True Value: £1bn, SP £1517 Sep 2020 12:53
Everyone has spotted the headline of predicted £100m expected profit for the year. GM is clearly being very cautious about predictions. As many of you have pointed out, this is simply a doubling of H1 rather than quadrupling of Q2, which would still be cautious; would we not expect July and August sales to be grater than June? And then continue to grow into the autumn with the shortage of testing and on-set of winter? Not to mention operation Moonshot.
GM does say that sales are excepted to continue into 2021 as we would all now predict.
So I think it would be safe to say that future earnings are more likely to annualised at closer to £200m.
As has also been frequently pointed out on this board, SP is held back, as we don't know when the Covid sales will stop. But, clearly, GM has a plan to replace Covid sales long term:
"Novacyt also plans to accelerate revenues and additional profitability through selective and accretive (sic) acquisitions. These actions are expected to replace any potential lost revenues from a future decline in COVID-19 testing."
IMO this is not unreasonable considering the expansion of this global market: "With an estimated global market size of $69.5 billion in 2020, the IVD industry is set to experience steady growth and continued consolidation. Growing at a 5-year CAGR of 5%, some analysts expect IVD to top $110 billion1 by 2030."
Altogether, I don't think this is sufficient to maintain a PE of 10 or 20 but a PE of say 6 would be very reasonable. 6 x £200m gives us £1.2bn and with 70.6 m shares a price of £17, which is in line our target of 1bn company at PS £15.
Although most of this is not new news, it will attract more PR and, with a new broker, institutional investors will start to be attracted and the SP will continue its trajectory.
US sales: You have to scroll down a fair way to see a table showing distribution by geographical area. It shows US sales in first half of year at approx £3.7m. This seems a difficult market to crack and GM talks about reviewing the strategy here: "... it is in the process of evaluating the best model to operate in the US."
"Primerdesign's revenue includes approximately €21,000,000 (2019: € nil) from sales to the Group's largest customer. One other customer contributed 10% or more to the Group's revenue in 2020."
Largest customer = UK Gov, 2nd largest = US or Germany?
Finally, the provision for remuneration of certain employees (one assumes GM included) has been significantly increased: "As a result of the share price increasing significantly since December 2019, the provision for the long-term incentive plan for management has increase substantially to €4,187,000 as at 30 June 2020."
But note, this is based on the share price at 30th June (259p), so with the SP now closer to £4, and increasing, this will need to be adjusted significantly further. GM is clearly a clever chap and this is going to go only in one direction between now and October 17th.
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