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@Covidopportunist

You say:
"They can’t currently use that cash because they don’t know what they will need to resolve the dispute. Any company they look to buy will be with less then they pay for it because of their current multiplier ratio."

This is exactly what my post last night was about. Yes, they cannot use all the cash but at the very least they have £60 m to play with. This does not give them the full scope in the short term that they may wish for but, as I said last night, IT-IS was bought for 8.7 m so, we could do this again six times over and still have money left. And that's if we had to pay the full contract value back! IMO view (and the view of the board) the more likely worst case is a provision of just 20m. This share is bargain value at the moment - the only trouble is, all those that know this and have done their research have already filled there boots! It is just a matter of time until the word spreads or further news arrives.

@ HarChris
The main point of my post last night was not to value the company but to demonstrate that even if the worst of all cases were to happen, we would still have a bare minimum of £60m to play with. As others have pointed out, disputes can drag on and the more you try to hurry them the worse your deal will be.
£60m would still allow us to get on with growing the company.

I agree that £150m in the bank does not automatically equate to £1bn company. But this is a sentiment driven share. Having £150m would allow all sorts of options for growth and in this scenario I was envisaging that we may be gaining further revenues from the DHSC as things had been patched up. GM has sensibly pivoted towards private and international markets in the meantime, but I’m sure once the dispute has been resolved, he would not be averse further contracts with the DHSC/NHS and we are part of the framework agreement anyway.

@ Temuchin
The accounts only relate to 2020. The 48m in question, I believe is for Promate delivered in Q1 this year – and may or may not be part of the dispute – who knows? For this reason, I am assuming it is paid in best case scenario and paid back in worst case scenario. I hope that clarifies.

The bottom line is that with the very worst case scenario of having to pay everything back, we would still have 60m cash in bank and be generating at the very least 48m after tax.

@Temuchin

Yes, Q1 is a little opaque. We were originally told Q1 revenues were 72m and approximately 50% was private/international. We now know that figure is actually closer to 30m, so that means 42m is DHSC. With VAT added it brings us very close to the 48m figure (50m) a slight discrepancy (2m) remains. But my figures all assume no income from DHSC for 2021 anyway. I am simply starting with the 92m cash in bank adding a further 24m net profit for each half year of 2021 and then considering additional amounts that may be paid/need to be paid back under each scenario. So, you are right, any additional DHSC revenue would be a bonus and come on top of these figures, which is why I say they are all on the cautious side and only consider private and international sales for the current year. In the very worst case scenario of paying everything back under the contract in question, we would have at the very least 60m cash still in the bank to play with as of now and a further 24m by the year end.

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With the full report in hand, I have been crunching the numbers again to look at the full scope of possible outcomes.

I thought this may interest other holders and potential investors and put some at ease following ShaunP’s comments.

This exercise was also prompted by a poster’s comment that, without a resolution to the DHSC dispute, no M&A activity could take place and that we are effectively on hold. A notion I think I can prove to the contrary.

So, I am looking at how much cash we have in the bank under the three main potential scenarios – at end of H1 2021 (i.e. next week) and end of H2 2021 (end of this year), as this will give us an idea of purchasing power.

The assumption is that H1 revenue is 51m, (10 + 10 + 10 +7 + 7 + 7), as we were told that in the first three months revenue was 10m per month and this dropped to 7m per month. It is assumed that this is repeated for the second half of the year (and is in line with the company’s estimates of 100m full year), although this figure is very conservative as we expect an increase in Fit 2 Fly and other revenue. It is exclusively private/international and includes no DHSC income, so no framework revenues.

I also assume a net profit after tax of 48% (similar to last year). So 24m further cash H1 and 24m further cash H2.

Cash in bank at start of 2021 was 92m.

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Best Case (possible but not probable):
DHSC capitulate fully and cough up a further 73m (24 owed from Q4 2020 and 49m owed from Q1 2021). 73m revenue x 48% (margins are likely to be higher as costs are already paid, so should just be tax to come, but will still go with 48%) = 35m additional cash.
End H1 Cash = 151m [92 + 35 (DHSC) + 24 (H1 2021)]
End H2 Cash = 175m [151 + 24]

Middle Case (probable):
We have to replace the product at a cost of 20m and money owed is paid.
End H1 Cash = 131m [92 - 20 + 35 +24]
End H2 Cash = 155m [131 + 24]

Very Worst Case (Possible but not probable)
We have to pay back all the money paid by the DHSC to us under the disputed contract. 129m = full value from which we subtract money not yet paid, a total of 73m (24m Q4 2020 and 49m Q1 2021). So, a total of 129m – 73m = 56m to be repaid.
End of H1 Cash = 60 [92 - 56 + 24]
End of H2 Cash = 84 [60 + 24]

So even if we had a decision right now, and it was the very worst case of having to pay back everything, we would still have 60m in the bank. But more probable, we will have more than twice this. Either way, considering we purchased IT-IS for 8.7m, we could make at least 6 such purchases in the very worst-case scenario with the most prudent of figures. Talk about oversold!

Current profit after tax is conservatively 48m/71m = 65p per share but is likely to be higher. I would welcome other BB views on my figures, but believe that it won’t take someone too long to realise that we should be at least double the current 325p SP even if the worst were to happen. Of course, with further acquisitions comes further revenue – so the more cash in bank the higher the SP should be. I’d say worst case we should be 650p and in the middle, most probable scenario, we will have a very conservative minimum of 150m in the bank by the year end assuming we haven’t bought anyone, that should see an SP of around £15 – don’t you think?

All IMO, this is not investment advice, DYOR. GLA

Yes, the difference between sponsor and broker is clear. That was not really my point.

My point is, why does ODDO not get a mention either in the report (or at the bottom of RNS)? We had an RNS to say they were appointed for the initiation of equity research coverage in France.

From RNS 28/09/20:

"Appointment of ODDO BHF

Paris, France and Camberley, UK - 28 September 2020 - Novacyt (EURONEXT GROWTH: ALNOV; AIM: NCYT), an international specialist in clinical diagnostics, announces the appointment of ODDO BHF, an independent Franco-German financial services group, for the initiation of equity research coverage in France for the Company."

Also - no need to speculate about a dividend:

"We are not proposing to pay a dividend for the financial year ended 2020, so we can invest in R&D, manufacturing and commercial aspects of the business."

They may consider in future years depending on circumstances.

Spotted this paragraph in the Chairman's statement:

"We are delighted to be working with Allegra Finance as our French listing sponsor, SP Angel Corporate Finance LLP
as our Nominated Adviser/ Broker, and added Numis as well during 2020."

Allegra Finance in France, I thought ODDO was our continental broker. Perhaps they have been dropped?

@ neilrich, Oriens, B2HS2L, Porky

Some great comments on this thread – totally agree, the £100m is BS as Neil puts it.
They have basically said:
Q1 = 10m x 3 = 30m
Q2 = 7m x 3 = 21m
Total for H1 = 51
Double as a guestimate for whole year = 51m x 2 = 102m
Then they’ve said, Let’s round it down (we don’t want to be too optimistic) and call it £100m.

But this is ridiculously cautious. They’ve only included private and international sales, no NHS and zero growth.

We have PCR (HT and Promate), Antingen test (by the end of this month!) and an Antibody test (plus the new antibody test to differentiate for natural immunity/vaccine immunity in Q3), so have all bases covered, whichever way the government blows on its containment strategy, travel and other restrictions.

Travel has not taken off yet. As I said prior to results, I thought Q2 would be slightly down on Q1, as Q1 included UNICEF (10m) – so actually taking UNICEF out, sales have increased from 20m to 21m, despite the virus rate dropping. Q3 and Q4 private sales have got to be higher as the virus rate increases again and summer hols result in more travel.

Then we are bound to get something from the framework, especially going into winter. They will run out of Promate at some point, especially with this new surge. Either hospitals are going to be catching up with routine surgery or they are going to overwhelmed with covid cases. Either way, more testing!

And then there’s long covid tests, the list is endless. It is difficult to quantify how much but, unless GM has poked DHSC with a sh.tty stick, DHSC/NHS are going to want our tests.

SNPsig not really mentioned either. This also needs adding in.

We sold 10m last year to US without a sales force. Clearly, they will be focused on recruiting/building and training a team for Novacyt US Inc., but you would hope that one eye would simultaneously be kept on increasing sales. (Incidentally, the idea of having a subsidiary state side with US in the name is a playing a blinder.)

… and, of course, if we resolve the dispute, we have up to another 32m immediately to add in for Q1

So yes, good to be cautious, so that we can celebrate when the figure goes up – but £100m? Come on, our company’s value is based on forward earning potential – be a little braver with your forecasts GM

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Thank you Kaeren, for posting the UK Gov consolation outcome on private COVID -19 testing validation (17th June update).

In case anyone missed it at midday, here it is again.
https://www.gov.uk/government/consultations/private-coronavirus-covid-19-testing-validation/private-covid-19-testing-validation
It’s quite lengthy and for those investors who have little time, it’s worth reading the executive summary at least.

Basically, it is saying that all tests are currently evaluated by the companies producing them themselves and even if they have CE mark this is not independently verified. Also, because each company uses a different method of verification, customers cannot easily compare tests. So, the UK Gov wants to introduce a process of validating and comparing all tests (homegrown and imported) with the data then available for customers to compare.

“Excluding self-test kits, there is currently no legal requirement available for independent validation of COVID-19 tests performance. Entry to the market is controlled by CE marking, which is currently a self-declaration process for the performance of this type of test kit or equipment. This means performance is not independently verified ahead of sale.”

Why is this so significant for us? If a corporation (BBC?) or a company (Amazon?), or football club even (WBAFC?), wants to test its employees or customers they will now be able to easily compare the accuracy of all tests including LFT v PCR. Whilst they may have previously chosen tests (such as Innova’s LFT) on price, they will now be able to see the downside of trying to cut costs.

The below statement seems a tad ironic when UK Gov has wasted £3bn on such Chinese tat:
“Consumers need to know that COVID-19 tests they buy are of satisfactory quality. This requires tests with sensitivity that is high enough to apply in ‘real world’ settings that provide accurate results and avoid spreading the virus.”
“There is evidence that some COVID-19 tests do not perform as expected and as disclosed in their instructions for use (IFU).”

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There are three other significant things to pick up from this document. Two positive points for us, the other less so.

Starting with the possibly negative connotation for us, the Gov clearly wants to drive down costs by increasing competition and is keen to enable imports from other countries (US is largest exporter – including those made in China I assume?). This could mean either lower sales or lower margins for Novacyt, unless demand continues to outstrip supply. However, being a key player in an expanding market, I see little risk here. There will always be those prepared to pay a premium for quality.

The government also wants to stimulate innovation. (For some reason the document highlights innovations in LAMP testing.) The document does not say how they will do this, but speed and accuracy of testing appear to be the main differentiators. Novacyt cannot be beaten on accuracy.

If a customer prioritises accuracy, they will go for a PCR test, especially if they want to be sure of picking up all known variants. Then looking for speed, which is the fastest PCR? We currently are by some margin with our POC Q16/32 devices.

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Finally, and possibly most significantly, is the government’s view on the longevity of the private testing market. We know from the update that Novacyt has already made significant inroads to this growing sector (tens of millions in Q1 alone).

“The government anticipates that private sector provided testing will form a crucial part of day-to-day testing as we move into the long-term management of COVID-19 and reopen the economy. We, therefore, expect that this will require considerable expansion of domestic production and potentially an increase in imports to ensure there is sufficient supply to meet demand.”
Wow! “considerable expansion”

And for those who are doubting longevity of income:

“This demand (though less than at the peak of the pandemic) will remain for years to come as preventative measures through testing and early identification becomes the norm in managing the virus. We expect strong demand from businesses to test employees and, in certain circumstances, customers. For these reasons, we require a strong private sector capability in testing.”

It will be increasingly apparent that the current PE ratio (which ever way one calculates it, results will be in low single figures) is completely mad. With audited results imminently due, bringing some certainly to the company and investors, many of us are expecting a rerate, but it is this last point that will be of greater long term significance. The realisation that Covid will be with us for many years and that Novacyt with its speed to market across a range of innovative products from POC to worldwide genomic surveillance is not a one-hit-wonder.

Who would not want to be invested in this multibillion-pound company when it is currently priced so cheaply? There is a reason we did not sell at £12 and, it is going to become apparent very shortly.

As always DYOR, GLA – can’t help feeling a little excited about the climb ahead!

Thank you for your kind words, Kaeren.

@Saintmsmith - yes, I saw your post last night. They will get so many emails, but if they detect a high level of interest on a topic, this may spur them to act. It looks like a number of us are now getting involved with the cause.

I thought the Chinese angle would be particularly up GB News' street. I was surprised that none of the articles in the mainstream news (the links were circulated yesterday, Times, Guardian and Telegraph, I think) had any refence to this being Chinese made. The CW article Bloodshot posted makes this more than clear though.

The link just posted by Gazman could also be added - to show how out of kilter UK government is. Not just the US, but Ireland too now.

Also, we need to out the DHSC on their dispute with Novacyt. This appears to have gone under the media radar. UK Gov could be playing a game of chicken with our company. Take us to court if you like - it'll take ages and will only deplete your R&D resources. I don't think the DHSC would want external media pressure though, but they are probably thinking Novacyt is too small and unknown for anyone to be interested.

They haven't counted on us, though, and the fact that there is nothing the UK population likes more than a David and Goliath story!

If we make the same points in different ways (so not to appear as spam or a pressure group), we will eventually get noticed. Once one or two outlets run with it, others usually follow.

GLA -

I cannot believe they have extended this 'Emergency Use Authorisation' - they have had long enough to look into this properly. Just look at the figures from the Birmingham Uni trial - disgraceful. I can only hope that this is to enable other providers enough time to scale up, but they should not waste any more money on this rubbish.

@Bloodshot thank you for the link to the CW article.

I have added it to the other links for distribution to the media and, like others, have started to send this to various outlets. Great idea, Shinfalls. The more of us that do this, the more likely someone will take note. Here's my email to GB News:

Dear Sirs

Great to see this new channel - thank you.

This one is right up your street, certainly not for the BBC

- get Prof. John Deeks on together with Nigel Farage, maybe, to look into this incredulous story.

So much for investing in world-class UK diagnostics - we have spent over £3billion so far on a Chinese test (from Wuhan no less) which only works just over 50% of the time when used with the general public from a company masquerading as Californian (Innova Medical Group). And at the same time, UK gov (DHSC) does not pay our small Anglo-French company (Novacyt) as contracted for goods received. How is that investing in UK diagnostics?

Something very fishy going on. The FDA have forced Innova to recall their tests due to manipulating/copying/falsifying data, but we in the UK plough on regardless.

It may be worth investigating whether Sir John Bell or Susan Hopkins (Public Health England) receive any ‘research funding’ from China.

The situation is incredulous, the more one looks into it. We will probably find the Chinese had the tests ready before the virus was released from Wuhan!

These links may be of interest:

https://www.conservativewoman.co.uk/the-innova-tests-another-covid-scandal-in-the-making-part-2/

https://www.bmj.com/content/373/bmj.n1514

https://www.mddionline.com/covid-19/dont-use-covid-19-rapid-test-fda-warns

https://www.fda.gov/medical-devices/safety-communications/stop-using-innova-sars-cov-2-antigen-rapid-qualitative-test-fda-safety-communication

https://www.statnews.com/2021/06/10/fda-accuses-company-of-distributing-unapproved-covid-test-using-falsified-data/

https://www.lse.co.uk/rns/NCYT/trading-update-74tpjo9hz25buh8.html

https://www.lse.co.uk/rns/NCYT/dhsc-dispute-update-6xq0nnxm1m5ofnx.html

Thanks

@SteveV - I expect Innova just copy our data on a weekly basis! LOL

@troublesome
I do not wish to be drawn into political commentary (although it is difficult to diveorve government decision making from politics). I was perhaps a little loose with my phrasing.
What I meant to say was that good quality testing does not come cheaply. I agree the money spent on Innova has been wasted and it is our money as tax payers, but the discussion here should be about future diagnostics funding and retrospective payments. They 'will need to pay the price' refers to the fact that they will need to settle debt in terms of money owed (disputed DHSC contract) and face he fact that future accurate testing will be needed and will cost, whether this be quality LFT from us or other providers or PCR testing including Promate, HT-PCR and SNPsig. We stand to gain significantly even if it is just s portion of the billions requiriere.

I called the bottom slightly early at 350p a few days ago, but don't you feel this news could be the trigger for our turning point?

@Kaeren

Sorry if i misquoted you last night, I have no doubt of your faith in the potential of this company to be a successful multibillion pound outfit. I took the liberty of using couple of well-respected investors/posters to highlight a point that, just because it may have been sensible to sell at £12 last time, it may or may not be the case next time, as this share could well go much further with the right news. Please accept my apologies as this was not quite what you had been saying, so you were an inexact example.

To reiterate my point, I believe the correct strategy should be to reflect on the information and analysis at the time rather than use preset targets. Of course, each individual has to make their own decisions according to their circumstances. Many of us are possibly already overweight in this share as we have averaged up/down at various points and added further at these ridiculously low levels, so once the SP starts to properly shift, this imbalance will become exacerbated and I concur, a degree of top-slicing may indeed be prudent for some.

This is Inova news has huge potential implications for Novacyt. I was trying to figure out how a supply of Promate already delivered to the NHS could last them the entire year. My niece is a young pharmacist in a large NHS hospital. "Yes", she said, "all patients are PCR tested on admission" (she is looking into which provider for me) "but what about you and all the other hospital staff?", I asked. "Oh , we have the Innova test!"

Can you believe it? - there's no logic there. I assume they think that as they are being tested regularly, it will pick up any infection eventually. So, as Gasman said last night, the switch has to be either to other LFT providers, which could include us as we may be ready just in time, but just as likely they will have to swap some back to more PCR testing. It is clear that UK Gov displaced all other testing in favour of Innova and now they are going to have to pay the price.

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Thank you to Soder, Butchersbike, B2HS2L et al for your calculations and analyses earlier this evening – we are all much in agreement that there appears to be little downside risk at £3.38 compared to the upside. Just because some of us said we were materially undervalued at £6 or £7 pounds and it is now £3.38, does not make us wrong then – it just means that the share is even more undervalued now. Some will disagree and say, the share is only worth what someone else will pay for it – so yes, it is currently worth £3.38, but then we are back to the financial fundamentals v sentiment argument.

My brother told me he sold out as soon as he saw the words ‘dispute with DHSC’ – he didn’t care what the figures were. He just knew he wanted out until resolved. And in hindsight, it was clearly the best strategy. Coming back in now in at these prices with twice the number of shares is clearly preferable. I think we can all agree on this point in retrospect.

Thank you for your comment Bramely1967 15:48 – nice to hear your input. You bring me to my main point, though, and I must say I have to respectfully disagree with you.

You toss a coin and bet on heads and it lands on tails. If you bet again, is it more likely to land on tails again, because it did last time? Clearly, not – the chances for heads remain 50-50.

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I believe Kaeren said something similar to you, in terms of not making the same mistake this time round, and many other investors will be thinking of ‘not being greedy’ given a second chance. But what we all have to ask ourselves is why we did not sell at £11 or £12? And the only answer can be that we thought the price could be higher. If you sold you would most likely put the money in another share. So, the decision is not satisfaction v greed, but will this continue to perform at a better rate than other possible shares.

With the certainty that the next few months will bring (and I have highlighted in a previous post that there could be a dip to H2 figures, so be warned, but I could be wrong with the level of travel and private sales figures suggested by some) by the year end we could easily be back to the £12 level. Bramley, I believe you, yourself, have said many times before that this is a £1bn company in the making and perhaps the £15 mark is the figure to which you are alluding and have set your sights. (Please excuse me if I have these figures wrong, they are from memory, as I am not in the habit trawling through past posts.)
But when it gets to £15, clearly you have to make the decision at then, using your best judgment of the circumstances at that point, not rely on a call from a friend to remind you of an out-of-date target. If you felt that the company would continue to improve over the next two to three years you would surely hold. I sold Games Workshop last year having doubled my money only to see it double again. Other investors have highlighted ASOS and Amazon’s share price history I the early days the early days - also, not straight lines!

The main point is that just because we have climbed the mountain and been unlucky this time with a land slide that has taken out many, it does not mean we should be any less lucky than any other climber in the future. The road ahead is rocky, but once the fog lifts and the mountain ahead beckons, possibly taller than even Porky has dared think, what should your decision be? The path to the top, although steep at times (I think someone has just installed an LFT lift at one point), will surely continue to be long and winding and certainly not without its perils. I wonder how many will be left when we finally reach the summit?

Keep the faith - £15 in the near term (this year), multibillion pound company in the making – not a straightforward climb; stamina and risk taking required! DYOR