EKF Diagnostics' turnover hit by plant delays

Diagnostic equipment manufacturer EKF Diagnostics (EKF) has given investors plenty of warning about its fight to reach profitability. Earlier this month it admitted that delays at a newly expanded fermentation plant in Indiana would constrain full-year turnover. 

The facility is designed to produce diagnostic enzymes, which are used in the detection of a number of medical conditions, as well as in industrial applications. The building out of fermentation capacity is important to the business, as sales in its life sciences division have fallen significantly following the wind-up of Covid-related contract manufacturing duties.

According to EKF’s half-year results, underlying (ie non-Covid) revenue was nearly £25mn – a 7 per cent increase over the previous year. Management has maintained the guidance it issued in its 12 September trading update, which forecast that FY2023 revenue would be around £53mn, with adjusted earnings before interest, tax, depreciation and amortisation (Ebitda) of £10mn. This suggests the company may have reached the bottom of its earnings trough – assuming fermentation facilities aren’t held up further. 

Elsewhere, revenue at EKF’s point-of-care (POC) business, which produces analysers for haematology and diabetes care, was up 10 per cent to £16.6mn. “Although we remain positive on the outlook for [POC], the fermentation scale-up in Indiana represents, in our view, an important growth area for EKF, hence delays are disappointing,” said analysts with broker Investec.

Although EKF’s shares are down 50 per cent in the year to date, there was little downward movement following the interim results, probably because they contained few surprises. In spite of its wobbles, FactSet broker consensus puts the group’s full-year price/earnings multiple at a fairly steep 23.2 times. We remain on hold for now.

Last IC view: Hold, 40p, 20 September 2022