Whilst the huge level of success from its PrimeStore offering has been the key driver of EKF’s share price over the last year, there continues to be much more on offer here. Having delivered its excellent full year 2020 numbers last week as previously highlighted on the blog, this morning I caught up again with CEO Julian Baines to hear more on the wider business and what appear to be increasing prospects and excitement. Baines, not surprisingly sounds positively upbeat on the back of those results and appears to look to the future with a strong level of confidence that should certainly resonate with shareholders.
As many already familiar with EKF will know, there is clearly much going on in the business beyond the Covid testing revenue stream and to that end we first touched upon the company’s Hematology offering. Baines says that EKF has been selling its devices in this area largely through its relationship with global leading supplier Fresenius and across numerous regions.
However, as of the last quarter in 2020 EKF received FDA regulatory approval in the US enabling it to sell its DiaSpect TM device into US blood banks.
Commenting the CEO said, “we already have around three to four million dollars of revenue from other products in that market, but overall it is worth around $40m. Although there is a dominant player in the US, we have a very good and able sales force which comes from our acquisition of STI in 2014 and so there is now a pretty sizeable opportunity for us to concentrate on in the US”. Hematology is of course only one string to the EKF bow and Life Sciences is the next area I have to visit with Julian Baines. “Our hopes and aspirations around this area are to see revenues of $15m-$20m maybe higher by 2023 and there are some very big opportunities for us to go for”. The CEO adds that the reason that he cites 2023 for the revenue goal is that EKF is now seriously transitioning from a medium sized enzyme manufacturer to a large one in order to scale up and capture all those opportunities that are now presenting themselves. And within this, another area worth touching upon was the more recent win with Illinois based Stepan, a two billion dollar turnover company that produces disinfectant for the healthcare market.
The CEO commented, “this contract worth $750k relating to Q3 is where we provide the raw material and the opportunity here for us could be very, very large”.
Baines also adds that the process to achieve scale is quite involved and takes time to achieve, but being conservative and rightly so, he is nevertheless looking at what appear attractive revenue numbers from two areas in relation to this for starters That sees him anticipating figures of $3m to $4m per annum from both, as a minimum over the next two to three years where after achieving a scaling up, he says that you are then looking at high margin and high revenue. Whilst thus far this is all great news to hear, much of the wider investor excitement has understandably been focused on the relationship with a major private, but unnamed customer.
The word around the various bulleting boards is that this is Amazon, but if it is the case, Julian Baines cannot confirm it due to reasons of confidentiality.
However, commenting on this relationship and both existing and future opportunities with the customer he said, “one of the biggest points I have raised with fund managers is what else we could do with this partner, such as home kit diagnostics”.
He adds that the world was already going down that route before the onset of Covid and that has now accelerated, where given that this customer has such a huge distribution network and its own PCR lab it seems a natural progression for it move into home diagnostics.
Going on the CEO adds that EKF has been more than just a manufacturing partner as it has supported the customer through the tough regulatory hurdles as they have progressed. “We had the expertise in this area to support and assist them and as a result we have become a very close- knit partner. But, they haven’t invested millions in their own PCR lab to just stop when Covid quietens down, they are fully intended to move into other areas”.
Beyond this significant customer and the undoubted opportunities for EKF, I touch upon its wider position across manufacturing test kits.
The CEO says “there are a number of opportunities in front of us as companies have discovered that there are very few partners that can actually do the kitting”.
There are, he says, regulatory issues and quality that others cannot overcome which puts EKF in a very strong position for further progress across this area. “In PrimeStore I see a huge opportunity as you have got to remember that it kills the pathogen, so I can see it being used in areas such as malaria or ebola and others. As one example Public Health England have already got it in their workflow for pathogens not just Covid, so we see some really good opportunities ahead”. The relationship with Mount Sinai is another exciting aspect within the EKF business and the CEO sounds excited and upbeat on future prospects. “We want to try to do one investment and one floatation per year and having seen the success of Renalytix and Verici we now have Trellus which should go onto the market by the end of May. Feedback on Trellus has been very, very positive and it is certainly in our plans to continue to invest in such technologies and pay dividends”.
Baines sees a combination of providing returns to shareholders via the dividend in specie method that has already proven successful along with paying an annual progressive dividend.
Regarding the latter, he sees that as being absolutely ongoing or to use his words “forever now”, which is arguably a measure of the confidence in place here.
Beyond Trellus, Baines says that they hope to do another spin off next year although at this moment in time they haven’t decided exactly on what that technology will be.
Despite the commitment to an annual dividend cash payment, the CEO says, “I feel extremely passionate about new technologies and investments and see that as a far greater reward for shareholders than just paying cash which provides them with a greater return and a stake in exciting businesses”.
EKF shares are sitting at 80p as I write and remain extremely attractive to this holder, given all the moving parts, prospects and an increasing demonstration of strong cash generation.