Currency in GBP
Last close As at 28/03/2023
GBP10.28
▲ 24.00 (2.39%)
Market capitalisation
GBP503m
Research: Healthcare
Ergomed’s H121 trading update highlights that operational momentum continues to be strong following its stellar performance in FY20. The order book continues to grow at an impressive rate, up 18% from end-2020 with a strong 1.62x book-to-bill ratio for the period. We maintain our FY21 revenue forecast, in line with company guidance, which assumes no additional FX headwinds, but note that this could mean our FY22 revenue forecast is conservative. With acquisition synergies being realised faster than expected, we adjust our near-term margin assumptions, somewhat increasing our FY21/22e adjusted EBITDA forecasts. Our valuation increases to £706m or 1,445p/share from £683m or 1,400p/share.
Written by
Dr Jonas Peciulis
Ergomed |
Momentum continues with EBITDA upgrades |
H121 trading update |
Healthcare services |
11 August 2021 |
Share price performance
Business description
Next events
Analysts
Ergomed is a research client of Edison Investment Research Limited |
Ergomed’s H121 trading update highlights that operational momentum continues to be strong following its stellar performance in FY20. The order book continues to grow at an impressive rate, up 18% from end-2020 with a strong 1.62x book-to-bill ratio for the period. We maintain our FY21 revenue forecast, in line with company guidance, which assumes no additional FX headwinds, but note that this could mean our FY22 revenue forecast is conservative. With acquisition synergies being realised faster than expected, we adjust our near-term margin assumptions, somewhat increasing our FY21/22e adjusted EBITDA forecasts. Our valuation increases to £706m or 1,445p/share from £683m or 1,400p/share.
Year end |
Revenue (£m) |
Adjusted EBITDA* (£m) |
EPS* |
DPS |
P/E |
Yield |
12/19 |
68.3 |
12.5 |
19.8 |
0.0 |
63.4 |
N/A |
12/20 |
86.4 |
19.4 |
23.7 |
0.0 |
53.0 |
N/A |
12/21e |
119.6 |
24.0 |
34.1 |
0.0 |
36.8 |
N/A |
12/22e |
136.8 |
27.1 |
39.3 |
0.0 |
31.9 |
N/A |
Note: *Adjusted EBITDA and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Burgeoning order book underpins momentum
Total H121 revenues increased by 38.8% to £56.0m (+48.1% CER) with underlying service fees up 28.6% to £47.6m (+37.2% CER). FX headwinds did curtail growth, reflecting the increasing US$ contribution (now c 50% of the mix after the MedSource acquisition in December 2020), which was c 9% lower versus GBP relative to H120. In the AGM statement in June 2021, Ergomed guided that FY21 EBITDA is expected to be ‘materially ahead’ of consensus (£21.9m at the time). We increase our adjusted FY21 EBITDA by 10.6% from £21.7m to £24.0m by adjusting near-term margins. Full H121 results are due in September 2021. The order book stood at £227.8m, up 18.0% from end-2020 and 50.5% y-o-y, providing high visibility of revenue into 2022.
Plenty of firepower for bolt-on acquisitions
Management has repeated on several occasions that it will continue to expand via both organic top-line growth and additional bolt-on acquisitions. The latter is evident from the two acquisitions it completed in 2020 (details in our last outlook report). Looking forward, with net cash of £24.6m on hand (at 30 June 2021) and £30m in unused credit facilities, Ergomed has plenty of firepower to continue pursuing its active M&A strategy, which could bolster the growth outlook.
Valuation: £706m or 1,445p/share
Adjusting our near-term margin assumptions, updating for net cash and rolling our DCF model forward increases our valuation to £706m or 1,445p/share, implying an EV/EBITDA multiple of 28.4x based on our FY21 forecast. Ergomed trades at a premium EV/EBITDA of 24.5x compared to the peer average of 21.9x, but at a discount to Medpace on 28.5x. In our recent outlook note, we provided bull and bear scenarios from flexing our DCF assumptions (long-term sales growth and profit margins). Implementing these near-term adjustments results in a bull case of 2,005p/share and a bear case of 1,032p/share.
Exhibit 1: Financial summary
Accounts: IFRS, year end 31 December (£000s) |
2019 |
2020 |
2021e |
2022e |
||
INCOME STATEMENT |
|
|
|
|
||
Total revenues |
68,255 |
86,391 |
119,600 |
136,813 |
||
Cost of sales |
(29,790) |
(38,686) |
(58,600) |
(74,808) |
||
Reimbursable expenses |
(8,940) |
(8,055) |
(22,650) |
(24,371) |
||
Gross profit |
29,525 |
39,650 |
54,120 |
61,403 |
||
Gross margin % |
43% |
46% |
45% |
45% |
||
SG&A (expenses) |
(23,513) |
(27,803) |
(35,064) |
(39,200) |
||
R&D costs |
(545) |
(152) |
(203) |
(207) |
||
Other income/(expense) |
51 |
1,839 |
0 |
0 |
||
Exceptionals and adjustments |
3,265 |
993 |
976 |
976 |
||
Reported EBITDA |
9,230 |
18,378 |
23,003 |
26,147 |
||
Depreciation and amortisation |
3,712 |
4,844 |
4,150 |
4,150 |
||
Reported EBIT |
5,518 |
13,534 |
18,853 |
21,997 |
||
Finance income/(expense) |
(245) |
(395) |
(245) |
(245) |
||
Other income/(expense) |
(286) |
(511) |
0 |
0 |
||
Reported PBT |
4,987 |
12,628 |
18,608 |
21,752 |
||
Income tax expense (includes exceptionals) |
583 |
(2,936) |
(3,536) |
(4,133) |
||
Reported net income |
5,570 |
9,692 |
15,073 |
17,619 |
||
Basic average number of shares, m |
46.6 |
48.5 |
48.8 |
48.8 |
||
Basic EPS (p) |
12.0 |
20.0 |
30.9 |
36.1 |
||
Adjusted EBITDA |
12,495 |
19,371 |
23,979 |
27,123 |
||
Adjusted EBIT |
8,783 |
14,527 |
19,829 |
22,973 |
||
Adjusted PBT |
8,637 |
14,442 |
20,184 |
23,328 |
||
Adjusted EPS (p) |
19.8 |
23.7 |
34.1 |
39.3 |
||
Adjusted diluted EPS (p) |
19.8 |
22.7 |
32.8 |
37.8 |
||
Order book |
124,100 |
193,000 |
246,902 |
274,995 |
||
BALANCE SHEET |
|
|
|
|
||
Property, plant and equipment |
1,110 |
1,742 |
1,742 |
1,742 |
||
Right-of-use assets |
5,171 |
4,715 |
4,715 |
4,715 |
||
Goodwill |
13,380 |
24,605 |
24,605 |
24,605 |
||
Intangible assets |
2,755 |
9,618 |
9,018 |
8,418 |
||
Other non-current assets |
2,616 |
4,310 |
4,310 |
4,310 |
||
Total non-current assets |
25,032 |
44,990 |
44,390 |
43,790 |
||
Cash and equivalents |
14,259 |
18,994 |
29,064 |
43,018 |
||
Trade and other receivables |
14,359 |
22,224 |
34,405 |
46,551 |
||
Other current assets |
3,382 |
7,009 |
7,009 |
7,009 |
||
Total current assets |
32,000 |
48,227 |
70,478 |
96,578 |
||
Lease liabilities |
3,716 |
3,128 |
3,128 |
3,128 |
||
Long term debt |
0 |
0 |
0 |
|||
Other non-current liabilities |
635 |
2,529 |
2,529 |
2,529 |
||
Total non-current liabilities |
4,351 |
5,657 |
5,657 |
5,657 |
||
Trade and other payables |
10,373 |
15,702 |
22,282 |
30,162 |
||
Lease liabilities |
1,718 |
1,978 |
1,978 |
1,978 |
||
Other current liabilities |
3,770 |
17,388 |
17,388 |
17,388 |
||
Total current liabilities |
15,861 |
35,068 |
41,648 |
49,528 |
||
Equity attributable to company |
36,820 |
52,492 |
67,565 |
85,184 |
||
CASH FLOW STATEMENT |
|
|
|
|
||
Profit before tax |
4,987 |
12,628 |
18,608 |
21,752 |
||
Cash from operations (CFO) |
11,788 |
18,084 |
13,621 |
17,504 |
||
Capex |
(996) |
(974) |
(3,550) |
(3,550) |
||
Acquisitions & disposals net |
(107) |
(11,969) |
0 |
0 |
||
Other investing activities |
(1,728) |
0 |
0 |
0 |
||
Cash used in investing activities (CFIA) |
(2,831) |
(12,760) |
(3,550) |
(3,550) |
||
Net proceeds from issue of shares |
1,427 |
(157) |
0 |
0 |
||
Movements in debt |
(1,677) |
(2,189) |
0 |
0 |
||
Other financing activities |
0 |
0 |
0 |
0 |
||
Cash from financing activities (CFF) |
(250) |
(477) |
0 |
0 |
||
Increase/(decrease) in cash and equivalents |
8,707 |
4,847 |
10,071 |
13,954 |
||
Currency translation differences and other |
363 |
(113) |
0 |
0 |
||
Cash and equivalents at start of period |
5,189 |
14,259 |
18,993 |
29,064 |
||
Cash and equivalents at end of period |
14,259 |
18,993 |
29,064 |
43,018 |
||
Net (debt)/cash |
14,259 |
18,993 |
29,064 |
43,018 |
Source: Ergomed accounts, Edison Investment Research
|
|
Research: Financials
Secure Trust Bank (STB) reported H121 PBT of £30.7m, boosted by a net impairments reversion of £1.1m (vs a net charge of £19.8m in H220). The good news on provisions had been previously flagged by management. Loan arrears have remained lower than expected and most borrowers have returned from payment holidays. Loan demand is picking up and loans grew 1.3% (core division loan growth of 2.6%) in the six months to 30 June 2021. STB also announced a new 25% payout dividend policy along with a surprise 20p interim dividend. This policy better matches the bank’s growth strategy of organic and opportunistic acquisitions. We have raised our FY21 earnings forecasts to reflect lower impairments while trimming FY22 EPS by 11% (ROE forecast 9.5%) to reflect higher costs as the bank expands. Our fair value has edged to 2,234p from 2,163p per share.
Get access to the very latest content matched to your personal investment style.