There has been a very positive and welcome trading update today from SourceBio International (SBI), which has resulted in broker Liberum reaffirming its forecast numbers for the full year 2021.
Although the share price has reacted positively currently trading at £1.60p, they continue to look very much undervalued, particularly if the broker guidance is on course to be delivered.
Looking at the release from SBI, the tone sounds positive, with the company stating that it believes the group is currently trading in-line with expectations.
Within the update, there was confirmation that more than 600k PCR-based tests from its Nottingham operation had been completed, in addition to tests delivered through mobile units, which generated revenues for the division in the first half of £28.4m.
That compares with the £2.2m achieved in the first half of 2020, demonstrating the ongoing success and the seized opportunity in this space by SBI.
Clearly, the second half is key to the meeting of the anticipated numbers, which although looking aggressive at this stage, appear to be deliverable going by the confidence expressed today by both the company and broker Liberum.
The weighting ratio as highlighted by the broker is it says, likely to be 80/20, but in that context it remains comforted by a number of points including the revelation that testing increased from under 4k per day in June to a current 9k. Whilst the vaccines are seemingly and thankfully doing their job, it is becoming ever more apparent that testing isn’t likely to be going away anytime soon and the view is increasingly echoed across a number of wider circles.
Indeed, the noises emanating from our own government and associated epidemiologists point to increased activity on this front and as further opening up builds in momentum, then ongoing testing is likely to play a major role going forward.
In its note released this morning, Liberum highlights that a full reopening is likely to drive travel demand which it expects to be a key driver of testing revenues.
The broker also focuses on the current cash situation which with £17m of net cash implied circa £9m free cash flow which looks to be an excellent performance given the working capital expansion required.
On the back of the SBI update, Liberum also points out that SBI now has circa 16% of its market cap in cash and that figure should be doubled by the end of the year based on its forecast.
This, according to the note, sees end of the year net cash standing at £51.2m with a pre-tax profit of £55.3m pencilled in and EPS of 60.4p, thus highlighting the value on offer at the current price.
As I mentioned in my last piece on SBI after speaking with the CEO, the broker expectations for 2022 and 2023 are expected to retrace sharply, although those numbers are based on testing undertaken all but disappearing.
Given where we are at and the prospect of new variants and other countries lagging in the vaccine roll out, it would appear that such testing will surely be with us for some time yet, particularly across air travel.
Whatever transpires on that front though, the shares, according to Liberum on a post Covid basis still do not reflect a building momentum across the wider business and trade on a 2023 EV/EBITDA of 6.5x.
The core business has, looking at the update, also performed well with genomics, diagnostics and stability storage seemingly returning to more normalized pre-Covid levels.
And, given the magnitude of the backlog across many aspects of healthcare and diagnostics, then it is reasonable to assume that these areas should provide further growth opportunities for SBI in both the near and longer term.
More should become apparent in the forthcoming Interim results, which may provide for more visibility and further guidance on meeting the numbers.
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