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@Porky
Not everybody knows Nova is materially undervalued, because if everybody did, we would not have this share price
@Ritchie
I would not compare Nova to Abcam because Abcam has a stable revenue stream, Nova has not (yet)
@try2buylow
I follow your reasoning. I am well aware the revenue stream is not long enough to base valuation solely on 2020 and 2021 earnings or revenues. It makes Nova therefore extremely difficult to value. However, that is exactly the point I was trying to make, namely that we should not pin ourselves down on the extremely cautious SP Angel target price. The SP Angel target price is just an opinion, not a scientific fact. Assuming the SP Angel revenue estimate turns out to be correct, then an argument for a share price target of say twice that of SP Angel can just as easily be made with equal validity, if not more. That is because of the simple fact that so much will depend on future revenue streams of which we know very little at the present moment. After all, nobody knows how long the pandemic will last, what amount of testing will still be needed after the pandemic, how Nova's other testing business will benefit from their substantially enlarged base, how they are going to spend their cash, etc., etc.
I therefor believe SP Angel's 2022 and beyond revenue estimates are on the very cautious side (which is understandable because the pandemic turns out to be far worse than what was conceivable at the time they made the report). Consequently their current share price target (which is heavily influenced by those future revenue streams) therefore seems very cautious too.
When one knows the average P/E of the Biotech sector is 44 and Nova's P/E is currently less than 5 times (SP Angel's) estimated earnings, doesn't that then sound ridiculous, even if revenues were to drop in 2022 to say 200mEuro?
I’m very new to this so please bear with me .
Say for example we recorded rev of around £300 mil how long do you think it would take the market to realise this is under valued and the share price raise to what people’s expectations of what it should be
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Nobody knows what the market will do. However, your typical bank has a P/E of 10 to 15. General Motors has a P/E of 25. Thermo Fisher (often mentioned here) has a P/E of 42. Quidel (likewise) has 25. These are just random examples. But imo a P/E of under 5 for Nova is just ridiculous. When will the re-rating happen? It is already happening. But indeed, as Porky says, revised broker research notes (shortly after the trading update (?)) will certainly help get the message across.
Brentw1
Personally, I'm not sure if all this endless (and to a degree pointless) speculation is a good or a bad thing. One thing I am sure of is that it is just guesswork and plucking figures out of the air. It was a widely held view a few weeks ago that £300m for YE 2020 would be a brilliant result. With all the massive figures being thrown around, coming in at that figure would probably be considered a disappointment as expectations had been ramped up to excessive levels.
Anyway, we will soon know and I personally prefer my expectations to be exceeded rather than fall short.
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I fully agree!!!
250 to 300 million would not be a bad result. A company which I follow and which is in the same line of business as Novacyt (producing IVD tests and machines) has taken over a decade to get to sales of 50 million. I know, these are exceptional times, but still we should not be throwing hundreds of millions of revenue around as if it were nothing.
This being said, I am a value investor and I see incredible value in the share price of Nova (as opposed to many other high flying growth stocks).
When one takes the SP Angel FY20 revenue (287.8mE) and EPS estimates (corrected for cash and inventory) as input, my calculations show that the estimated FY20 P/E of Nova at the moment is still below 5 (can you believe it!)
Maybe there is something to be said for this low P/E but once the uncertainty around the actual FY20 revenue number has been removed, I feel a P/E of 10 would be more appropriate for a company firing on all cylinders. And even that multiple may be too conservative. Only time will tell.
Everyone can do this exercise for themselves, but at a P/E of 10, a revenue number of 250m Euro would give a price target of 24 Euro,
Rev 287.8mE = TP 28E; ShaunP Rev 499mE = TP 48Euro. Isn't the latter close to Porky's short term target? What a coincidence.
In other words, with a revenue of 250mE, there is still plenty of upside to the share price, and it certainly should not be cause for disappointment.
@Porky, concerning your late evening post from Jan 10.
" they likely completed the DHSC at 300 units contract and likely secured other large contracts. One we know of for sure £20m "
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What £20m contract were you referring to? I probably haven't been around long enough to know, and haven't found it in the Shaun research. Maybe overlooked? Evidence, link?
Thanks,
Jungla
Biocartis, a company similar to Nova, but smaller, selling tests and test equipment, but in their case in oncology, has today announced it had a 31% growth in 2020 test sales compared to 2019.
31% doesn't seem much, but what makes this announcement interesting is that the strong decrease in demand for oncology tests (due to delayed operations in oncology because of Covid) was largely compensated by strong demand for for their ("obscure") Covid test which only came on the market little over a month ago (Nov 10)!
Just in case some of us need reminding Covid tests still are selling like hot cakes.
Aren't those figures based on an 8 hour day.
Surely they'll be working shifts and 24 hrs, 7 days a week !!
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I have wondered about that too.
But we are talking hospitals here, not labs. I suppose the number of machines and staff have been calculated on the number of expected tests per 8 hour work day.
Would be nice if we had some inside information on that, though.
However you be making my reconciliation of Units to Sales Values, further out of step
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I know. When estimating unit prices I think you must take into account whether support to a particular buyer (or reseller) will be needed or not.
When selling to a distributor, I suppose one or two training sessions will suffice (if at all) and then the distributor (once his people are trained) will take over the support to his customers, usually labs who won't need much support anyway.
When directly selling to hospitals it is very well possible people will have to operate the devices that have no lab experience at all. Makes it more complicated. Hence more support needed.
So distinction must be made in selling prices depending on the customer, imo. I think most of your pricing assumptions still stand. May be worth to take a look.
@ShaunPSuppose 200 q's rolled out. Q32 = 60min process time for 32 tests. That adds up to 256 test per day if nothing goes wrong. I haven't checked, but I suppose Q16 has half the throughput volume. Suppose 100 of each are rolled out. That makes 256 X 100 (for Q32) and 128 X 100 (for Q16) = 38400 tests/day (if all runs smoothly, which I suppose will rarely happen). Still pretty close to 34000, isn't it?And remember we are still building up to 300 instruments, so the number will still go up. My assumption has always been the 150m£ contract contained far fewer tests than expected, but at a much higher unit price (because of a lot of training and support included in the contract).
@ShaunP
My new "Sales Revenues by Outlet", (3rd Jan 2021) reduced the Sales Qtys to 50m tests, my other older report "Sales by Major Product", showed 70.7 million test units. Both reports show the same € values for 2020
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Didn't we agree there was a 16m manufacturing capacity at the moment? So only 50m tests sold would mean a 100% overcapacity. Not very likely if you ask me.
@Porky,
Indeed it is a case of many investors still not knowing what they are dealing with concerning Nova, and each time the word vaccine is in the news or each time it is suggested the sales numbers might be lower than expected, many run for the exits. The fact of the matter remains that not even half of the expected 290M£ of sales is backed into the current share price. Anyway that remains my opinion until someone can prove me wrong.
@Porky,
Indeed it is a case of many investors still not knowing what they are dealing with concerning Nova, and each time the word vaccine is in the news or each time it is suggested the sales numbers might be lower than expected, many run for the exits (although less and less I must admit). The fact of the matter remains that not even half of the expected 290M£ of sales is backed into the current share price. Anyway that remains my opinion until someone can prove me wrong.
Re-post because somehow the paragraphing got lost. Sorry for that
Porky,
Fully agree. Even if the market doesn't know how to rate the stock long term, it should be obvious even to a five year old (no disrespect to 5 year olds, they are often smarter than us grown ups) that this stock is ridiculously cheap. Say Nova only (!) gets to a revenue of 144.6M£ and an Ebitda of 98.8M in 2020 (H1 times 2), then the P/E would still only be 6.
What stock trades at a P/E of 6 these days? Let's say Ebitda in 2022 falls back to H1-20 Ebitda of 49.4M (which is far lower than what SP Angel expects, and a quite UNreasonable assumption (far too conservative) if you ask me (because of the significantly enlarged installed base and therefore customer base into which all other products can be sold, because of the increased brand awareness, because of the accreditive future take-overs in the making, etc., etc.), even then the P/E is still only 12! A forward P/E this low is only applied to companies that barely grow.
SP Angel sees Ncyt grow 10% per year after the pandemic (from 2023 onwards). 12 is not quite the P/E you would expect for a company that grows 10% per year, or is it? If Ebitda is around 70M, as SP Angel estimates, the forward 2022 P/E even goes down to 8.5!
Note that in this scenario I haven't even mentioned the cash two years of successive 290M£ revenue could bring, let alone 400M or more as some are predicting! But, as I just explained, even if that does not happen, the company is still a bargain at these prices. The stock should be trading (at this moment) at a 2022 forward P/E of 15 to 20, imo, and therefore a share price of 1050 to 1400p (49.4M/'shares outstanding'x15 or x20). The math is easy. And as I just mentioned, this forward P/E does not even take the cash pile generated in 2020 and 2021 into consideration!
Now it is possible that I am wrong with my forward projections, it is possible Nova doesn't earn 49.4M£ in 2022, it is possible Nova doesn't grow at a 10% rate, it is possible the sky comes crashing down on us, but let's remain serious. No wonder Blackrock sees the potential for this stock. Are we so blind that we cannot see it?
Porky,Fully agree. Even if the market doesn't know how to rate the stock long term, it should be obvious even to a five year old (no disrespect to 5 year olds, they are often smarter than us grown ups) that this stock is ridiculously cheap. Say Nova only (!) gets to a revenue of 144.6M£ and an Ebitda of 98.8M in 2020 (H1 times 2), then the P/E would still only be 6. What stock trades at a P/E of 6 these days? Let's say Ebitda in 2022 falls back to H1-20 Ebitda of 49.4M (which is far lower than what SP Angel expects, and a quite UNreasonable assumption (far too conservative) if you ask me (because of the significantly enlarged installed base and therefore customer base into which all other products can be sold, because of the increased brand awareness, because of the accreditive future take-overs in the making, etc., etc.), even then the P/E is still only 12! A forward P/E this low is only applied to companies that barely grow. SP Angel sees Ncyt grow 10% per year after the pandemic (from 2023 onwards). 12 is not quite the P/E you would expect for a company that grows 10% per year, or is it? If Ebitda is around 70M, as SP Angel estimates, the forward 2022 P/E even goes down to 8.5! Note that in this scenario I haven't even mentioned the cash two years of successive 290M£ revenue could bring, let alone 400M or more as some are predicting! But, as I just explained, even if that does not happen, the company is still a bargain at these prices. The stock should be trading (at this moment) at a 2022 forward P/E of 15 to 20, imo, and therefore a share price of 1050 to 1400p (49.4M/'shares outstanding'x15 or x20). The math is easy. And as I just mentioned, this forward P/E does not even take the cash pile generated in 2020 and 2021 into consideration! Now it is possible that I am wrong with my forward projections, it is possible Nova doesn't earn 49.4M£ in 2022, it is possible Nova doesn't grow at a 10% rate, it is possible the sky comes crashing down on us, but let's remain serious. No wonder Blackrock sees the potential for this stock. Are we so blind that we cannot see it?
@ShearClass. The main reason for GM's tight lips imo is that he does not want to endanger his privileged position with the DHSC. Very wise! We must also remember that Ncyt stopped giving sales updates in June already. A deliberate policy if you ask me. So not surprising very little news has come out since except for the news they were obliged to provide such as the very large September contract. And concerning your first point, indeed there is a case to be made that the current share price doesn't even represent 200M£ in revenues.
Thanks for the reactions. I just wanted to point out that one should not confuse the expectations the current share price is reflecting with the expectations that are expressed on the board. Although 400 to 500M may well be in the realm of possibilities, it should not necessarily mean the share price must tank if those are not met. The current share price reflects a far lower revenue number (200 to 250 max imo). I find it important people know the difference.
A few days ago, Airlineboy raised the valid concern that we are setting ourselves up for disappointment (by raising hopes for sales of 400 to 500M and more). The question we should ask ourselves therefore is whether the market would be disappointed if we only get say 225 to 250M. My immediate reaction would be 'yes'. However, what we should really try to figure out is what kind of revenue number the current share price is reflecting. Looking at the SP Angel research, which I find a decent piece of work, the share price target is 1463pence for a revenue of 287.8M in 2020 and 290.2M in 2021. The current share price is 869pence which tells me the market is factoring in a revenue of just 170M for 2020 and the same for 2021. The share price is telling a different story than the expectations, it would appear, so a revenue of 225 to 250M should not really be a problem, should it?
I agree my projection was probably a bit conservative. Based on what we do know for certain already, we already get to this number: 205M£
Total sales and orders as per June 1st: 120M£ (it is fair to assume this total amount will fall in 2020)
September 29th DHSC contract: 150M£ for 14 weeks (with 3 months left in the year at that moment, let us assume 2 full months of the contract can be invoiced in 2020= 85M£)
TOTAL for 2020: 205M£
On top of this number come the sales we don't know for certain:
- Microgen piece of the Pathology and POC tender (worth 10M, 100M or more, who knows?)
- Sales from other than PCR products (Versalab, Elisa, Winterplex, .... ?)
- Sales to other countries other than the U.K. (including the U.S, India)
- Contract extensions of existing U.K. gov contracts that have not been communicated yet (possible secrecy clause)
These sales should make up the difference between 205M and SP Angel's 287M, or am I missing something with my base-line calculation, above???
There is another question that puzzles me: how much of the production capacity is eaten up by the U.K. gov contracts?
I have always wondered why the Ncyt production capacity was so large compared to what I estimated could actually be sold (20% of the total U.K. gov PCR test market is not nothing).
We know production is at or above 8 million tests per month, some say 10 million.
Unfortunately, we don't know the total number of tests included in the 29/09 contract.
Taking into consideration the fact that 300 Q16 and Q32 instruments have been placed, I have calculated the total capacity of these instruments to be around 2 million tests per month (depending on the mix of 16s and 32s). This is assuming an 8 hour work day. When working in 2 or 3 shifts the amount would of course double or triple (does anybody have any info on that?). So depending on the scenario, a spare production capacity exists of between 6 and 2 million tests. It makes of course a big difference whether 2M tests/month or 6M tests/month are included in the DHSC contract , because that would mean the remainder of the spare capacity is earmarked for customers (and consequently revenue) that we have no clue about. You would assume DB would not install an 8 million production capacity if he saw no customers for it.
Conclusion: I think the possibility of a disappointment when we get the 2020 sales figures will be limited. The potential for a HUGE upside is real but cannot be taken for granted, because we simply don't have enough information. It would be wise not to get too carried away (the upside may materialize only in 2021, not 2020 or even not at all (less likely), but with stocks and companies you never know.