Consolidation confusion?

ReNeuron Group 14 February 2018 Update
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ReNeuron Group

Consolidation confusion?

Update on share consolidation

Pharma & biotech

14 February 2018

Price

103.5p

Market cap

£33m

Net cash (£m)

47.4

Shares in issue

31.6m

Free float

31.6%

Code

RENE

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(40.0)

(50.7)

(57.3)

Rel (local)

(35.0)

(49.1)

(57.1)

52-week high/low

262.50p

102.00p

Business description

ReNeuron is a UK biotech company developing allogeneic cell therapies. CTX neural stem cells are in development for ischaemic stroke disability (Phase III planned) and human retinal progenitor cells (hRPCs) are being studied for retinitis pigmentosa (Phase I/II).

Next events

Initiation of the first US late-stage controlled stroke study

Q118

Phase I/II readout for hRPC in RP

Q218

Start Phase IIb hRPC in RP

Q218

Analysts

Andy Smith

+44 (0)20 3077 5700

Alice Nettleton

+44 (0)20 3077 5700

ReNeuron Group is a research client of Edison Investment Research Limited

ReNeuron’s recent 100 for 1 share consolidation was a benign and cosmetic ‘tidy up’ of its historical capital structure. The share price of ReNeuron is trading at 52-week lows and the recent consolidation may have been an unrelated or an unintended cause for concern for some investors. ReNeuron’s valuation is now below its c £40m cash position. In this update, we offer some possible thoughts on this overreaction and, in the absence of operational newsflow, our forecasts and valuation are largely unchanged.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/16

0.0

(12.8)

(43.51)

0.0

N/A

N/A

03/17

0.0

(10.2)

(23.93)

0.0

N/A

N/A

03/18e

0.0

(14.2)

(42.20)

0.0

N/A

N/A

03/19e

0.0

(15.4)

(45.82)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Share consolidation just cosmetic

ReNeuron completed a 1 for 100 share consolidation, which was supported and requested by some institutional holders in order to improve marketability, just before a period of intense stock market volatility. It is not possible to know investors’ reasons for selling but some may have mistakenly taken the share price rise as an opportunity to ‘take profits’. ReNeuron’s stock price is now not just trading at 52-week lows, but also below its cash balance. Our valuation of ReNeuron has hardly changed as a result of the share consolidation.

A flight away from risky assets?

A share consolidation is in and of itself not an obvious signal to sell the stock, since the company’s market capitalisation does not change. In the period of market volatility from late January, investors may have sold risky and even risk-free assets in a flight away from risk. To the inexperienced investor, a share consolidation gives the illusion of a higher share price that might have resulted in an investment decision. Investors may also have been worried that the first patient dosed in the late-stage US clinical trial in chronic stroke has not yet been announced. We expect the announcement that the first US chronic stroke patient has been dosed in H118. Loss-making companies can be valued below cash if some of that cash has to be spent to generate a technology value. In ReNeuron’s case any technology value it has generated to date is being discounted. ReNeuron’s lead product is about to start the first of two studies required for FDA approval, and positive long-term Phase II data was recently announced at the American Heart Association meeting.

Valuation: Slightly higher after the consolidation

We have updated our model for the share consolidation (which did not change our operating assumptions) and for our estimates of the FY17 year-end cash position, and have rolled our DCF forward by one quarter. Despite the share consolidation and market volatility, our valuation of £290m (previously £286m) remains largely unchanged.

Exhibit 1: Financial summary

£000s

2016

2017

2018e

2019e

2020e

Year end 31 March

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

29

46

46

46

46

Cost of Sales

0

0

0

0

0

Gross Profit

29

46

46

46

46

R&D expenses

(10,272)

(8,648)

(11,220)

(11,782)

(12,960)

SG&A expenses

(4,015)

(4,139)

(4,346)

(4,781)

(5,259)

EBITDA

 

 

(13,632)

(11,717)

(14,522)

(15,014)

(16,162)

Operating Profit (before amort. and except.)

 

(13,724)

(11,887)

(14,666)

(15,662)

(17,318)

Intangible Amortisation

0

0

0

0

0

Exceptionals

0

0

0

0

0

Operating Profit

(13,724)

(11,887)

(14,666)

(15,662)

(17,318)

Other

0

0

0

0

0

Net Interest

878

1,722

458

237

207

Profit Before Tax (norm)

 

 

(12,846)

(10,165)

(14,208)

(15,425)

(17,112)

Profit Before Tax (FRS 3)

 

 

(12,846)

(10,165)

(14,208)

(15,425)

(17,112)

Tax

1,492

2,592

853

925

2,053

Profit After Tax (norm)

(11,354)

(7,573)

(13,356)

(14,499)

(15,058)

Profit After Tax (FRS 3)

(11,354)

(7,573)

(13,356)

(14,499)

(15,058)

Average Number of Shares Outstanding (m)

2,609.3

3,164.6

31.6

31.6

31.6

EPS - normalised (p)

 

 

(43.51)

(23.93)

(42.20)

(45.82)

(47.58)

EPS - FRS 3 (p)

 

 

(43.51)

(23.93)

(42.20)

(45.82)

(47.58)

Dividend per share (p)

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

6,963

724

3,239

5,783

8,457

Intangible Assets

1,591

0

0

0

0

Tangible Assets

361

724

3,239

5,783

8,457

Other

5,011

0

0

0

0

Current Assets

 

 

64,894

65,888

49,110

43,067

26,587

Stocks

0

0

0

0

0

Debtors

1,421

812

812

812

812

Cash

60,709

61,061

47,446

41,329

23,722

Other

2,764

4,015

853

925

2,053

Current Liabilities

 

 

(4,199)

(5,702)

(3,702)

(13,702)

(13,702)

Creditors

(3,700)

(5,701)

(3,701)

(3,701)

(3,701)

Short term borrowings

0

0

0

(10,000)

(10,000)

Short term leases

(1)

(1)

(1)

(1)

(1)

Other

(498)

0

0

0

0

Long Term Liabilities

 

 

0

(1)

(1)

(1)

(1)

Long term borrowings

0

0

0

0

0

Long term leases

0

(1)

(1)

(1)

(1)

Other long term liabilities

0

0

0

0

0

Net Assets

 

 

67,658

60,909

48,646

35,147

21,342

CASH FLOW

Operating Cash Flow

 

 

(11,920)

(5,976)

(15,428)

(13,899)

(15,024)

Net Interest

0

0

0

0

0

Tax

0

1,340

4,015

853

925

Capex

(293)

(532)

(2,660)

(3,192)

(3,830)

Acquisitions/disposals

0

0

0

0

0

Financing

65,195

0

0

0

0

Dividends

0

0

0

0

0

Other

345

520

458

122

207

Net Cash Flow

53,327

(4,648)

(13,615)

(16,116)

(17,722)

Opening net debt/(cash)

 

 

(12,380)

(65,708)

(61,059)

(47,444)

(31,327)

HP finance leases initiated

1

(1)

0

0

0

Other

(0)

0

(0)

(0)

0

Closing net debt/(cash)

 

 

(65,708)

(61,059)

(47,444)

(31,327)

(13,605)

Source: ReNeuron accounts, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by ReNeuron Group and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Limited (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by ReNeuron Group and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Limited (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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