Clinigen Group — Update 24 January 2016

Clinigen Group — Update 24 January 2016

Clinigen Group

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Clinigen Group

H1 trading in line, with H2 acceleration in sight

H116 trading statement

Healthcare equipment & services

25 January 2016

Price

605.5p

Market cap

£694m

Net debt (£m) at 30 June 2015

78.0

Shares in issue

114.6m

Free float

70%

Code

CLIN

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(10.6)

(1.9)

23.9

Rel (local)

(7.2)

5.6

39.3

52-week high/low

761.0p

491.0p

Business description

Clinigen is a specialty pharmaceuticals and services business with four operating divisions: CTS provides a clinical trial supply service globally; Idis Managed Access and Global Access supply difficult to access medicines; and Specialty Pharmaceuticals sells niche hospital-only drugs.

Next events

H116 results

2 March 2016

Product licensing and acquisitions

Undisclosed

Analysts

Hans Bostrom

+44 (0)20 3681 2522

Christian Glennie

+44 (0)20 3077 5727

Clinigen Group is a research client of Edison Investment Research Limited

Clinigen’s H116 trading statement suggests its business is performing to plan, taking into account some revenue deferrals to H2. The integration of Idis and Link, which we expect to boost its position as global leader in the supply of rare and difficult-to-source drugs, is progressing to plan. Our valuation remains 882-975p/share.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

06/15

184.4

26.2

28.0

3.4

21.6

0.6

06/16e

362.8

35.3

36.0

3.9

16.8

0.6

06/17e

417.1

50.9

46.4

4.5

13.0

0.7

06/18e

457.4

61.6

57.4

5.2

10.5

0.9

Note: *PBT excludes non-recurring items and share-based payments and EPS also excludes net amortisation of intangibles.

H116 to plan, with growth acceleration due in H2

Clinigen’s H116 (July-Dec) trading performed to plan, with revenue and gross profits rising by 116% and 100% respectively, mainly fuelled by acquisitions. However, it also delivered organic growth with pro forma (acquired businesses assumed to have been consolidated in the prior year period) gross profits rising by 4%. This is consistent with our forecast 6% pro forma and 84% reported gross profit growth in FY16, taking into account the anniversary of the Idis consolidation in April.

Specialty Pharma drives underlying profits growth

The Specialty Pharma business was the key driver (33% of group profits), helped by the revitalisation of Cardioxane, Savene and Ethyol. Lead product Foscavir saw a revenue deferral due to a US bulk shipment switching from December to January, while in-market sales grew 4% as forecast. EU regulators are due to review the application of Article 31 in August. Its repeal could widen the use of Cardioxane. We forecast 10% growth in FY16 divisional gross profits, excluding a change of Art. 31.

Flat profit growth in services businesses

The Managed Access division (28% of group profits) saw flat gross profits as it negotiated the end of two large drug access programmes at end FY15. New contracts should drive a growth recovery in H216 and we expect 6% divisional profit rise in FY16. Global Access (16% of group) profit growth also saw flat growth and a management change with a view to improving performance and accelerating international expansion. Clinical Trial Services profits (18% of group) were similarly flat, as it experienced some project deferrals to H2. We forecast 15% divisional profit growth in FY16. Based on our unchanged financial forecasts (see our October 2015 update note), we see EPS CAGR of 24% in FY15-18.

Valuation range of 882-975p

We value the shares on a blend of DCF and multiple comparisons to UK mid-cap healthcare stocks. Our valuation range remains 882-975p/share; a P/E-based valuation suggests 975p, EV/EBITDA 890p, PEG 943p and DCF 882p, using 2% long-term growth and a 10% WACC. The valuation midpoint is 928p.

Exhibit 1: Financial summary

£m

2014

2015

2016e

2017e

2018e

30-June

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

126.6

184.4

362.8

417.1

457.4

Cost of Sales

(85.4)

(130.7)

(264.2)

(296.2)

(323.2)

Gross Profit

41.2

53.7

98.6

120.9

134.3

EBITDA (underlying)

 

 

26.8

32.3

55.2

73.3

83.0

Operating Profit (underlying)

 

 

23.3

27.0

38.7

54.2

64.0

Intangible Amortisation

(3.3)

(4.9)

(17.5)

(18.3)

(19.1)

Share-based payments

(1.2)

(1.3)

(2.2)

(2.7)

(3.0)

Other

(0.6)

(16.5)

(5.0)

0.0

0.0

Operating Profit (reported)

21.5

9.2

31.5

51.5

61.0

Net Interest

(0.2)

(0.8)

(3.5)

(3.2)

(2.3)

Profit Before Tax (norm)

 

 

23.1

26.2

35.3

50.9

61.6

Tax

(5.4)

(5.7)

(8.1)

(11.7)

(14.2)

Profit After Tax (norm)

20.2

24.4

40.7

53.3

62.1

Profit After Tax (FRS 3)

16.2

5.3

21.7

37.1

45.2

Average Number of Shares Outstanding (m)

82.6

87.2

112.8

114.9

115.9

EPS - normalised (p)

 

 

24.5

28.0

36.0

46.4

57.4

EPS - (reported) (p)

 

 

19.6

6.0

19.2

32.3

39.0

Dividend per share (p)

3.1

3.4

3.9

4.5

5.2

Gross Margin (%)

32.5

29.1

27.2

29.0

29.4

EBITDA Margin (%)

21.2

17.5

15.2

17.6

18.2

Operating Margin (before GW and except.) (%)

18.4

14.6

10.7

13.0

14.0

BALANCE SHEET

Fixed Assets

 

 

53.4

313.7

352.4

353.8

355.4

Intangible Assets

50.5

308.2

347.2

348.9

349.8

Tangible Assets

1.0

1.6

1.4

1.1

1.7

Investments

2.0

3.8

3.8

3.8

3.8

Current Assets

 

 

51.4

106.0

115.8

131.3

146.4

Stocks

2.5

11.1

14.5

17.9

22.1

Debtors

23.6

67.1

73.5

85.7

96.5

Cash

21.8

27.8

27.8

27.8

27.8

Other

3.5

0.0

0.0

0.0

0.0

Current Liabilities

 

 

(38.6)

(161.5)

(173.1)

(160.7)

(139.8)

Creditors

(22.1)

(90.2)

(96.7)

(108.1)

(117.7)

Short term borrowings

(16.5)

(71.3)

(76.4)

(52.6)

(22.2)

Long Term Liabilities

 

 

0.0

(53.5)

(53.5)

(53.5)

(53.5)

Long term borrowings

0.0

(34.5)

(34.5)

(34.5)

(34.5)

Other long term liabilities

0.0

(19.0)

(19.0)

(19.0)

(19.0)

Net Assets

 

 

66.3

204.6

241.5

270.9

308.4

CASH FLOW

Operating Cash Flow

 

 

20.3

15.8

42.9

63.3

72.2

Net Interest

(0.2)

(0.8)

(3.4)

(3.2)

(2.3)

Tax

(1.1)

(1.9)

(6.5)

(11.1)

(13.5)

Capex

(0.6)

(0.2)

(0.5)

(0.6)

(0.6)

Acquisitions/disposals

0.0

(217.6)

(44.5)

(20.0)

(20.0)

Financing

(0.3)

132.4

22.3

0.0

0.0

Other

(21.6)

(8.6)

(12.0)

0.0

0.0

Dividends

(2.5)

(2.6)

(3.3)

(4.6)

(5.3)

Net Cash Flow

(6.0)

(83.4)

(5.1)

23.8

30.5

Opening net debt/(cash)

 

 

(11.3)

(5.3)

78.1

83.2

59.4

HP finance leases initiated

0.0

0.0

0.0

0.0

0.0

Other

0.0

(0.0)

(0.0)

0.0

0.0

Closing net debt/(cash)

 

 

(5.3)

78.1

83.2

59.4

29.0

Source: Company data, Edison Investment Research. Note: Estimates based on consolidation of Link on 1 November 2015, resulting in £45m initial payment (half in cash and half in equity) and two additional £20m payments in FY17e and FY18e, reflecting its expected EBITDA growth.

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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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Brady — Update 21 January 2016

Brady

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