Tipped this morning for 2021 on i.i.i31 Dec 2020 10:54
SBI have been tipped this morning on i.i.i by Andrew Hore as one of his tips for 2021....
"SourceBio International
SourceBio International (LSE:SBI) is one of the companies that is benefiting from the need for Covid-19 testing. Demand for its laboratory testing services is soaring and it is hugely cash generative. That will not last for long, but it will leave the company with a large cash pile that can be spent on earnings enhancing acquisitions. The core operations have longer-term growth prospects.
Despite the new vaccines, testing will still be important. SourceBio should know how much will be generated from Covid-19 testing when the framework agreements are finalised next February. City broker Liberum expects SourceBio to end 2021 with £47 million in the bank, rising to £73 million at the end of 2022. The broker estimates that £66 million will be generated from Covid-19 testing, although this required initial investment by the company. That cash in the bank covers the majority of the market capitalisation. No Covid-19 testing revenues are in the forecasts after 2022, but they could continue.
The core operations are health diagnostics, genomics and stability storage. These are areas with high barriers to entry for competition. Genomics, which offers DNA sequencing services, is the smallest division, but the market could grow at up to 20% a year. Health diagnostics offers pathology and personalised medicine services, and SourceBio is increasing market share as these services are outsourced. Additional capacity will help stability storage to grow, although it will be more slowly than the other divisions.
The core activities, which have been hit by Covid-19 spending this year, are expected to recommence growth next year, with earnings before interest, tax, depreciation and amortisation (EBITDA) of £3.4 million forecast for 2021 and £4.9 million for 2022. Liberum estimates average annual growth of 22% between 2019 and 2023. Those businesses are cash generative and the cash pile will continue to increase. If the money is not spent on acquisitions, then there could be some significant special dividends.
A placing raised £35 million gross at 162p a share when SourceBio joined AIM in October. That paid off debt and financed investment in the Covid-19 opportunity. Non-exec Christopher Mills has been adding to his shareholding at prices above the current share price. You should buy as well."
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