Finncap valuation : nothing in it for COVID-1912 Feb 2021 07:16
Finncap's note yesterday outlines that the current £160m m/cap is essentially backed up by the prospects for the core businesses - with absolutely nothing in the price for anything related to COVID-19:
"Valuation
We outline below thekey elements of value within Omega that form the basis of a sum-of-the-parts valuation.However, the ultimate value is clearly dependent on the ability to fulfil potential orders from the UK Government for rapid COVID-19 antigen tests.
?The existing Food Intolerance business generated pre-COVID-19 sales and EBITDA in FY 2020 of £9.2m and £4.2m,respectively, growing at c.14%, albeit driven by a c.£1m order from China. Stripping c.£0.7m from EBITDA to account for the Chinese contribution, the underlying non-China business could generate c.£4.0m of EBITDA in two years post-pandemic disruption, which could command a valuation of c.£60m (15x EV/EBITDA, given 40%+ EBITDA margin).
?Chinese NMPA approval for the Food Detective self-test in November 2020 is expected to drive long-term revenues, which we have estimated could rise to £6-12m (0.5-1.0m tests) in the next couple of years with gross profit of £4.0-8.0m. Based on an EV/EBITDA multiple of 10x, this could be valued at £40-80m, with a value today of £30-60m.
?VISITECT CD4 is potentially capable of generating substantial revenues in the next few years, given the potential demand for c.6m point of care tests. Whilst the pandemic has also had an impact on the rollout of the test, Omega continues to support the Clinton Health Access Initiative (CHAI) to accelerate access to VISITECT CD4 Advanced Disease test through the supply agreement signed with CHAI in April 2020. Omega indicated that it expects 7-10 countries to have initiated rollout plans for the test by the financial year-end. Assuming a c.40-60% share of the potential addressable market,this would imply c.2.5-3.8m annual tests with revenues of c.£8-12m and gross profits of c.£5.5-8.5m. We believe that this could be valued at £55-85m, a value today of £45-70m.
?COVID-19 lateral flow tests. Omega expects to be able to produce c.2m lateral flow tests per week by 30 April, implying c.100m tests per annum. This capacity theoretically could generate c.£150-200m of revenues, assuming a price per test similar to that which Omega receives from the UK-RTC for producing (cassetting and pouching) its AbC-19 COVID-19 Rapid test.Arguably, the revenue per test could be higher, depending on whether Omega does both the primary manufacture and packaging of the tests. We are not suggesting that the government will utilise Omega’s full capacity as there are likely to be other contract manufacturers,but given that it has already spent c.£1.5bn to buy lateral flow tests and that it has publicly referred to the need for c.2m test per day (ie 700m tests per annum), the opportunity remains very substantial."
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