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Scarediecat,
Just for the fun of it, I drew up this list of professional members of the Nova fan club and a list of the professionals that are not such a fan of Nova.
The Nova professional fan club:
• SP Angel; Target Price 14.33£
• Numis; TP 13.65£
• Blackrock; Holds 3% of shares outstanding.
• Throgmorton Trust PLC; Shares Held 353k; This Trust is a high-conviction portfolio, investing in the UK’s most differentiated and exciting emerging companies, with strong management teams, strong and dominant market positions. We also seek out companies leading industry change, the “disruptors”. Our aim is long-term capital growth.
• Ninety One; Shares Held 243k; The Fund invests primarily in the shares of UK smaller companies.
• FP Octopus; Shares Held 280k; The FP Octopus UK Micro Cap Growth Fund is for investors looking for long-term growth. It invests in a portfolio of 50-80 UK smaller companies; So we are one of a small selection of companies, AIM is home to around 850 companies.
• Argenta Actions Pharma-Chimie; Shares Held 169k; a new member to the Nova supporters club! Sixth biggest Belgian bank renowned for its aversion towards risk. The fund’s objective is capital appreciation while limiting risk.
• Many different funds have smaller positions. Their analysts must like Nova too.
The other side:
• Oddo BHF; TP 6.69£ (8.1 Euro)
I think I can hear a pin drop on the other side.
Shaun,
Really? I wouldn't call a doubling of the share price a waist of time. Not only the shareholders benefit from a higher share price, the company does too. It makes their position stronger on all fronts (takeovers, rates for loans, whatever).
Maybe indeed it is a bit more difficult to do on AIM. And they could always suspend their plans and wait for a more appropriate time when it turns out the share price has risen too much.
The idea is sound, it just requires some thinking to be prepared for all eventualities.
If this kind of scheme works for a big company like Apple, why wouldn't it work for Nova. Apple does this year after year, and look what it has done to their share price. Their business growth has far lagged their share price growth. What do you think is the reason for that?
Nova's last take-over, was what, 10m£? Nova currently has 100m£ in the bank. They should be careful with a large takeover and not bite off more than they can chew. So say they spend 50m on a takeover and 50m on share buy backs. Nothing wrong with that.
I am a bit disappointed you so quickly dismiss the idea as a waste of mgt time and supposedly solely for the benefit of pampering the shareholders. When shareholders benefit, the company benefit too. I find your reaction rather shortsighted to be honest and frankly didn't expect it from a well balanced person like you.
As I have mentioned before, the company would benefit from buying back shares at these wholesale prices (more bang for their buck), and in the process send a positive message to shareholders.
As for them needing the cash for take overs, they could raise that cash at a later date when the company's trajectory has become clearer and the SP is higher.
The gain would be double: shares bought back at lower prices and later new shares emitted at a higher price.
I am sure management knows their business is worth a lot more than the market currently prices in. With this knowledge, the course of action suggested should be a no-brainer.
While I was looking for the Oddo broker note (which is still nowhere to be found), I quickly scanned through the French BB.
This is what I came up with.
Apparently Oddo have a reputation of being very conservative with their price targets and they are often wrong. An example was given of a stock (name wasn't mentioned) they downgraded to 5Euro (stock was at 7 at that moment). Shortly after financial results came in which blew all estimates away. Stock rallied to 12 Euro and Oddo had to up their TP to 13.
People in France also found the timing of the broker note very suspect (right at the moment our stock price was recovering).
In short I wouldn't take the Oddo note too seriously.
HarChris,
I agree predicting the future is a difficult exercise, not only in this case. For me the big elephant in the room (if that is a correct expression) is the question whether phase 2 or something similar is still on the table or not. I suspect it still is, given all the job postings pointing in that direction.
Many are guessing the news could come by the end of this month. I suspect we may see a run up in the share price towards that date.
@HarChris, your part post:
"Jungla, the main reason is we're looking at forward p/e, we're just guessing at what future profits are going to look like. In the future, whether we're making £10m, £30m, £70m or £150m, we won't have a massive cash pile, it will have been reinvested."
I guess you mean "looking at forward P/E without subtracting cash". Let me explain my reasoning for subtracting the cash. When we take a look at the earnings and revenue breakdown of the SP Angel broker note (from which my 2022 earnings number is taken), we see that all cash remains on the books, none of it is being spent. The earnings number is purely arrived at by adding pre-covid base business, IT-IS earnings, some residual covid testing, and point of care testing (on the considerably enlarged installed base, I presume). Now one can argue about whether the SP Angel estimates are accurate or not, but they certainly do not include cash being spent. So that is why cash needs to be deducted from the share price when using the SP Angel earnings estimate. Were the cash to be spent, that would increase the earnings estimate and bring down the forward P/E that way. Now I agree with you that in such a case the forward P/E would not go down as much (it would be more in the region of 8, which is still very low imo), which is a trade off for reaping more benefits down the line, whereas when deducting the cash, or using the cash for share buy backs, the result in bringing down the P/E ratio is more immediate.
@HarChris, your other part post:
"Anyway loads of companies (not our size) have massive cash piles, it doesn't come into P/e ratios. The truth is there are better metrics than p/e ratios for firms in our situation."
You say it yourself: not our size. So relative to earnings the cash pile of those companies is much less.
Rest assured I spent many hours looking at this company from many different angles. I worked out several scenarios (cash being spent on take-overs, cash being spent to buy back stock, cash remaining on the books, many different earnings scenarios, etc.) and applied the Discounted Cash Flow method to these scenarios, DCF being the generally accepted method for valuing stocks all over the world. And in all scenarios I arrive at the conclusion this stock is reasonably priced to seriously undervalued, depending on the scenario ranging from bearish to bullish. The reason why I used the P/E ratio in the earlier post is because it allows the undervaluation to be visualized in a way that most people understand.
@Try2buylow, your part post:
"If anyone has a better breakdown of the initial DHSC stage RNS to make an estimate ..."
I had a short discussion with Kearen last week concerning exactly this phase 1 contract conundrum (also in connection with the AZ pillar 2 contract) but we didn't get to the bottom of it. I am sure Kearen can be of help.
@try2buylow, your post:
"It does help to work at this to hammer out how it stacks up so we know the "shape" of business revenue to expect in YE21. If we could do that, we might find a way to judge business progress rather than just relying on mega announcements."
I agree with you 100%
HarChris,
I agree with your post except for one thing: why shouldn't we subtract cash and inventories from the share price before calculating forward P/E? The fact hat Nova has so much of them (cash & inventory) makes it impossible to compare Nova with other companies unless you take them into account. If you do not do that, you are comparing apples with cucumbers. If ODDO hasn't done that, they are wrong. Please read my argument from my post that started this thread:
"Concerning the current share price, there is something we cannot highlight enough. I will talk Euros because the financial report is in Euros, so that makes it easier. Last years' net profit was 2.4Euro per share. This is money in the bank or in inventory. Current share price is 7.8Euro. So you are actually paying 5.4Euros per share at the moment, not 7.8. This puts our current market cap at just 381million Euros (or 350m£). The way things are looking, this year we will likely equal last years earnings, but supposing they are just 1.9Euro per share (the SP Angel estimate), that would bring our current share price to just 3.5Euro. Now if you divide 3.5 by SP Angel's earnings estimate for 2022 (0.65Euro), you get a P/E of 5.4 for next year."
I liked try2buylow's recent post about NHS sales predictions for the year so far (even though the numbers were quickly disputed/corrected). I believe we should do more of that to get possible new investor's attention.
Here is my own contribution to numbers crunching.
Concerning the current share price, there is something we cannot highlight enough. I will talk Euros because the financial report is in Euros, so that makes it easier. Last years' net profit was 2.4Euro per share. This is money in the bank or in inventory. Current share price is 7.8Euro. So you are actually paying 5.4Euros per share at the moment, not 7.8. This puts our current market cap at just 381million Euros (or 350m£). The way things are looking, this year we will likely equal last years earnings, but supposing they are just 1.9Euro per share (the SP Angel estimate), that would bring our current share price to just 3.5Euro. Now if you divide 3.5 by SP Angel's earnings estimate for 2022 (0.65Euro), you get a P/E of 5.4 for next year. Which diagnostics growth company (which I am sure Nova will become) can you buy at a forward P/E of 5.4? Not to many I suspect. This looks like a once in a life time opportunity if you ask me, and it is one of the reasons why I am invested heavily in this stock.
Not that it would happen, but with the money in the bank, Nova could also buy back some of its shares.
This would reduce our P/E ratio from ridiculous to utterly absurd. With the share price so low, a lot of shares could be bought. Great value for money! :)