IC article29 Jan 2021 12:49
Novacyt struggles to shake off testing outlook fears
Covid-19 testing company Novacyt (NCYT) saw its shares come under pressure despite a trading update that revealed a twenty-fold increase in sales in 2020 to €311.6m (£277.0m), a threefold increase in cash profits (Ebitda), and a swing to a year-end net cash position for the first time in its history.
Although the company, whose polymerase chain reaction (PCR) Covid-19 test was one of the world's first to be approved, said that it expected continued strong trading in the current year - underpinned by further investment in its testing products, possible acquisitions, and overseas expansion of its sales capability into new geographies including the US - it declined to offer specific guidance, compounding worries that testing demand could slow as vaccines are rolled out.
Investors also appear to have been spooked by news this week that recently-floated Abingdon Health (ABDX) had seen the cancellation of a government contract to supply 1m rapid testing kits to the Department of Health and Social Care (DHCS) as leader of the UK Rapid Test Consortium, of which fellow Aim-traded testing provider Omega Diagnostics (ODX) is part. The news comes amid ongoing concerns over the accuracy of lateral flow tests, which can deliver results more quickly than PCR tests, and legal challenges to the way in which government testing contracts have been awarded.
However, while analysts at finnCap expect testing to peak this year, they expect demand to remain strong into 2022 "as a result of the logistical hurdles in vaccinating the global population as well as the uncertainty around how long vaccine jabs provide immunity and their effectiveness against new COVID strains." We think Novacyt looks well placed to be a continued winner, with the company confirming that it continues to work with the DHSC to deploy its rapid PCR testing system and is in discussions to extend the contract first announced last September. JH
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