Hopefully a better version!16 Jan 2023 13:56
Summary
Following Yourgene's heavily discounted 0.3p per share fundraise (-84% to prior close)
for gross proceeds of £7.3m (£6.8m net), we reduce our target price to 1.2p from 9p, but
with the stock trading around 0.4p, we maintain a Buy rating. The fresh funds will be used
to support working capital needs, SVB debt repayments and cost base restructuring to
remove £2.0m of annual opex. Yourgene is also pursuing further funding options such
as divesting its Taiwanese subsidiary and a potential strategic investment from a major
diagnostics company. The company also recently announced 1H FY23 results which were
broadly in-line with expectations, but FY23 guidance was lowered, with full year revenues
now estimated at £18-20m (vs £22m previously) and an EBITDA loss of £3.5-4.5m
(vs £1.5m loss previously). We have updated our forecasts accordingly, with changes
summarised overleaf. Our new target price puts the business on 2x EV/sales, a discount
to diagnostic peers at 2.6x, in recognition of ongoing near-term funding concerns. The
current share price implies just 0.5x EV/sales, which we believe is too conservative.
Key Points
Encouraging core growth in 1H results. Core revenues (ex. Covid sales) increased
14% in 1H FY23 to £7.9m, with NIPT revenues up 15% to £4.0m, as post-Covid demand
for NIPT services in its UK and Taiwan labs returned to deliver 44% revenue growth
to £1.25m. NIPT product revenues increased 6% to £2.7m. Adoption of the Ranger
Technology (the 'Ranger inside' concept for NIPT) is also increasing with a $2.0m annual
run-rate achieved in 1H. Yourgene now expects to pay the $2m cash consideration to
Coastal Genomics for achieving $4m cumulative sales at Yourgene Health Canada by 1
March 2023, with $0.7m payable in April 2023 and $1.3m in April 2024. Inclusive of Covid
sales, group revenues in 1H FY23 declined 45% to £9.6m, with just £1.6m Covid revenues
vs £10.5m in 1H FY22. For FY23 we have lowered our NIPT sales forecast by 9% to
£8.3m, but this still represents 23% YoY growth in 2H. We reduce other products/services
more significantly by 39% to £4.3m, with broadly flat 1H and 2H revenues, instead of the
previously expected step up in 2H on new research contract wins. Reproductive Health
(£4.0m) and Covid (£1.8m) sales are largely unchanged. FY23 revenues are therefore
reduced to £18.4m from £22m previously, in-line with reduced guidance of £18-20m. We
estimate core FY revenues of £16.6m, or 16% annual growth, with 2H core revenues set
for 18% growth. The £16.6m core revenues will match Yourgene's pre-Covid revenues in
FY20. For FY24 and FY25, Yourgene is expecting c.20% core revenue growth, and our
numbers estimate 20% and 18.5% annual growth, respectively
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