Currency in GBP
Last close As at 27/03/2023
GBP10.28
▲ 24.00 (2.39%)
Market capitalisation
GBP503m
Research: Healthcare
Ergomed released its 2021 trading update. Total 2021 revenues are expected to be approximately £118.6m, up 37.3% y-o-y (our and the consensus estimate was £119.6m), despite continuing FX headwinds (at constant exchange rates, CER, the growth is expected to be 44.3%). Revenues in the CRO segment increased to £58.1m, up 85.6% (97.4% CER; our estimate was £56.0m) indicating a good rebound in the CRO services industry after it was affected by the COVID-19 pandemic in 2020. Revenues in the PrimeVigilance segment increased to £60.5m, up 9.8% (14.2% CER; our estimate was £63.6m). Ergomed expects adjusted EBITDA to be ‘ahead of current market expectations’. Our 2021 adjusted EBITDA stands at £24.0m, marginally above the consensus £23.4m. We therefore keep our estimates and valuation of £751m (1,536p/share) unchanged ahead of the full results.
Written by
Jonas Peciulis
Ergomed |
Healthy CRO segment rebound confirmed |
H221 trading update |
Healthcare services |
03 February 2022 |
Share price performance
Business description
Next events
Analysts
Ergomed is a research client of Edison Investment Research Limited |
Ergomed released its 2021 trading update. Total 2021 revenues are expected to be approximately £118.6m, up 37.3% y-o-y (our and the consensus estimate was £119.6m), despite continuing FX headwinds (at constant exchange rates, CER, the growth is expected to be 44.3%). Revenues in the CRO segment increased to £58.1m, up 85.6% (97.4% CER; our estimate was £56.0m) indicating a good rebound in the CRO services industry after it was affected by the COVID-19 pandemic in 2020. Revenues in the PrimeVigilance segment increased to £60.5m, up 9.8% (14.2% CER; our estimate was £63.6m). Ergomed expects adjusted EBITDA to be ‘ahead of current market expectations’. Our 2021 adjusted EBITDA stands at £24.0m, marginally above the consensus £23.4m. We therefore keep our estimates and valuation of £751m (1,536p/share) unchanged ahead of the full results.
Year end |
Revenue (£m) |
Adjusted EBITDA* (£m) |
EPS* |
DPS |
P/E |
Yield |
12/19 |
68.3 |
12.5 |
19.8 |
0.0 |
66.4 |
N/A |
12/20 |
86.4 |
19.4 |
23.7 |
0.0 |
55.5 |
N/A |
12/21e |
119.6 |
24.0 |
34.1 |
0.0 |
38.6 |
N/A |
12/22e |
136.9 |
27.9 |
40.5 |
0.0 |
32.5 |
N/A |
Note: *Adjusted EBITDA and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
CRO segment rebound
Revenues in the CRO segment include the first full year of US-based MedSource performance since Ergomed acquired it in December 2020. Excluding MedSource (ie like-for-like) the growth was 26.2% (33.4% CER). This marks a significant rebound in CRO service demand, which was dampened across the industry during the first part of the COVID-19 pandemic (in 2020 CRO like-for-like performance was flat year-on-year). At that time the widespread restrictions disrupted clinical trials causing delays and affecting service providers. Ergomed’s key markets are the US and Europe, where vaccine deployment has been relatively efficient, which is the reason for the strong rebound we now see in Ergomed’s CRO division.
Adj EBITDA ‘ahead of current market expectations’
The total order book across both segments is expected to be approximately £240m at end-2021, up 24.2% y-o-y, which gives good visibility of contracted revenues for 2022 and beyond. Cash and equivalent balances were £31.2m at end-2021 and the company still has access to banking facilities of £30.0m if needed. Profits will be released in the full report expected in March 2022, but Ergomed has indicated that it expects 2021 adjusted EBITDA to be ahead of current market expectations.
Valuation: £751m or 1,536p/share
We keep our estimates unchanged as our adjusted EBITDA is already (albeit marginally) above the consensus. We keep our DCF-based valuation unchanged at £751m or 1,536p/share, which implies an EV/EBITDA multiple of 30.0x (FY21e). Ergomed trades at a modest premium on FY22e EV/EBITDA (cons.) of 20.3x vs the peer average of 17.5x. Flexing our DCF assumptions (long-term sales growth and profit margins), our bull case stands at 2,086p/share and our bear case at 1,072p/share (details in our Outlook report).
Ergomed DCF model and forecast multiples
Exhibit 1: Ergomed base case DCF model
£'000s |
2021e |
2022e |
2023e |
2024e |
2025e |
2026e |
2027e |
2028e |
2029e |
2030e |
|||
Revenue |
119,600 |
136,877 |
161,301 |
187,109 |
215,487 |
246,374 |
279,634 |
315,054 |
352,336 |
391,093 |
|||
Growth (%) |
38.4% |
14.4% |
17.8% |
16.0% |
15.2% |
14.3% |
13.5% |
12.7% |
11.8% |
11.0% |
|||
Adj. EBIT |
19,829 |
23,740 |
30,709 |
37,422 |
44,893 |
53,381 |
62,918 |
73,513 |
85,148 |
97,773 |
|||
Margin (%) |
16.6% |
17.3% |
19.0% |
20.0% |
20.8% |
21.7% |
22.5% |
23.3% |
24.2% |
25.0% |
|||
Tax |
(3,536) |
(4,279) |
(5,603) |
(6,932) |
(8,325) |
(9,908) |
(11,689) |
(13,668) |
(15,843) |
(18,205) |
|||
Rate (%) |
-19% |
-19% |
-19% |
-19% |
-19% |
-19% |
-19% |
-19% |
-19% |
-19% |
|||
D&A |
4,150 |
4,150 |
4,150 |
4,150 |
4,150 |
4,150 |
4,150 |
4,150 |
4,150 |
4,150 |
|||
Working capital |
(3,226) |
(1,388) |
(2,541) |
(2,415) |
(2,377) |
(2,677) |
1,283 |
2,963 |
4,095 |
4,639 |
|||
Capex |
(3,550) |
(3,550) |
(3,550) |
(1,733) |
(649) |
(893) |
(771) |
(832) |
(802) |
(817) |
|||
Operating free cash flow |
13,668 |
18,674 |
23,165 |
30,492 |
37,692 |
44,053 |
55,891 |
66,126 |
76,748 |
87,540 |
|||
Value |
Value/share |
||||||||||||
DCF for forecast period (2021 to 2023) |
48.6 |
99p |
|||||||||||
DCF for transition period (2023 to 2030) |
209.2 |
428p |
|||||||||||
Terminal value |
461.9 |
945p |
|||||||||||
Enterprise value |
719.7 |
1,472p |
|||||||||||
Net cash, FY21e |
31.4 |
64p |
|||||||||||
Equity value |
751.2 |
1,536p |
Source: Edison Investment Research. Note: 10% WACC.
Exhibit 2: Ergomed comparable companies
Company |
Price |
Market cap |
EV/EBITDA (x) |
EV/sales (x) |
P/E (x) |
||||||
2021e |
2022e |
2023e |
2021e |
2022e |
2023e |
2021e |
2022e |
2023e |
|||
Ergomed* |
1,130p |
£555m |
21.8x |
18.8x |
15.0x |
4.4x |
3.8x |
3.2x |
34.4x |
28.9x |
22.5x |
Syneos |
$96.0 |
$8,947m |
15.4x |
13.7x |
12.2x |
2.2x |
2.1x |
1.9x |
19.6x |
16.9x |
14.7x |
ICON |
$281.5 |
$20,381m |
26.4x |
18.3x |
16.5x |
4.6x |
3.2x |
3.0x |
25.9x |
21.5x |
18.6x |
Medpace |
$195.2 |
$6,032m |
25.6x |
20.6x |
17.5x |
4.9x |
3.9x |
3.4x |
35.3x |
30.6x |
26.3x |
Average |
|
|
22.5x |
17.5x |
15.4x |
3.9x |
3.1x |
2.7x |
26.9x |
23.0x |
19.8x |
Source: Edison Investment Research, Refinitiv. Note: *Edison estimates. We note the merger of ICON and PRA Health Sciences announced on 24 February 2021. Prices at 26 January 2022.
Exhibit 3: Financial summary
Accounts: IFRS, year end 31 December (£000s) |
2019 |
2020 |
2021e |
2022e |
2023e |
||
INCOME STATEMENT |
|
|
|
|
|||
Total revenues |
68,255 |
86,391 |
119,600 |
136,877 |
161,301 |
||
Cost of sales |
(29,790) |
(38,686) |
(58,600) |
(59,131) |
(69,682) |
||
Reimbursable expenses |
(8,940) |
(8,055) |
(22,650) |
(16,379) |
(18,967) |
||
Gross profit |
29,525 |
39,650 |
54,120 |
61,367 |
72,651 |
||
Gross margin % |
43% |
46% |
45% |
45% |
45% |
||
SG&A (expenses) |
(23,513) |
(27,803) |
(35,064) |
(38,396) |
(42,708) |
||
R&D costs |
(545) |
(152) |
(203) |
(207) |
(211) |
||
Other income/(expense) |
51 |
1,839 |
0 |
0 |
0 |
||
Exceptionals and adjustments |
3,265 |
993 |
976 |
976 |
976 |
||
Reported EBITDA |
9,230 |
18,378 |
23,003 |
26,914 |
33,883 |
||
Depreciation and amortisation |
3,712 |
4,844 |
4,150 |
4,150 |
4,150 |
||
Reported EBIT |
5,518 |
13,534 |
18,853 |
22,764 |
29,733 |
||
Finance income/(expense) |
(245) |
(395) |
(245) |
(245) |
(245) |
||
Other income/(expense) |
(286) |
(511) |
0 |
0 |
0 |
||
Reported PBT |
4,987 |
12,628 |
18,608 |
22,519 |
29,488 |
||
Income tax expense (includes exceptionals) |
583 |
(2,936) |
(3,536) |
(4,279) |
(5,603) |
||
Reported net income |
5,570 |
9,692 |
15,073 |
18,241 |
23,885 |
||
Basic average number of shares, m |
46.6 |
48.5 |
48.9 |
48.9 |
48.9 |
||
Basic EPS (p) |
12.0 |
20.0 |
30.8 |
37.3 |
48.9 |
||
Adjusted EBITDA |
12,495 |
19,371 |
23,979 |
27,890 |
34,859 |
||
Adjusted EBIT |
8,783 |
14,527 |
19,829 |
23,740 |
30,709 |
||
Adjusted PBT |
8,637 |
14,442 |
20,184 |
24,095 |
31,064 |
||
Adjusted EPS (p) |
19.8 |
23.7 |
34.1 |
40.5 |
52.1 |
||
Adjusted diluted EPS (p) |
19.8 |
22.7 |
32.8 |
39.1 |
50.2 |
||
Order book |
124,100 |
193,000 |
246,902 |
276,736 |
423,642 |
||
BALANCE SHEET |
|
|
|||||
Property, plant and equipment |
1,110 |
1,742 |
1,742 |
1,742 |
1,742 |
||
Right-of-use assets |
5,171 |
4,715 |
4,715 |
4,715 |
4,715 |
||
Goodwill |
13,380 |
24,605 |
24,605 |
24,605 |
24,605 |
||
Intangible assets |
2,755 |
9,618 |
9,018 |
8,418 |
7,818 |
||
Other non-current assets |
2,616 |
4,310 |
4,310 |
4,310 |
4,310 |
||
Total non-current assets |
25,032 |
44,990 |
44,390 |
43,790 |
43,190 |
||
Cash and equivalents |
14,259 |
18,994 |
31,440 |
48,892 |
70,836 |
||
Trade and other receivables |
14,359 |
22,224 |
27,852 |
32,821 |
40,310 |
||
Other current assets |
3,382 |
7,009 |
7,009 |
7,009 |
7,009 |
||
Total current assets |
32,000 |
48,227 |
66,301 |
88,723 |
118,156 |
||
Lease liabilities |
3,716 |
3,128 |
3,128 |
3,128 |
3,128 |
||
Long term debt |
0 |
0 |
0 |
0 |
|||
Other non-current liabilities |
635 |
2,529 |
2,529 |
2,529 |
2,529 |
||
Total non-current liabilities |
4,351 |
5,657 |
5,657 |
5,657 |
5,657 |
||
Trade and other payables |
10,373 |
15,702 |
18,104 |
21,685 |
26,633 |
||
Lease liabilities |
1,718 |
1,978 |
1,978 |
1,978 |
1,978 |
||
Other current liabilities |
3,770 |
17,388 |
17,388 |
17,388 |
17,388 |
||
Total current liabilities |
15,861 |
35,068 |
37,470 |
41,051 |
45,999 |
||
Equity attributable to company |
36,820 |
52,492 |
67,565 |
85,805 |
109,690 |
||
CASH FLOW STATEMENT |
|
|
|||||
Profit before tax |
4,987 |
12,628 |
18,608 |
22,519 |
29,488 |
||
Cash from operations (CFO) |
11,788 |
18,084 |
15,997 |
21,003 |
25,494 |
||
Capex |
(996) |
(974) |
(3,550) |
(3,550) |
(3,550) |
||
Acquisitions & disposals net |
(107) |
(11,969) |
0 |
0 |
0 |
||
Other investing activities |
(1,728) |
0 |
0 |
0 |
0 |
||
Cash used in investing activities (CFIA) |
(2,831) |
(12,760) |
(3,550) |
(3,550) |
(3,550) |
||
Net proceeds from issue of shares |
1,427 |
(157) |
0 |
0 |
0 |
||
Movements in debt |
(1,677) |
(2,189) |
0 |
0 |
0 |
||
Other financing activities |
0 |
0 |
0 |
0 |
0 |
||
Cash from financing activities (CFF) |
(250) |
(477) |
0 |
0 |
0 |
||
Increase/(decrease) in cash and equivalents |
8,707 |
4,847 |
12,447 |
17,453 |
21,944 |
||
Currency translation differences and other |
363 |
(113) |
0 |
0 |
0 |
||
Cash and equivalents at start of period |
5,189 |
14,259 |
18,993 |
31,440 |
48,892 |
||
Cash and equivalents at end of period |
14,259 |
18,993 |
31,440 |
48,892 |
70,836 |
||
Net (debt)/cash |
14,259 |
18,993 |
31,440 |
48,892 |
70,836 |
Source: Ergomed accounts, Edison Investment Research
|
|
Research: Real Estate
Target healthcare REIT has fully deployed the proceeds of the September equity raise, including the acquisition of a significant portfolio of modern, purpose-built homes with a well-established trading record. Enhanced by the recent £100m long-term fixed rate institutional debt facility, remaining capital resources are fully allocated to an identified pipeline of further opportunities. Meanwhile, the Q222 report shows continuing positive accounting returns, driven by inflation-linked rental uplifts.
Get access to the very latest content matched to your personal investment style.