SourceBio (SBI ) has provided shareholders with a short trading update ahead of its AGM today highlighting continues positive trading post year end on 31 December 2021 with revenue, earnings and cash generation significantly ahead of last year. 

Importantly, the Company has pivoted during the pandemic to broaden its infection disease testing business unit to prepare for peak earnings from travel related COVID testing over the next couple of months and is therefore looking to expand capacity at its Nottingham laboratory and acquire additional laboratory capacity elsewhere. 

The company notes that indicated demand of travel related testing, if materialised, would heavily weight FY21 earnings to the second half of the financial year. 

Elsewhere across the Company, the Healthcare Diagnostics business has seen progressive increases in the volume of Cellular Pathology as the numbers of elective surgeries now appear to be returning to pre-pandemic activity levels. 

Acquisitions remain firmly on the options for the Company also, particular to segment and expand the company’s current growth trajectory with additional strategically relevant services. 

View From VOX 

There is little doubt FY20 was a transformational year for SBI as the Company repositioned its products and services to face the rapidly expanding COVID related testing markets, whilst broadening its services beyond PCR testing. 

Today’s update shows the Company’s year-on-year growth trajectory remains on track with ‘peak earnings’ from travel related COVID testing expected to heavily weight earnings into 2H21 following, amongst other things, addition to the UK Government's approved list for Day 2 & Day 8 coronavirus screening for all international arrivals for both PCR testing & genome sequencing. 

Whilst some investors may be concerned that travel related COVID testing earnings re expected to peak during the summer months, SBI offers safe harbour as all its other divisions (Healthcare Diagnostics, Genomics & Stability Storage) have now returned to pre-pandemic levels, as elective procedures begin to return to normal. 

Analysts are forecasting FY21e EBIT of £55.6m on sales of £156.8m - closing the year with c.£50m of net cash. The latter providing plenty of fire-power for M&A to further expand internationally & broaden the product portfolio as highlighted in today’s update. 

As such, analysts are assuming the base business alone could deliver £9m of EBITDA on revenues of £40m by 2026, which on a 14x multiple would theoretically be worth £126m. Equivalent to SBI’s current mkt cap. 

Reasons to  SBI 

SourceBio International is an international provider of laboratory services to clients in the pharmaceutical industry, the NHS and to private healthcare providers. The Group is headquartered in Nottingham, with additional facilities in the UK, Ireland and the US.  

The company saw a positive start on its first day of trading on AIM, adding around £8m to its initial £120m market capitalisation while the £35m raised at 162p is intended to be used by it to scale up COVID-19 testing capacity as well as paying off shareholder and bank loans.   

“We are delighted by the strong support we’ve received from institutional investors. Our IPO on AIM allows us to significantly increase our COVID-19 testing capacity, accelerate earnings growth in our core business and execute on potential M&A opportunities,” said LeCoque.   

He said at the time of the IPO: “It’s an exciting time for our business and we  look forward to executing on our ambitious growth plans and delivering value to our shareholders.”    

In November 2020, SourceBio unveiled that its funds from its IPO were enabling it to further scale its COVID-19 testing services to deliver against expected increases in future testing.   

SourceBio previously forecasted total revenue of around £50m (FY19: £21.2m) and EBITDA of c.£14m (FY19: £3.0m) for the year ending 31 December 2020, with the vast majority of this increase in expected earnings driven by the contribution of COVID-19 testing revenues.   

The group said in November 2020 that it had been accepted into the Increasing Capacity Framework Agreement for cancer testing services to NHS England, designed to reduce the significant backlog of elective surgeries impacting the NHS due to the pandemic which is expected to support the growth of the Healthcare Diagnostics business unit in 2021.   

SourceBio entered into a strategic commercial partnership with Oxford Nanopore Technologies to offer a COVID-19 testing solution to corporate customers at scale via its own lab facilities. Last month, the group entered into a supply agreement to provide ‘state of the art’ products and lab services to an unnamed high street retail and pharmacy group.  

Since December 2020, SourceBio has been supplying COVID-19 antigen RT-PCR testing services to the DHSC. It is currently awaiting a potential formal award under Public Health England's National Microbiology Framework in relation to further COVID-19 testing services.