Landmark Partnership & Refinancing Plans Unveiled by 2 LSE Stocks: Novacyt SA & Spire Healthcare Group PLC

Pharmaceutical & Biotechnology sector is certainly playing a vital role to battle with Covid-19 infection across the globe. Meanwhile, businesses involved in these sectors are also entering several partnerships and contracts as they are witnessing lucrative demand for products, drugs, tests, and services. Invariably, these Companies are a part of critical government force to eradicate the Coronavirus. On this note, we will discuss a clinical diagnostic Company, Novacyt PLC (LON:NCYT) and a hospital Group, Spire Healthcare Group PLC (LON:SPI). Today, NCYT has released its full-year 2019 results, while SPI has come up with an AGM (annual general meeting) statement. Subsequently, the stock price of NCYT plunged over 8.50 per cent, while SPI contracted by around 2.98 per cent (at the time of writing, 9.25 AM GMT). Meanwhile, the United Kingdom market fell today (on 14^th May 2020, before the market close) since apprehensions dent the market sentiments over the slow recovery of the economy from Coronavirus led slump. In light of prevailing market conditions, let’s skim through the operational and financial position of these two Companies (NCYT and SPI) and understand, what is bringing positivity to the market sentiments despite prevailing economic disruption.

Novacyt SA PLC (LON:NCYT): Started 2020 with Solid Orderbook across Both Segments

Novacyt SA PLC is a FTSE AIM-listed Company, which is engaged in the clinical diagnostics business. The Company’s business is divided into two divisions - Primerdesign and Lab21 Products. It is involved in development, manufacturing, designing and commercialization of diagnostics product. The Company serves major companies of haematology, microbiology and serology markets.

(Source: Company Website)

Operational Highlights of 2019

• To supplement the revenue-generating genesig® q16 instrument, the Group introduced a next-generation genesig® q32 qPCR molecular testing instrument.
• Introduced a molecular multiplex test to spot 37 respiratory pathogens for the US market.
• Extended the contract of assay development with Immunexpres.

Major Updates of 2020 – Supporting the UK Government to Fight with Covid-19 infection

• 27^th April 2020: The Group signed a supply contract with DHSC (UK Department of Health and Social Care) for its PCR (polymerase chain reaction) test used in COVID-19 testing.
• 8^th April 2020: NCYT Group collaborated with GSK, AstraZeneca and the University of Cambridge as a part of Government’s five-pillar plan to increase testing for COVID-19.

Financial Highlights - Successfully Launched One of the World's First Molecular Tests for COVID-19

• On 14^th May 2020, the Group announced its final results for the year ended 31 December 2019, with completed refinance and restructure of business in 2019; resume its three-pillar growth strategy of organic, R&D and acquisitive growth; successfully launched one of the world's first molecular tests for COVID-19; stronger financial position.
• This result showed a moderate growth with working capital constraints, which wedged the NCYT's full-year revenue and profit performance.
• Key highlights for FY19: The Company’s consolidated revenue tumbled 5% (6 per cent at CER) to €13.1 million (£11.5 million); gross margin continued to enhance and increased to 64 per cent; adjusted EBITDA decreased to €0.2 million; total net loss widened to €6.6 million; loss per share has slightly increased to €0.14; goodwill has been reduced to €15.9 million; other non-current assets have increased to €8.2 million; inventory increased slightly by €0.1 million (4 per cent) to €2.4 million; cash at year-end of €1.8 million (£1.5 million); net cash outflow from investing activities reduced to €1.3 million.
• During 2019, the Group has successfully sold the Clinical Lab and NOVAprep®, each realising a total consideration of EUR 0.4 million.
• In the trade payables, Novacyt saw a reduction of €0.7 million in 2019, due to an enhanced working capital following the drawdown of the HEGC (Harbert European Growth Capital) loan, allowing crucial creditors' aged balances to be abridged in late 2019. This decrease has been partially offset by the inclusion of the equity warrant liability related to the €5 million HEGC bond, which was not present in 2018.
• Highlights of four months (end of April 2020): achieved an EBITDA margin in excess of 50 per cent (due to the success of the COVID-19 test); net cash balance was €9.2 million (31 December 2019: €1.8 million); low capital intensity of the company's manufacturing process.

Share Price Performance

Daily Chart as of May 14th, 2020, before the market close (Source: EODHD/Others, Thomson Reuters)

NCYT’s shares were trading at GBX 389.99 on 14^th May 2020 (before the market close at 8:55 AM GMT+1). Stock's 52 weeks High is GBX 529.00 and Low is GBX 6.03.

2020 Outlook – Reflecting Good Position

The Lab21 and Primerdesign businesses started the year strongly, with working capital to fully restore the NCYT's supply chain through the first half of 2020, and an order book significantly increased from 2019. Presently, the Group is well-positioned to service substantial and anticipated growth in demand for its COVID-19 test, through its investments in manufacturing and raw materials. This COVID-19 test demand will continue until the end of the current year and may extend well into 2021. Further, the top management believe the launch, successful development, and sale of the COVID-19 test will have a positive, long-term upshot on the business. Currently, Novacyt is experiencing augmented demand for its B2B business.

Spire Healthcare Group PLC (LON:SPI) – Dedicatedly Supporting NHS in England, Wales and Scotland and Expecting a Booming Demand in Future.

Spire Healthcare Group PLC is the United Kingdom-based hospital Group which has 39 hospitals and eight clinics across England, Wales, and Scotland. It was established in 2007 as the rebranding 25 Bupa hospitals. It also operates and owns physiotherapy, sports medicine, and rehabilitation brand, Perform. As of December 2019, the Company had around 13,300 employees (including bank workers) and around 7,300 consultant surgeons and clinical specialists. The Group is the UK’s leading private provider in terms of volume of hip and knee operations.

The Group will announce its half-yearly results for 2020 on 17^th September 2020.

Glimpse of Business Divisions

The Group differentiates its business into three services, namely Orthopedics, High acuity services and Gynecology, plastic surgery, urology & others. Whilst the revenue is generated from three major sources – PMI, NHS and Self Pay which represented 51.4 per cent, 29.9 per cent and 18.7 per cent of revenue in 2019.

(Source: Annual Report, Company Website)

Significant Updates of 2020 – Focusing Resources to Fight with Coronavirus

• 9^th April 2020: The Group partnered with NHS Scotland for its Murray field Hospital in Edinburgh, to provide facilities, staff, equipment, and services for Covid-19 patients. Previously, on 6^th April 2020 and 21^st March 2020, the Group signed an agreement with NHS in Wales and England, respectively for COVID-19 patients.
• 1^st April 2020: The lenders of the Company's Senior Facility agreed for covenant waiver, which will provide flexibility for its agreement with the NHS.

Update (as on 14^th May 2020) – Showing Cash Cost Recovery for its Services

• The Company provides the following update ahead of its AGM (Annual General Meeting). Under the arrangements with the NHS in England, Wales and Scotland, Spire Healthcare is entitled to cash cost recovery for its services.
• Further, the lenders have decided to waive the next two covenant tests (on 30 June and 31 December 2020).
• Due to the uncertainty caused by the COVID-19 pandemic, the Board was unable to provide its guidance for FY20.
• In light of COVID-19, some of the colleagues (Justin Ash, Jitesh Sodha and Garry Watts) have decided the reduction of 20 per cent salary for three months and will donate these funds to NHS Charities together.
• Some Key highlights shown in FY19: The Company’s revenue increased by 5.3 per cent to £980.8 million (driven by growth of 5.8 per cent in private vertical); PMI revenues increased by 7 per cent, Self-pay surged by 2.7 per cent, and NHS rose by 5.0 per cent; the operating profit, post-IFRS 16, increased to £94.4 million; the adjusted earnings per share stood at 2.4 pence; proposed a final dividend per share of 2.5 pence (total dividend per share of 3.8 pence).

Share Price Performance

Daily Chart as of May 14th, 2020, before the market close (Source: EODHD/Others, Thomson Reuters)

SPI’s shares were trading at GBX 90.94 on 14^th May 2020 (before the market close at 8:57 AM GMT+1). Stock's 52 weeks High is GBX 145.00 and Low is GBX 51.10.

Predicting Future Growth from Past Experience

The Company keeps on launching new platforms and upgrade the old products and services to become one of the market leaders in the healthcare market. The year 2020 is progressing in-line with the Board’s anticipations. For the full year 2019, the company made decent progress, particularly in private revenues, driven by strong sales growth momentum. In the current period, NHS revenue also outperformed expectations as the company worked in close partnership with the CCGs (Clinical Commissioning Groups). In AGM, the Group announced that covenant waiver from lenders has provided further flexibility to the Group for partnership with the NHS.