, it may actually make perfect sense.

Say the company feels it is heading toward a dispute resolution, but nothing can be announced to the market yet. They could instead announce the intention to repurchase shares. They would not be able to buy them for the current 333p as the prices would immediately rise, but under £5 is a possibility. Once the ink is dry on the DHSC dispute, they put out an RNS stating such. The price will inevitable rise further. At this point II will be interested and Novacyt can either re-sell the bought-back shares to the the market or keep the shares as part of any M&A negotiations. Their £7m invested in shares at sub £5 will be worth well over 10m, with potential to be double this, depending on other news they may be able to release.

With the DHSC dispute behind them, they no longer have to set cash aside. Novacyt would know exactly how much purchasing power they have and could then proceed with their intended acquisition. They will have increased their purchasing power, whether they chose to resell or hold the shares.

This could potentially be a shrewd move - but something tells me, this is not their intention. But who knows? - and an interesting debate, nevertheless.

Either way, looking forward to this righting itself at some point soon.

I will be voting for the resolutions but will be holding my vote to just prior to the meeting. I would prefer to be able to attend in person and hope this does not become the norm. I feel they are using the pandemic partly to avoid a face-to-face meeting and steer clear of any shareholder dissatisfaction or vitriol even. [My understanding is that it only takes 5% of holders to demand this, but I would need to look into it further and I am unsure how this would be enacted if required.] I can also understand, however, that holding a meeting in France, the practicalities would, indeed, be difficult at the moment.

So, instead, I noticed on my voting slip, we are still able to pose questions; perhaps this is something we could debate here?

GLA

Sajid Javid was pressed on this on the Marr Show this morning:

https://www.bbc.co.uk/programmes/p09vrrv1

Q. [The PCR test] "that's going to go?"

A. "We haven't said that. I wan to get rid of it as soon as possible; I have asked for advice"

He later reiterates the decision will must be based on public health advice.

So, yes, I agree with Kaeren, wanting to get rid of PCR for travel and doing so are two different things. Clearly, they want to appease Tory MPs ahead of the vote on the NI increase this week, so they want the populist mood music, but will they really be that foolish after having let Delta in? Possibly, but I'm not sure this is as clear-cut as the Mail is making out. A lot can happen between now and October; let's watch the numbers - I don't think public health will be for this change, personally, but the politicians have made some pretty unpredictable decisions so far, so who knows?

Reading through the posts today, there seems to be a degree of confusion regarding some figures and the expected growth rate.

As far as I am aware, the only projection NYCT have given is the 100m revenue for the current year, which most of us believe is on the very conservative side and does not include any DHSC/NHS (think, potential WinterPlex revenue alone). We already know the first 6 months were as follows 10m, 10m, 10m, 7m, 7m, 10m = total 54m of private & international sales. But the first three months included the 10m UNICEF order for the Ukraine, so in reality, the private & international rise has been steadier throughout the first half of the year. The final figure of 10m was for June, before travel was freed up. Even if we plateaued at 10m per month, the yearend revenue would be 54 (H1) + 60 (H2, 6x 10m) = 114m (no DHSC, no WHO no further UNICEF).

So, 100m is very conservative, we already know that we have additional sales going to NHS before the dispute is even resolved. Plus, who thinks revenue will be at June levels considering all our Fit2Fly and other private sector partnerships?

As SteveV pointed out, the 5% AG projection is not Novayct's predicted growth, but the expected growth in the IVD market as a whole which is currently estimated to be 69.5bn and is projected to be 114bn by 2030. This 5% figure is IMO being incorrectly applied as a Novacyt forecast.

A Novacyt 2022 forecast is very difficult to predict, let alone 5 years. H1 this year was 50% higher than last year, but I think the company is somewhat disingenuous in making the comparison, as there were no Covid sales in Jan-March of 2020. (So, it's comparing apples with pairs.) The DHSC figures makes the comparison even more difficult. H1 2020-21 comparison in DHSC = 121% (private & international = 20% increase), which explains why the DHSC is such a significant factor and a drag on the current SP. Private, travel sales are the NCYT making hay whilst the sun shine.

But, it is how this cash is used that will be the most significant factor in the company's growth. We have marketing and support foot soldiers throughout the UK now (which we did not have pre-covid) and we are building similar in the US and the continent. M&A could accelerate this considerably. The company clearly wants a growing share of the above 69.5bn (soon to be 114bn) IVD market. So, whilst covid may eventually subside, I think our aspiration is that revenues will transfer to the 500 to 600 odd other products, which will be enhanced by the ProMate technology (quick & easy to use with no expensive cabinets) combined with Q16/32 portable device to bring POC to a myriad of settings. A true market leader in in near-patient, rapid screening.

I am a LTH but also climb hills and chase rainbows - if ever there was one with a pot of gold at the end, this could be it!

GLA

Nice post, Sam and exactly why many of us are here: Multi-billion pound company in the making. But, it will take time to go through all the gears. Waiting with patience for the next shift up - coming this autumn IMO.

GLA.

Others? I think. it's only you and I who are here!

Thanks for the ASML tip - Will look into that. I thought the same ref the microchip shortage, so this could be an interesting in. Novacyt will rocket in the autumn IMO; think back to the virus levels last August and then what happend. We're in a more rather than less precarious situation. We have vaccines now but Delta is a completely different beast to what we had then.

But back on topic, as you say:

Nice and steady uptick today - Ibstock nearly back to its 240 high.

I have a few in Jet2, and a even more in SAGA but my main holding is Novacyt where I am totally overweight - and fully invested too. If I had more funds it would have gone in to there by now; just waiting for the re-rate!

@Alas_Smith - thanks for the heads up:

https://www.thetimes.co.uk/article/ibstock-is-building-itself-up-for-a-rally-88whjdlw0

@Tra1

That's because, come the end of August, everyone is back from their hols and looking to re-invest their money!

Where better to put it than this quality company at these prices? They have handled their customers well from what I have gleaned, unlike some others, and kept their reputation intact by refunding promptly when they needed to.

The downside risk is slowly receding now.

GLA

@ Robleo - sorry I have switched threads, as your header was a little negative for me.

Your point was that people these days shop around. I completely agree that most do. There's no way I would pay over the odds for a holiday like this. But I'm only just over 50 and I am not really the target market.

My father-in-law, however, has just been round. He is 80 years old and he was waxing lyrical about how the SAGA driver had not only stopped for coffee, and brought it to the table for them, but that had insisted on paying for it.

I didn't have the heart to tell him that that cup of coffee probably cost him over five hundred quid!

This is what RDH is about, the target audience - customer care for this age group. These people want to be looked after, they want piece of mind and they are happy to pay the extra money. You wouldn't believe how much over the odds my father -in-law has paid for everything from the boiler to double glazing as he always want it top quality/recognised brand/guaranteed etc and the new SAGA brand just fits him to a tee.

You can look at the news of Worldquant closing its short in two ways. If they still had the short position, this would mean that they would still need to buy back the shares that they have borrowed. If this happens when the share is suddenly rising (called a short squeeze), it can add huge impetus to the already rapidly rising price, propelling it even further, as everyone is scrambling for the same shares. So, you could say that, having closed the short, this buying pressure is already out of the system, so it's not such a good thing that they are already out.

However, I am glad they are out, as it just clouds the picture and brings negativity. If they are willing to short the share it means the view of equity investors is that this is on a downward trend. Closing the short signals the opposite. So, whilst the amount involved was relatively small, the change in sentiment can be magnified in terms of feeing towards the share in both directions, not least with their algorithms feeding small sells into the market to support their short. Doing this when there is little other trade can be surprisingly effective causing a gradual drip, drip down as it results in PIs and other investors loosing faith and selling too. Hence, the SP never reached a natural bottom and became vastly oversold.

What may have been forgotten and could be equally as significant is Vatel and their holding. Remember them? They converted their loan to shares. My feeling is, this is what prolonged the downward trend in early summer of 2020 (selling 800k shares). We had a similar prolonged situation then, when the company then seemed materially undervalued for such a long time with little to explain it; it even continue down well below the 300 mark after several BoD members had bought in. I believe they may have contributed to the pain since March this year too, as they could have been selling up to a million shares this year. Let's hope this year's allotment are all gone now. [Has anyone been able to find a record of their current holding/position?]

Whilst it was great to have no debt, the way this debt was cleared seemed a little naive in retrospect, as it was inevitably going to cause detrimental pressure to the SP as some point or another, selling nearly 3m shares (4.28% of the share in issue) - even if this is done in three tranches). It might help explain things a little! Perhaps Worldquant and Voleon had worked this out and were piggybacking of this.

Just another million to sell next year! Hopefully, the SP will be far more buoyant then and, with an upward sentiment, the effect will be far more marginal.

For new investors - from RNS Wed, 3rd Jun 2020:

"Vatel has agreed to a lock-in period for a certain number of the Ordinary Shares, whereby 1,107,255 Ordinary Shares will not be sold or transferred before 31 December 2021, and a further 1,033,438 Ordinary Shares will not be sold or transferred before 31 March 2021. The remaining 811,988 shares have no such re

@Kamakiriad

It's a bit early to do anything at the moment.

The vote appears to be binary - either accept all resolutions or reject all resolutions (or cast no vote - a bit like defacing your ballot paper).

But we don't know what the resolutions are yet. They may want to put some less palatable items (new LTIP) amongst some sweeteners but let's wait ans see. There is no hurry as votes are not required until 17th Sept. Also, once you have voted, your shares will be ring-fenced, meaning you cannot sell them without asking your broker to first remove the ring-fence (this stops you from voting and then selling the shares).

I hope that helps - basically wait until they have announce the resolutions and we can see what we are voting on.

Regarding the price action today, there is some reassuring stability. There was some early buying and profit taking, which is good, as this removes traders who bought in at lower prices. A few days of consolidation will be no bad thing.

GLA

Thank you all for the positive feedback, glad it was useful - I've got a bit of sore head today :(

@donnodertrader - if you are keeping this, you may want the bit below. I noticed in my haste to get out yesterday, the 4th post was cut off in the middle of point ten. There are actually 11 criteria. Here's the missing bit:

10. Reasonable asset position
The company does not really qualify for significant tangible assets. The worth is in the intellectual property and people, which I believe are worth considerably more that the 152m I calculated earlier.

11. Management shareholding
Various board members have bought in at various stages. (I do not believe that these shares were issued by the company; it’s not part of the LTIP – but I will not get into that argument here.) A certain, new, US focussed member of the board bought in at a considerably higher price to the current SP and this to me is significant and indicates strong growth potential in this area.

1 of 5

I have noted the request by some of our less experience investors for some useful pointers regarding investments in general. In addition to the books mentioned by Soder, may I recommend Jim Slater’s ‘The Zulu Principle’? – ‘Making Extraordinary Profits from Ordinary Shares’

It was first published in 1992, when I was rather newer to investing, but updated additions are still available and much has remained the same. [The main difference now is that PIs have much better access to information, which previously you would have had to obtain through your broker. Sometimes, we are, indeed, ahead of the big boys these days.]

The Zulu Principle explains how important it is to focus when investing and become expert in your field/company.

I believe this excellent board and its many fine contributors, with all their links to important information, have enabled us to become so.

One note of caution on this. I have learnt this can backfire sometimes, as has happened in this share. If you (and just a few others) know how good the share is but no one else does, you can get in too early and pay over the odds. The share will only rise as other investors get on board, as they too start to see what you can see.

2 of 5
As it’s a Saturday, I thought it would be a useful exercise to go back and re-apply Slater’s principles to Novacyt. His updated criteria for selecting dynamic growth shares are as follows (in assessing the criteria Slater states 1-5 are mandatory, 6-7 important, 9-11 desirable):

1. Positive five-year record
2. Low P/E in relation to growth rate (PEG)
3. Optimistic chairman status
4. Strong liquidity, low borrowings and high cash flow
5. Competitive advantage
6. Something new
7. Small market capitalisation
8. High relative strength
9. Dividend yield
10. Reasonable asset position
11. Management shareholding

Although the company is not paying a dividend yet, if one starts from the bottom and works up, we tick most of the boxes – some exceptionally well. The difficultly starts at point 2 where we have had much discussion and point one where we completely fail.
I shall go through each point in turn, as briefly as I can. Partly to aid board discussion but also to explain the terms to some newer to investing.

3 (a) of 5

1. Positive five-year record
Slater recommends five years but says at least three. Well, we have one and a half! This will be the main thing holding back II investment (as well as pt7). We do not have a history of growth and many of us are banking on this being the start of that five-year period. Some are expecting growth to drop somewhat after last year’s windfall and then be maintained at a lower level. You need to decide. The BoD are stating that Covid sales generally will drop by half each year, but they expect to gain an increasing share. Overall, they believe the company revenue will increase with a CAG of 5%. Many have mocked Porky’s £54 figure, but I do not recollect him giving a times scale; I may be wrong. If we maintained anywhere near today’s sales over the next three and a half years, this figure could easily be overshot by 2024 IMO. Equally, some may think sales will nosedive.

2. Low P/E in relation to growth rate (PEG)
This is point is equally contentious. Soder laid out some interesting figures regarding value. Here we are looking at the PE ratio divided by the growth rate, to give a PEG value. Anything below 1.0 is good and anything below 0.75 is fantastic. The difficulty being, we cannot accurately predict the PE nor the growth rate.
Earnings per share is possibly the easiest bit, as we are certain of 100m revenue (not including DHSC) and EBITDA of 40%. The company have stated 80% margins on this giving us after tax cash of 32m. [This bit, incidentally, I thought was incredible. The 80% is based on 19% corporation tax (which may be further reduced with patent provision) and just one percent capital spend! Also, the fact that we are spending less than 2m on R&D was phenomenally reassuring – that 92m is staying in the bank and being added to – no cash burn here!]

So 32m/71m = 45p per share. With current price of 418 it gives a PE of 418/45 = 9.3, which seems fair. But do we really think so? DHSC resolution still to come (plus possible windfalls from WHO or UNICEF) and who really thinks 100m is not going to be beaten? The more difficult bit, however, is predicting growth. NCYT have announced ‘Unaudited revenue for the first half of 2021 increased over 50% to £94.7 million, compared to £63.3 million for the first half of 2020.’ But this is including 41m of DHSC. Take this off and H1 2020 to H1 2021 is 63.6 to 53.9 (94.7 - 40.8), a 15% decrease! But that’s comparing apples with pairs, so instead they go back to year on year and say: ‘Of this total revenue, £54 million came from a mixture of overseas sales and a growing UK private testing market, leading to non-DHSC revenue growing 20% year-on-year.’

3(b) of 5
So, PEG is pretty much impossible to calculate. Hence other attempts to look at value. One thing Soder did not mention in his valuation was the inventory situation. Normally, this would be small and of little relevance, but not in this case. At almost 30m this needs to be considered.
The current SP is 418 which makes mCap 295m (70.6m x 4.18). But cash in bank at end of year will be at the very least 124m (92 end of year 2020 + 32 after tax 2021 profit). So, taking off the cash position, the value is 171m. We owe the directors 11m (LTIP) and have 30m of inventory, giving a further 19m of net assets (there are other cash type assets such as carried forward tax rebates, patent tax etc. - but keeping it simple as I can) we have a net company worth of 171-19 =152m and earning 32m! This puts us back on a PE of less than 5, but still not including DHSC or WHO or UNICEF or the overly cautious 100m estimate.

This gives me the confidence to accept points one and two on the list are not without risk but acceptable – if one wants 5 years of figures showing strong growth then you’ll be paying at least 10 times the current SP IMO and this is what it all, including the more ‘rampy’ predictions, essentially hangs on.
The remaining points are more straight forward:

4 of 5

3. Optimistic chairman status
This was until recently a cross, but now it is a strong tick, and when DA comes onboard with his strong marketing skill, it will be an even bigger tick. It is important to sell your company and its innovative products, not just to customers, but to your shareholders too.

4. Strong liquidity, low borrowings and high cash flow
With so much cash in the bank, no borrowings and great cash flow this is an easy tick, which reduces the risk element of my investment significantly. But the same goes for those looking for M&A. [Last week we were extremely vulnerable to takeover, with our cash approaching share value.]

5. Competitive advantage
This is a huge reason to be invested here. PCR is a competitive market, but our size and agility makes us first to market every time. Not just Covid, but SARS, Ebola etc. We are also high end on quality and reliability. Even if UK Gov does not value this, others do.

6. Something new
The DHSC dispute may have been a blessing in disguise. Clearly, PCR tests are for specialist labs, intricate, cumbersome in nature, and require expert practitioners. No loner so. The NHS pressures forced us to look again and innovate. The fact that PROmate technology is transferable to other products will be key to maintaining long term revenues for this company. Hence, this was my only Q at the investor meeting. A big tick here.

7. Small market capitalisation
As Slater put is, Elephants do not gallop. If you want large potential gains (aka a multi-bagger) then you need to go small. Too small, however, and you will not get any ii investors as it is not worth their while. The due diligence (investment research) will cost them more than the company! As our mcap grows we will attract ever more funds, some of which are automatically triggered (this was to our detriment on the way down H1 this year).

8. High relative strength
This is referring to the SP compared to others in the market. If we are below the market average for the diagnostics sector, it may indicate that other investors know something horrible we do not know. I would suggest we are over this now and it’s all been priced in – and some!

9. Dividend yield
The company says there are no plans to pay a dividend for 2021. IMO, this is sensible at this stage of the journey. They need to take care of the cash pile and keep their powder dry. We are only at the beginning, and whilst some feel the money burning a hole in their company’s pocket, it has been there only months not years. It would be foolish to give away the cash only to dilute shares in a cash call when a company they want to buy is too expensive. Remember, the company’s strategy states that any expenditure on M&A is clearly going to be linked to accelerated growth and revenue generation.

10. Reasonable asset position
The company does not really qualify for significant tangible assets. The worth is in the intellectual property and people, which I believe are wo

5 of 5

I hope the above is of some help to members of the board, particularly to those newer to investing, and that it gives you some confidence in this company. The key to the Zulu Principal is to know your investment – you can never do too much research. It is essential to read through the RNS information – start with the full company report, the investor meeting/Q&A transcript (recording) and the recent RNS, then go back as far as time allows.

I have every confidence in this investment going from strength to strength over time. It is not possible to time every investment exactly, but by dropping in regular investments into a company such as this and holding for the long term, good money can be made. Hence, the expression: ‘time in the market, not timing the market’.

Still looking forward the climb ahead and to the £15 Zoom party. I am off to a festival/party now where copious amounts of ale will be drunk, so I’m not being rude if I don’t immediately respond to comments on this, I just will not be looking in again for some time.

GLA

@Alas_Smith
you'll be pleased with the nice steady rise today then! Over 6%, not sure if this is on any news?

I've now emailed Mandy to ask how many of each (Q16/32) are currently in the NHS, as I see no reason why we should not be able to know this.