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EKF heads back to the pre-pandemic doldrums

The diagnostics company intends to redirect the capabilities developed for Covid-19 into other activities
EKF heads back to the pre-pandemic doldrums
  • Core business sales return to pre-pandemic levels
  • A £4mn buyback is in the offing

EKF Diagnostics (EKF) drove revenue up by a quarter through 2021, which fed through to a 4 per cent increase in cash profits to £26.5mn.

Unfortunately, shares in the Glamorgan-based company pulled back dramatically on results day, as chairman Christopher Mills pointed to “a significant reduction in pandemic-related contract manufacturing activity for the remainder of the year”.

It’s doubtful if Mills will look back wistfully to the days when Covid-19, as opposed to war in Ukraine, dominated the headlines, but it was certainly good for business while it lasted. The chairman admitted that “Covid-related revenues were always going to be of indeterminate duration and quantity”. Testing volumes in global markets have already pulled back appreciably, a trend that’s likely to intensify as government financial support is gradually pulled for diagnosing the virus.

Shareholders can take some solace in the knowledge that revenue from the company’s core products has returned to pre-pandemic levels.

Management also said that efforts were being made to redirect the capabilities developed for Covid-19 into other activities. The sales surge linked to the virus has enabled the company to invest in facilities and equipment to drive organic growth. The point-of-care business also undertook the strategic acquisition of Texas-based Advanced Diagnostic Laboratory for an initial scrip-based consideration of $10mn (£7.7mn), in addition to certain earn-out provisions.

The shares halved peak-to-trough within the past 12-months, so management has taken the opportunity to announce a £4m buyback. Brokers will be reassessing forecasts in view of the chairman’s comments, though it’s fair to assume that headline numbers will pull back appreciably in the current year. There may be reason to think that the shares have been oversold, but we return to hold until details emerge of how EKF plans to redirect new clinical capabilities brought about by the virus. Hold.

Last IC view: Buy, 33p, 10 Sep 2019

EKF DIAGNOSTICS (EKF)  
ORD PRICE:44pMARKET VALUE:£ 205mn
TOUCH:43-45p12-MONTH HIGH:87pLOW: 43p
DIVIDEND YIELD:2.7%PE RATIO:13
NET ASSET VALUE:20p*NET CASH:£17.7mn
Year to 31 DecTurnover (£mn)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
201741.64.300.60nil
201842.512.22.21nil
201944.95.520.811.00
202065.315.42.451.10
202181.821.43.471.20
% change+25+40+42+9
Ex-div:02 Nov   
Payment:01 Dec   
*Includes intangible assets of £41.9mn, or 9p per share