Alternative Investment Market-listed EKF Diagnostics Holdings PLC (AIM: EKF) is a Healthcare Equipment & Services company. The group is a leading point-of-care diagnostic and central laboratory assay manufacturer with 80,000 haemoglobin, hematocrit, HbA1c, glucose and lactate analysers in regular use across more than 100 countries. Further, the group has specialisation in developing tests for use in anaemia and diabetes diagnosis and management, as well as providing a portfolio of reagents for use in clinical chemistry analysers.
Soaring demand for the company’s specimen collection tubes for COVID-19 testing is strengthening its shares on the LSE of late when the benchmark FTSE AIM All-Share has declined substantially in the prevailing bear market.
Rapid demand surge for PrimeStore MTM- A Specimen Collection Tube
Recently, the group has reported that it had bagged a contract from the US-based Longhorn Vaccines and Diagnostics to supply US$ 1 million worth of specimen collection tubes for COVID-19 testing and also said that the order for the specimen collection tubes is expected to grow significantly in near-term. The company is rapidly scaling up production for specimen collection tubes – PrimeStore MTM to meet the demand from the US and all across the world, as testing tubes are the core components in the COVID-19 molecular testing supply chain. Further, PrimeStore MTM is the first and only US FDA Cleared Microbial Nucleic Acid Storage and Transport Device and was designed for viral pandemics. PrimeStore MTM deactivates the pathogens in the sample, rendering them non-infectious, allowing for safe transport and laboratory handling. Samples collected using this device can also be maintained at ambient temperature for days, eliminating the need for cold chain procedures, and can be handled at laboratories with a lower biosafety containment rating than is otherwise required. This has the benefit of significantly increasing the number and spread of laboratories able to handle samples.
EKF is the contract manufacturing partner of the US-based Longhorn Vaccines and Diagnostics LLC, who is the investor and owner of the PrimeStore MTM. Also, the group is looking for rapid growth in demand for the ample collection device manufactured at its Boerne Texas site.
Takeaways from FY19 Preliminary Financial Results
Recently, as on 07 April 2020, the company reported its preliminary financial highlights for the year ended on 31 December 2020. The company stated that its revenue during the year under consideration increased by 6% to £44.9m against £42.5m reported in the previous financial year, the gross profit improved by 4% to £23.7m vs £22.7 in the last year. It implies a gross margin of 52.7% against 53.4% in the previous financial year, primarily led by a 6.7% increase in the cost of goods sold to £21.19m vs £19.85m in FY18. Adjusted EBITDA (excluding exceptional items and share-based payments) expanded by 12% to £12.0 against £10.7m a year-over period, driven by 18.1% EBITDA expansion in Germany segment, 2.4% expansion in the United States and 2.6% improvement in Russia. It reflects that the company’s performance on EBITDA front was better in every geographical segment in FY19 against comparable previous financial year. However, the company's reported profit before tax plummeted by 54.6% on account of an abrupt 340% surge in the company's financial costs to £339m against £77m recorded last year; further a 125.5% surge in share-based payments and an 11% increase in depreciation expenditure weighed on the group's profitability. As, EKF operates as a cash-settled, share-based incentive for the Executive Directors, which is designed to pay out in the event that the company is acquired by a third party. Also, since the execution of the arrangement in June 2019, the company’s stock price has trebled by late 2019, and the company has moved from being a loss-making company to EBITDA profitability and from being cash consumptive to strongly cash generative.
Key operational highlights – FY19
- Haematology segment: During FY19 sales growth in this segment recorded a very marginal growth driven by declined sales of Hemo Contro, because of the completion of Pakistan, Saudi and Tanzanian anaemia screening tenders in 2018; however, it was partially offset by growth through EKF's private label distribution agreement with McKesson for DiaSpect Tm.
- Diabetes segment: In FY19 sales picked up by 9% on a YoY basis, driven by a surge in sales of β-HB by 18%.
- Central Laboratory and Life Sciences: Sales in this segment reported a growth of 15% against a year-over period.
Exhibited intention to an inaugural dividend payment
In the FY19 preliminary result announcement, the board had confirmed their intention to make an inaugural dividend payment to shareholders of 1p per ordinary share, as previously indicated. If approved by shareholders at the company's next annual general meeting, payment will be on 01 December 2020 to shareholders on the register on 06 November 2020.
Given the progress of the EKF business and cash resources which is growing strongly, the company has moved into a phase where the board is confident that they can provide an income for shareholders and the prospect of significant upside from their relationships with Mount Sinai Innovation Partners (MSIP) and others.
Meanwhile, trading in 2020 till 07 April 2020, has been reported satisfactory and in line with management expectations.
Relative Price Performance
EKF shares are up about 12% in the past five trading sessions and have outperformed the benchmark index by 11% during the same time period, given the increase in demand for medical devices and other healthcare equipment, the group is well-positioned to capitalise on the prevailing distortion which has emerged because of COVID-19 pandemic.
1-Year Relative Price Performance EKF vs FTSE AIM All-Share index (as on April 08, 2020, before the market close).
Amidst, the bearish market condition across the board since the coronavirus pandemic started making several hotspots worldwide with severe conditions in the United States, Europe and the Asia Pacific. EKF shares are standing firm and are up by ~ 6% in one month, with relative outperformance against the benchmark FTSE AIM All-Share stood at 20% in the same time and outperforming the benchmark by ~ 28% on a YoY basis.
Also, EKF stock is hovering above its short-term crucial support level of 30-day and 50-day simple moving average prices, which is a positive trend amid the market downturn. Though, its share is quoting marginally below the long-term support point of 200-day of SMA.