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Research: Healthcare
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.
Written by
ReNeuron Group |
Consolidation confusion? |
Update on share consolidation |
Pharma & biotech |
14 February 2018 |
Share price performance
Business description
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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* |
EPS* |
DPS |
P/E |
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
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Research: TMT
Ebiquity has announced the proposed disposal of its Advertising Intelligence (AdIntel) business to Nielsen for £26m (a multiple of 1.2x sales and 5.9x operating profits). The AdIntel business is platform-based and made up the bulk of the group’s Market Intelligence segment. The disposal will allow Ebiquity to focus investment and resources in growing its tech-enabled consultancy practices (MVM and MPO), which have historically been faster growing. The pre-close trading update indicates that after a difficult H117 in the US, progress has been made and growth ex-US has been good. Our forecasts are currently being updated.