CLICK HERE TO WATCH TODAY'S Q&A WITH SOURCEBIO'S EXECUTIVE CHAIRMAN JAY LECOQUE
With 6m patients currently on waiting lists, the NHS is a desperate position, swamped by the huge backlog of elective procedures, ongoing staff absences - often from long-covid - and tight budgetary conditions.
Luckily there is help at hand from innovative 3rd-party medical diagnostics/lab services firms like SourceBio International Plc (SBI), which released another positive trading update this morning which showed that it's benefitting from a mountain of NHS work and an acute industry-wide shortage of pathologists.
It said that its state-of-the-art, digitally-enabled cellular pathology unit - which tests tissue samples and conducts biopsies - was experiencing “exceptional demand” and delivering “record volumes/revenues”.
Additionally, the £18.5m acquisition of LDPath in March is bedding down well, trading ahead of plan and delivering cost and service synergies, bringing the ideal platform for the enlarged team to generate potentially years of double digit top line growth. The only challenge now is to rapidly increase capacity, which management are already addressing via productivity improvements, faster turn-around times, new technology including AI, and further internal investment.
But that’s not all. Both the Genomics - including the newly created Precision Medicine operation - and Stability Storage divisions too have performed in line with plan so far in the year to date. That means overall, the group is on track to hit FY22 consensus expectations of adjusted EBITDA & EPS of £6.4m & 2.0p, respectively, on sales of £39.5m (up 40% LFL for the core business (source: Liberum).
In fact, I estimate that these 3 divisions alone - excluding Covid PCR testing - should be able to achieve between £10m-£13m of EBITDA on turnover of £50m-£55m by 2025.
That suggests a 14x EV/EBITDA multiple, which would equate to a hypothetical valuation range of between 185p-245p/share and offering considerable upside potential for long term investors from today's price of 125p – and not too dissimilar either to Liberum’s 210p target price. Elsewhere, there’s even another £15m+ (c. 20p/share) of net cash left over, providing ample capital to further accelerate organic and acquisitive growth.
To me SBI looks like a bargain GARP stock, a point not missed either by exec chairman Jay LeCoque, who in April snapped up 100k shares at 129.5p, lifting his stake to 3.3%. Executive chairman Jay LeCoque commented: “We continue to invest organically and pursue strategically relevant & earnings enhancing acquisitions to augment the growth of these core business units. We remain optimistic for the remainder of the year and beyond.”