BULL POINTS:
■ Strong management team
■ Acquisitions provide platform for growth
■ Target markets are growing globally
BEAR POINTS:
■ Early stage in development
■ Acquisition risk
The managers of EKF Diagnostics are beginning to get into their stride with their buy-and-build policy, through which they expect to create a significant in vitro diagnostics business. Chairman David Evans and chief executive Julian Baines have a strong track record of creating value for investors in diagnostics businesses, and although it's early days, the signs at EKF are promising.
| IC TIP RATING | |
|---|---|
| Tip style | Growth |
| Risk rating | High |
| Timescale | Long term |
| What do these mean? Find out in our | |
The current management team joined the company, then named International Brand Licensing, in 2009 and set about divesting the Admiral sportswear brand and rebuilding the company. The first key acquisition came last June when, after raising £15m from investors, the company acquired EKF Diagnostics, an East German business specialising in diagnostic tests for diabetes and anaemia. The EKF business, with its manufacturing capability in Germany and Poland and distribution network in more than 65 countries, provides a solid platform on which to build. It already had three product lines in testing for glucose and lactate and in haemoglobin measurement.
Further acquisitions - of Quotient Diagnostics and Argutus Medical - have added further point-of-care diabetes testing products, one of which has been approved for sale into China, and a biomarker for detecting organ injury, in particular for kidney damage which can be a complication of diabetes.
In the developed world, there is an increasing focus on early diagnosis of medical complaints and growing use of localised point-of-care diagnosis in an attempt to reduce the strain on healthcare systems and this is playing into the hands of manufacturers of diagnostic kits. Meanwhile in the developing world, and Asia in particular, conditions such as diabetes are becoming more prevalent as lifestyles change. The in-vitro diagnostics market is growing annually at around 3-5 per cent globally and within that, point-of-care is growing at around 10 per cent a year. The diabetes diagnostic market was valued at $3.8bn (£2.4bn) in 2008 and could grow to $10.6bn by 2015 according to research from consulting firm Frost and Sullivan.
| ORD PRICE: | 27.5p | MARKET VALUE: | £46.2m | |
| TOUCH: | 26.5-28.5p | 12-MONTH HIGH: | 33p | LOW: 16p |
| DIVIDEND YIELD: | nil | PE RATIO: | 27 | |
| NET ASSET VALUE**: | 12p | NET CASH: | £2.58m** | |
| Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2009 | 11.2 | 0.4 | 0.1 | nil |
| 2010* | 11.3 | -3.8 | -1.6 | nil |
| 2011* | 13.5 | 1.0 | 0.4 | nil |
| 2012* | 16.5 | 2.7 | 1.0 | nil |
| % change | +23 | +173 | +145 | - |
Normal market size: 10,000 Market makers: matched bargain Beta:-0.2 *Matrix estimates **NAV and net cash before placing and acquisition of EKF Diagnostics in December 2010 | ||||
EKF's management has set about improving the sales and distribution channels of the business in key markets such as western Europe and the US, which is currently the world’s biggest market for in vitro diabetes testing kits, and where EKF previously only made around $1m of its sales. One key element of the sales model is recurring revenues - typically a number of point-of-care diagnostics kits are sold and then follow up products are sold on a regular basis.
In-vitro diagnostics is a market that EKF’s management knows well. Mr Evans and Mr Baines have a strong track record, having brought British Biocell International to the market in 2000 when it was valued at £4m, before building it and selling it on to Inverness Medical Innovations for £85m seven years later. Mr Evans was previously chief executive of Shield Diagnostics, which he merged with Axis Biochemicals to form Axis-Shield. He is also chairman of Immunodiagnostic Systems and Epistem Holdings.
