Charles Jillings, CEO of Utilico, energized by strong economic momentum across Latin America. Watch the video here.
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In establishing the p/e ratio Analysts will consider other all manor of erogenous factors . Things like goodwill, the skills and competence of employees and the company's risks, its structure it’s location for example. The earnings metric works best by taking the fundamentals from when businesses are running in an optimised and steady state.
When businesses are ramping as Novacyt is the cash flow must be discounted in any assessment.. However it should still take the economies of scale into account and follow the trend rather than the daily SP fluctuations.
It is very apparent that whoever has designed Navacyts business model has done an excellent job. As an Outsider I don't know the micro details but from a macro view the fact that they have adopted a modular concept speaks volumes. Under the approach they are able to control production both up and down here in the UK simply by bolting on another module (production partner) or by removing one from the chain.
On 15 April Novacyt announced plans to increase manufacturing capacity to approximately 8m tests per month. Novacyt is on track with this scale-up and expects to achieve at least this level of output during this month.
Novacyt has signed agreements with six sub-contract manufacturers in addition to its own two production sites in Southampton and Camberley. which provides greater contingency and the flexibility to scale-up its manufacturing outputs beyond eight million tests per month when necessary.
But it's more than just about numbers. Novacyt have also adopted a strategic approach. They have covered production across the UK and whilst that obviously cuts logistical costs it is not the main reason. It’s secondary. The main reason is it cuts down the time it takes to get the results. It’s an important factor in the fight against the virus. Test results must be available within 24 hours. It’s crucial.
I believe Novacyt will achieve an optimised and steady state for it’s first phase here in the UK by October this year. There may well be subsequent phases here achieved by bolting on more modules but the details of those are undisclosed.
It’s not difficult to imagine that if the business works well as a unit here Novacyt may well consider “baking another cake” in other countries too. Germany certainly springs to ming and I doubt finance will be an impediment.
Novacyt is such an attractive business and has set standards others in the space can only envy. It’s because of that we as shareholders need to be on our guard against aggressive suitors. We must not allow the business to be taken from us on the cheap. We need to share our opinions and understanding of what the company is worth. In my view it’s currently considerably undervalued.
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So what does all this come down to in a relatively short term? Here's my view;-
I have the company producing 10m tests per month at that point and for ease of maths receiving £1bn in annual revenue. If profit or earnings is 50% at the moment I have it about 55% at least by then. I could work it the DCF more accurately but there seems little point at this stage.I believe a reasonable P/E ratio by then to be between 3 & 4 at least. That would give the company a notional Market Cap £1.65bn & £2.2bn. Derived from that we get to an SP of between £22 and £30 providing the shares in issue stays the same.
Where we are now the earnings figure should be around £300m annualised and the p/e possibly 2. If that's right we get to a SP of between £8.50 providing the shares in issue stays the same.
The argument that the argument knows best is laughable and old fashioned. Even if it did hold merit it can't apply to companies ramping up. Science has the market as being always behind the curve. Hence the volatility we're witnessing in the SP. Investors make the market and they're not sure what to make if Novacyt at the moment.
Fingers crossed!
AIMHO.
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Some will argue the earnings metric is inappropriate in Novacyts case. But support for that argument can only come from two principles.
The first principle is the one that says the demand for Novacyts tests will fall off substantially in a relatively short time once the pandemic passes.
The second one says that Novacyts fundamentals are too unstable to use it whilst it's in its ramping up state.
It pains me very much to say that under the first one demand is unlikely to exceed supply. This virus isn't going away anytime soon unfortunately. In the pandemic were likely to see hot-spots flare up in areas where the "R" value creeps above 1 which will call for a high testing approach under local authorities. We're already seeing it here.
When and if the pandemic subsides I believe we'll see epidemics springing up around the globe.
Demand will not just come down to how many tests will be needed for testing when the disease is under control. It's far more to do with capacity and the ability and readiness for governments and Institutions to cope with further outbreaks or even another strain.
These Antibody tests have an eighteen month shelf life and the alternative of being caught out again in future is unthinkable. So I firmly believe we'll see a stock of both Antigen and Antibody tests being kept in reserve at all times across the world. Supply will struggle to replenish the stocks in my view.
On the second one it is true to say the SP is volatile and profit isn't steady just yet.
As with any newly producing company there will be a point when it establishes an "optimised and steady state".
Understanding the path isn't too difficult to understand . Novacyt has been following a ramp up profile which from a distance follows a logarithmic curve. Closer to the curve the peaks and troughs of daily SP movements will be more noticeable but for valuation purposes the curve should be seen as the trend.
Think of it as the curve a car follows under maximum acceleration. The car's acceleration is at its fastest at the beginning of the curve and at its slowest at the end when it gets to its maximum or its optimised state.
Conversely it's earnings or profitability epreed in unit terms (per test) will almost certainly follow an exponential curve. It increases rather than slows as it undergoes the effect of economies of scale.
The more you produce the cheaper the unit costs. The fixed costs which all copies have is increasingly diluted the higher the production.
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If you're reading this with a set view that Novacyt will be losing value from here or that for whatever reason you no longer want to stay invested then please don't bother to read this. It's not intended for you and it's unlikely to be of interest.
I don’t post very often and when I do it's only my own honest opinions I give . Without exception.
There are many ways of valuing Novacyt and views on the one that applies a "P/E multiplier" being exchanged on here today I recognise as an earnings metric method is one of my favourites.
It's just one of three of the most common ones used by Analysts. The others being one that's asset based and one that's based on benchmarking against similar companies in the space. Those producing COVID -19 Antigen tests that is.
Professional Analysts or rather the better ones will use several methods to value and then take a weighted average view.
Of course the real value of anything material will be what another party is prepared to pay for it. In other words a commercial approach taking expert valuations as a basis into consideration.
A commercial offer from a suitor may be more or less that an expert valuation.as often happens an initial off may not be the extent of what may be the offerors maximum. Invariably there not.
2 of 3
Some will argue the earnings metric is inappropriate in Novacyts case. But support for that argument can only come from two principles.
The first principle is the one that says the demand for Novacyts tests will fall off substantially in a relatively short time once the pandemic passes.
The second one says that Novacyts fundamentals are too unstable to use it whilst it's in its ramping up state.
It pains me very much to say that under the first one demand is unlikely to exceed supply. This virus isn't going away anytime soon unfortunately. In the pandemic were likely to see hot-spots flare up in areas where the "R" value creeps above 1 which will call for a high testing approach under local authorities. We're already seeing it here.
When and if the pandemic subsides I believe we'll see epidemics springing up around the globe.
Demand will not just come down to how many tests will be needed for testing when the disease is under control. It's far more to do with capacity and the ability and readiness for governments and Institutions to cope with further outbreaks or even another strain.
These Antibody tests have an eighteen month shelf life and the alternative of being caught out again in future is unthinkable. So I firmly believe we'll see a stock of both Antigen and Antibody tests being kept in reserve at all times across the world. Supply will struggle to replenish the stocks in my view.
On the second one it is true to say the SP is volatile and profit isn't steady just yet.
As with any newly producing company there will be a point when it establishes an "optimised and steady state".
Understanding the path isn't too difficult to understand . Novacyt has been following a ramp up profile which from a distance follows a logarithmic curve. Closer to the curve the peaks and troughs of daily SP movements will be more noticeable but for valuation purposes the curve should be seen as the trend.
Think of it as the curve a car follows under maximum acceleration. The car's acceleration is at its fastest at the beginning of the curve and at its slowest at the end when it gets to its maximum or its optimised state.
Conversely it's earnings or profitability epreed in unit terms (per test) will almost certainly follow an exponential curve. It increases rather than slows as it undergoes the effect of economies of scale.
The more you produce the cheaper the unit costs. The fixed costs which all copies have is increasingly diluted the higher the production.
3 of 3
The principle of the "earnings" metric takes the net profit and simply multiplies it by a factor or ratio. (the price/earnings ratio)
The ratio can be best established by benchmarking against a businesses piers or where that is not possible the length of the businesses lifespan may be appropriate. This is why I've touched on the lifespan and constant demand for Antigen tests.
In establishing the p/e ratio Analysts will consider other erogenous factors too. Things like goodwill, the skills and competence of employees and the companies risks and structure etc.
The earnings metric works best taking the fundamentals from when the business is running in an optimised and steady state.
When the business is ramping as Novacyt is then the cash flow should be discounted but should still take the economies of scale into account and follow the trend rather than the daily SP fluctuations.
It is very apparent that whoever has designed Navacyts business model has done an excellent job. As an Outsider I don't know the micro details but from a macro view the fact that they have adopted a modular supply chain speaks voices to me. Under that approach they are able to control production up and down simply by bolting on another producing partner or by removing one from the chain.
So what does all this come down to. Here's my view;-
I believe an optimised and steady state will be achieved by October this year. I have the company producing 10m tests per month and for ease of maths receiving £1bn in annual revenue. If profit or earnings is 50% at the moment I have it about 55% at least by then. I could work it the DCF more accurately but there seems little point at this stage.
I believe a reasonable P/E ratio by then to be between 3 & 4 at least. That would give the company a notional Market Cap £1.65bn & £2.2bn. Derived from that we get to an SP of between £22 and £30 providing the shares in issue stays the same.
Where we are now the earnings figure should be around £300m annualised and the p/e possibly 2. If that's right we get to a SP of between £8.50 providing the shares in issue stays the same.
The argument that the argument knows best is laughable and old fashioned. Even if it did hold merit it can't apply to companies ramping up. Science has the market as being always behind the curve. Hence the volatility we're witnessing in the SP. Investors make the market and they're not sure what to make if Novacyt at
the moment.
AIMHO.
Join the dots:-
https://www.google.co.uk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&cad=rja&uact=8&ved=2ahUKEwiO5qv9turpAhWCUBUIHXDOAVkQ0PADegQIBhAH&url=https%3A%2F%2Fwww.bbc.co.uk%2Fnews%2Fbusiness-52917118&usg=AOvVaw0EkY1oJUiipV8XD66umckd
https://www.google.co.uk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&cad=rja&uact=8&ved=2ahUKEwjOvsvbturpAhVXUxUIHWTLDSwQFjAAegQIARAB&url=https%3A%2F%2Fwww.thepharmaletter.com%2Farticle%2Fnovacyt-joins-astrazeneca-and-gsk-in-uk-effort-on-covid-19-testing&usg=AOvVaw19kZQcBsNMpVjtrf_YM_nJ
We were told two days ago that Vatel has exercised its right to convert of all its outstanding debt into new shares. Some of which were to be locked in until next year as part of the agreement. However the remaining 811,988 shares were de-restricted.
According to L2 on ADVFN there has been roughly 4.5m shares traded on the market these last two days. Of which 2.6m were shown as buys and 1.9m were shown as sells. The difference being around 700,000 subject to normal reporting inaccuracies.
If that's correct it indicates that Vatel has been selling down over and has approximately 111,000 shares left to sell. Again if that's correct and if Vatel continue to sell the "overhang" should be cleared this morning.
The indications are the "sale" in Novacyt shares will be over shortly after which and we should start to see the SP moving unsuppressed again.
AIMHO
From the RNS:-
Low cost operation with an estimated All-in Sustaining Cost ('AISC') of US$727 per ounce of gold AISC's
and an All-in Cost ('AIC') of US$920 per ounce of gold. AIC's
NCYT are in a "Closed Period" and will very likely stay in a CP's for some time.
The BOD's (Board Of Directors) and PDMR's ( Person Discharging Managerial Responsibilities) are precluded from carrying out any transactions in their own accounts or for the accounts of a third parties relating to these shares whilst in CP's under the AIM and MAR regulations given they have access to inside information.
Here’s an overview of NCYT's newsflow since mid February to date:-
18th & 18th February NCYT issues equity and warrants.
28th February NCYT Issues its CE -IVD Novel Coronavirus Test Update.
2nd March NCYT Issues an Update on its Liquidity Agreement.
5th March TR1 Issued in respect of Harbert Fund
12th March NCYT Issues its CE -IVD Novel Coronavirus Test Update. It can manufacture 2m tests/month within two weeks. Selling the test in 50 Countries. Interest is growing on NCYT's broader products now too.
25th March NCYT reaches Manufacturing Agreement for its CE -IVD Novel Coronavirus Test with Yourgene in Manchester.
25th March NCYT reaches Distribution Agreement for its CE -IVD Novel Coronavirus Test with Bruce Hain Diagnostics. Shipments now initiated into Spain, France,Germany and the UK. Test approval also received from the Philippines.
30th March NCYT Issues its CE -IVD Novel Coronavirus Test Update. £17.8m orders received. Largest single order for £1.4m from India. NCYT will be able to manufacture 2m tests/month within one week. Selling its Test in 80 Countries now and the Middle East is its strongest region. Interest is growing on broader products too. Emergency Use was granted in the US on 23rd March. Servicing 21 hospitals in the UK & being used in Ireland too.
1st April NCYT Issues an update on its Liquidity Agreement.
6th April CNR in France approves NCYT's Test for immediate distribution. On 2nd April NTYC also received approval to its Test from Thailand. Under its CE certification it doesn't need approval from the countries that recognise CE certificification.
8th April NCYT announces collaboration with AstraZeneca, GSK and The University of Cambridge to support the Government's five polar testing plan.
8th April NCYT announces WHO Approves its Test. It’s one of only two approved.
8th April NCYT issues R&D update. Primerdesign achieves 4m Tests/month run rate. NTYC signs two significant Manufacturing Agreements. One with BioPharma and one with Biofortuna in the UK . NTYC scaling up production in Southampton too. Talking to other manufacturers as well now. NTYC engages Chartwell Consulting to provide professional help scale up to 8m tests/month. NCYT announces a modification to its Test that removes the need for and reliance on scarce reagents. The revised Test is scheduled to be brought into production in May.
IMHO a spot calculation on 8m tests per month in June puts NCYT’s revenue at close to £1.5bn revenue annualised! Viz:-
8,000,000t’s x 12mth’s x £15/ea say would give NCYT a £1.44bn revenue annualised.
This track record is nothing short of amazing record and I’d like to offer my sincere thanks to NCYT and it’s network for all their input in fighting this dreadful Covid-19 disease! They’ve all helped enormously to save lives and I’m very proud to have given support.
Guys can anyone direct me to information or statements on cost & value for NCYT's tests please?
Also does anyone know what difference the new Direct tests are likely to make when they're brought on stream in the next few weeks or so?
If there are any useful links to the information they would be very much appreciated.
Stay safe!
The MM have coded messages they send to each other via the number of shares they trade.
1 share was traded a few minutes ago
1 share is their signal there's an RHS on it's way. That's if it was an MM that traded it.
The Gov. is working with 9 different companies on Antibody Test.
It's one of those that failed 3 out of 4 trials!
It was not Novacyt's Diagnostic Test that failed.
We dont have a reliable Antibody Test that works just yet. Bit it seems it's not far away!
Guys the MM's can see your portfolio and "borrow" your shares and use them to play their games! That's what they've been doing recently in my view.
To prevent them and to block their access you need to place high limit sell orders on your shares. The order needs to be high enough so that you don't sell accidentally and long enough so you don't have to keep refreshing it . I have mine at 400p for a week.
Just a thought if you're interested.