RE: AVCT Thinking aloud19 Apr 2021 16:02
I’ll have a go at this.
The UK is looking for in the order of 100m tests a week for a minimum of two years (for population of 60m testing 2x per week).
If we assume similar rates across US, Canada, EU, etc - say 1bn people total, maybe 2bn tests a week for two years - 200bn
tests total there or thereabouts.
I find it much harder to think about the demand in other markets - Asia, Africa, Latin America, I suspect smaller but still substantial and 6x the population above. For arguments sake let’s call it another 200bn tests though it could easily be higher.
So we’re at 400bn tests if we assume demand drops to exactly zero in two years time, I find that unlikely although I suspect it will reduce, maybe we get down to 20bn as year on an ongoing basis - call it a further 10 years so 600bn total demand in the next 12 years (note there were nearly 5bn airplane passengers in 2019 so flight testing alone could get close to this if they take multiple tests per flight never mind every other use case).
So 600bn total demand at let’s say £5 per test = £3 trillion on LFTs over the next decade and a bit globally (note the global costs of one year of the pandemic were more than 10x than number so still an excellent investment case if it brings it under control).
If, on a conservative basis, we assume the owners of the IP of those test generate £1.50 profit per test that is a £900bn potential profit pool over 12 years before tax.
If Avacta could take even 10% of that and no value was given for anything else in the business that’s a £90bn valuation (£333 SP) before tax and depreciation. Let’s halve that and say £160 SP potential after tax and depreciation if the above scenario played out and Avacta took 10% of the global LFT profit pool.
I admit this sounds hugely rampy and I don’t expect things will play out as neatly as this (assumes lots of extrapolation, large populations happy to test twice a week for two years, etc) but even if you don’t buy anything like these assumptions you can see how easy it is to get very excited about the global potential of a best in class LFT.
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