Small cap: broker views on EKF Diagnostics

Brokers positive on EKF Diagnostics following its trading update

Following a positive trading update yesterday from medical group EFK Diagnostics the four brokers covering it have all produced positive ‘Buy’ notes.

In the update, the AIM-listed small cap stock said it expects revenues of around £40.1m for the year ended December 31 2014 (2013: £31.8m) with earnings before interest, tax, depreciation and amortisation (EBITDA) of £6.3m (2013: £4.8m).

Net cash at the year-end was £2.4m, mainly due to higher receivables following strong sales in December.

The positive news followed a profit warning on December 17, in which the company warned it wouldn’t meet consensus expectations. The market view that EKF had overpaid for  two acquisitions, Selah Genomics and DiaSpect, led to a slide in its share price over the past year from a high of 39.5p to a low of around 19.5p.

Here’s a summary of what the analysts at the brokers covering EKF Diagnostics wrote:

 

Cannaccord Genuity                                       BUY                                                        Price target 30p

Analyst Julie Simmonds, at house broker Cannaccord Genuity, reiterated her ‘Buy’ recommendation and price target of 30p, which was lowered from 37p at the time of the profit warning. She commented: “The outlook for FY15 is improving, with the potential for upside from Selah, a £2m order for Diaspect into Kenya (previously expected in H2-14) still likely, in addition to the stronger performance from the core business. However, we believe increased visibility on the sustainability of Selah revenues is required for full confidence in the FY-15 estimates.” Simmonds has pencilled in revenues of 52.1m and pre-tax profits of £4.1m for the full year 2015.

 

 

Peel Hunt                                                            BUY                                                        Price target 40p

Dr Paul Cuddon, analyst at Peel Hunt, commented: “During the last 12 months, EKF has made a significant transition from a fragmented point-of-care diagnostics group with a laboratory business in Eastern Europe and Russia, to a diversified international diagnostics group now providing gene-testing services in the rapidly expanding US market for personalised medicines through the acquisition of Selah Genomics. The year did not go as well as had been initially expected, but a strong H2 performance bodes well for continued growth into 2015. The depressed share price fails to reflect the improved outlook for the business, with more reasonable growth expectations. The shares trade on just 2 times 2015 estimated Enterprise Value/Sales and we think they will outperform in 2015.”

 

 

FinnCap                                                                BUY                                                        Price target 30p

Analyst Keith Redpath at FinnCap had discontinued coverage in December, at the time of the profit warning, but has reinstated them with a ‘Buy’ recommendation. On January 27 he commented: “We believe the shares were oversold at the time of the profits warning, and we therefore re-instigate our Buy recommendation.” Then yesterday, after the update, he reiterated his valuation: “Our target price of 30p would place EKF Diagnostics on a prospective EV/Sales of 2.5 times, and EV/EBITDA of 15.6 times and a Price Earnings ratio of 20.2 times, in line with our peer group.”

 

 

N+1 Singer                                                          BUY                                                        Price target 26p

Analyst Chris Glasper at N+1 Singer, in a note published today wrote: “EKF’s full year 2014 trading update indicates revenues of £40.1m and EBITDA (our definition) of  around £5.9m, slightly better than was indicated in December, but well short of the ambitious growth expectations earlier in the year. The focus for 2015 is on delivering organic growth and there are signs that momentum from the fourth quarter is carrying over into this year. We have revised our forecasts resulting in substantial downgrades at the earnings per share level, but we are somewhat reassured that trading has not worsened further. If the business can deliver against these revised expectations, then the current price should prove to be a good entry point.”

His revised figures are for pre-tax profits for full year 2015 of £5.1m, on revenues of £51.3m.

 

The writer holds stock in EKF Diagnostics

 

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About Author

Christopher Menon

Every Investor Editor Chris Menon is a financial journalist who has written regularly for national newspapers, magazines and websites about personal finance, with particular emphasis on investing.