EKF: Testing, Testing, Normal Service Resumed - 11/11/20

It is unusual, to say the least, when a company announcing ahead of market expectations within a highly positive statement, sees its share price sink by some 18%, but that was exactly what was inflicted upon EKF earlier this week.

I’m sure that I wasn’t the only person that had to do a double take on the day, as the shares slumped, wondering if my eyes were deceiving me or if my PC had thrown a wobbly.

Unfortunately, neither was the case, as the euphoria around the Covid vaccine news, (which we all welcome) had an immediate negative impact on anything that had performed strongly over the last eight months or so on the back of Covid related business.

In the case of EKF - which by the way has a very good core business - I felt the fall was something of a knee jerk reaction that was overdone, thus providing an opportunity for me to add, or for others to also buy in.

Of course, there will have been some willing to go short or others having elected to take their profit off the table and such is the nature of the market, with each to their own.

Having enjoyed such a stonking run on the share price this year on the back of a number of upgrades the abrupt reversal surely spooked some investors and that is so often when the mind can be swayed by the herd as opposed to sticking to the facts that saw us invest in the first instance.

Having taken an opportunity to add at 62p I, like others, have no idea as to where the share price is heading in the short term, but given the excellent update to the market on Monday and the prospects moving forward then there should be further upside to come from this level in due course.

Having previously highlighted October as looking to provide record numbers, the news released saw EKF stating that it expected a strong Q4 from both the core business and continued demand for the PrimeStore MTM sample device, leading to Broker N+1 Singer raising its guidance once more, for full year 2020.

This now sees an expectation of £63m in revenue, EBITDA of £24.4m and adjusted pre-tax profits of £21.5m with EPS at 3.5p.

Net cash is forecast to swell to £23.4m, whilst there are also investments such as that of Renalytix that adds further flavour.

A few days on and as the share price has recovered some of the lost ground, I have managed to catch up with CEO Julian Baines once more, to try and add a little more in and around the update.

Commencing with the market reaction on the day of the Trading Update, Baines saw it as an absolutely ludicrous overreaction and whilst welcoming the vaccine news, echoed others caution on the issues around clearance and delivery, along with stating his belief that testing will not only continue through next year, but also into 2022.

As for now the major focus is on PrimeStore MTM, it was a good time to learn more about where we are at with that, as it has been an ongoing theme and driver throughout the year.

And this, clearly continues to be the case, as the CEO said “We have been selling lots of kits to the Irish HC and that is increasing all the time along with the UK sales. We also supply Uni’s such as Leicester and can do that as they demand, but the Universities are actually not a big part of that business”.

Rather, the real and very significant ongoing sales and momentum appear to be coming in conjunction via its partnership with an Industrial partner.

Baines adds, “We cannot name the company for reasons of confidentiality, but it is a very, very big business that operates globally and what we are doing with them is growing all the time”.

Far from what may have been considered by some in relation to sales of PrimeStore MTM in conjunction with the potential arrival of a vaccine, the reality seems to be somewhat different, testing set to go hand in glove with that and evolving to meet different demands.

Away from the UK, Europe also features for PrimeStore now where Baines adds, “In Germany we have gone in just a few months from nothing at our facility, to currently producing 140k kits a week and that too is increasing all the time as we expand across Europe.

The US is also continuing to flow and demand is increasing and we are in a good spot there, as if a vaccine comes through, other providers that have been granted emergency use will then have to apply for clearance which we actually had granted back 2006”.

As one of only a few that already have the full approval such a scenario playing out would see EKF remaining in a very positive position as we move forward.

Alongside the PrimeStore MTM device there is also the PrimeStore ATM offering where the CEO says that they are now selling a bit of that in the US, but that it is a lower cost product.

This would no doubt prove attractive to specific regions across the globe where the economics can play a key part.

Looking ahead, Baines talks of longevity for EKF rather than a near term gain and that doesn’t apply merely to the very decent existing core business that is proving resilient.

Remaining in the testing space he appears very upbeat and excited regarding prospects for the forthcoming Antibody test that was announced fairly recently in conjunction with Kantaro.

Baines says that they are already going out there now and marketing this test which he believes will prove to be better and more reliable than the lateral flows. He believes they could prove to be key in getting people back into the workplace, help stop the super spreaders and work alongside any vaccine’s, as such testing won’t stop.

Clearly there is much going on at present as we continue to fight back against the virus and EKF looks extremely well placed to continue assisting with that for some time yet.

But there is the very positive core business on offer to investors here too, which Baines says the performance of which has been very pleasing. “Obviously it was down a bit earlier in the year but it has been and is, proving increasingly robust and we have seen particular growth in our diabetes product line, although there has also been improvement across all areas.

Asia never actually really dropped off at all, while we have been really pleased with how it’s gone in Europe and big territories like the US, only Latin America has really been hit and that continues to be weaker”.

Of course, there are other exciting things to discuss within EKF such as the forthcoming and exciting prospect of Trellus that looks like gathering pace next year. But, Julian Baines is a busy man and in demand, so with enough time taken I am once again grateful for the opportunity to speak with him and comfortable with my investment and the adding to my position earlier in the week.