Ekf Diagnostics Share Discussion Threads

[wan] 16/4/2022 10:06

James...Despite Mike Salter's network and track record to date of being instrumental in delivering EKF's previous growth and record revenue, I agree that tangible evidence, as opposed to guidance, is now a required element.

I am not too worried about being acquired at this stage, albeit I can see why PE would be interested (profitable, strong recurring revenues just for starters), which might include separating and selling off the divisions post implementation of the Growth Strategy, where I am sure Life Sciences/Fermentation will be of particular interest and appeal.

But because we have not seen the new remuneration scheme to incentivise Mike Salter and others, which would also include a mechanism designed to pay out in the event that the Company is acquired by a third party, being acquired or taken private is unlikely to happen imminently or before the new scheme is in place. Plus, at the last count, Christopher Mills owned a controlling stake of over 29% in EKF. In any regard, one would expect a very healthy premium, given that investors would be deprived of both a progressive dividend policy, value creation from spin-offs, and indeed sustainable growth.

With the buyback programme complete, it will be interesting to see if we subsequently see any new holding announcements.

Going forwards, I don't discount the prospect of EKF being acquired, but hopefully that would be from a much higher place in share price terms, and surely (hopefully) post execution and delivery of EKF's Growth Strategy.

[james188] 15/4/2022 13:41

Wan,

It is pretty much the same story as for SBI, although EKF is more mature and has a broader offering.

Both companies seized opportunities created by the pandemic, which more than compensated for the impact on their core businesses. They now need to fill the hole created by the inevitable fall off in COVID related revenues. I suspect that the EKF share price will remain in the doldrums until there is tangible evidence that the hole is filled. Personally, I expect that to happen and I may well add next week when the price could well fall further. One worry I have is that EKF could be taken private. Christopher Mills has form in this respect.

[wan] 15/4/2022 10:57

Stoxman...My thoughts, for what they are worth.

With the general cloud hanging over the growth/biotech sector, perhaps exemplified by the fact that there is apparently a record £1.9tn on deposit in the UK at a time when deposit rates are at a record low, it's definitely risk off, but one could also argue that there is potentially a lot of dry powder in the wings.

For those of us still holding the extended family of EKF stocks, on the one hand we are still better off than we were without the in-specie shares, but the overall performance thus far is disappointing to say the least.

With regard to Verici in particular, clearly some investors preferred to sell rather than hold post the lock-up period, and given the dire performance, it appears they have been proven right so far. And it would also appear that the performance of Trellus is perhaps indicating that a similar post lock-up situation could occur starting next month. Personally speaking, I cooled on Trellus a while back given that they appear to be delayed, and indeed the number of companies focusing on similar/overlapping areas is presenting for a huge amount of competition.

Given the unrelenting selling in Verici post lock-up, not to mention the overall performance across the holdings, and indeed the market backdrop, going forwards one wonders if the spin-off model has any immediate candidates/legs, or will indeed follow similar paths, especially if Trellus follows similar price action to Verici.

In my view, Verici is in a more advanced and stronger position. There are larger players that could not only accelerate commercialisation, but that are arguably in need Verici's differentiated and litigation free products, which are underpinned by extensive scientific research and strong IP. At the very least, I am thus expecting partnerships, and I would not exclude Verici being acquired outright.

A partnership deal, or a catalyst breakthrough in any one of the family could have a positive effect on the others, but we have been expecting that from Renalytix for quite some time, and clearly analysts have finally run out of patience with the management at Renalytix, which is not completely unfair, but I can see both sides of the argument.

Again, in my view, it's far too early to judge the new management team, but clearly the market does not like the current forecasts, as exampled below, albeit it I think James had already highlighted such coverage a few weeks ago, so I am not sure how up to date/relevant it actually is -

Some EKF Diagnostics Holdings plc (LON:EKF) Analysts Just Made A Major Cut To Next Year's Estimates
By Simply Wall St Published April 14, 2022



What I did find interesting in the above piece, was the graph, which clearly shows the expected revenue decline. Nonetheless, when you factor-out the COVID related bump, revenue growth in 2023 is quite a lot higher than pre-pandemic revenues, and overall the forecast is on a not too shabby upward trajectory.

According to the chart, revenues and other financial metrics for 2024 are forecast to be similar to the COVID-boosted revenues for 2021. If we were to assume that a similar share price can be achieved to the peak in 2021 of over 80p, some would suggest that, for the patient investor, the current share price is offering a decent entry point and a dividend yield of over 3%. An important difference to consider though, is that the non-COVID related growth in revenues will be far more sustainable!

I am hopeful that managements guidance has been conservative (EKF's Growth Strategy indicated such with regard to fermentation), as obviously it would be much better to resume a period of beating analysts expectations, especially with revenue increases that are sustainable.

[stoxman2] 14/4/2022 22:47

Hi Wan, some really interesting insights. What is your view on the “extended family” of EKF- Renalytix/ Trellus/ Verici? All different businesses but regardless of news flow the prices are being hammered. I’d like to put it down to a general cloud over growth/ small/ biotech but those indices haven’t been hit anywhere near as hard. There’s been a bit of bad news (end of Covid for Ekf, MCITs for RENX, delay for VRCI) but also plenty of good news too. The news seems mildly disappointing but the share prices are down 50-80%. You’d have been better holding Russian Roubles this year than this basket and that just seems draconian. What’s your take on this? It almost seems like the market just doesn’t trust that anything this management team is involved in will amount to anything which has to be ridiculous given the outstanding quality of some of the people involved in and around these businesses.

[drew lonmenob] 14/4/2022 11:29

nothing to do with you laughing at anyone on these boards who has either lost money or who you have made up bs and decided they lost money even when they havent

seriously though, there are people out there who can help you. Bullying can lie deep and give you mental scars for years im told, sweetheart.

[tongosti] 14/4/2022 10:34

Correction dear. Wan has been laughing at himself. Has he listened to my skepticism at 80+ or on the day the c19 vaccine news came out he would he wouldn't be in this predicament would he.

[drew lonmenob] 14/4/2022 10:14

wan, he's laughing at you. Just a word of advice.

[wan] 14/4/2022 10:11

I do appreciate that I have been swimming against the tide, but I remain focused on what lies ahead, which should hopefully provide catalysts for the tide to turn!

[tongosti] 14/4/2022 09:40

When you're down 50% and still can't find the reason why - maybe your hypothesis needs a major review? Just a thought. Chances are you are missing something big - not me telling you this but Mr Market. As the expression goes, 60 million Frenchmen can't be all wrong. Good luck old chap.

[wan] 14/4/2022 09:17

Tongosti...Work that out for yourself, but I think you have misinterpreted my remark in post 2652.

It will be interesting to see the details of the remuneration package for Mike Salter, which I am quite sure will include a takeover scenario as he builds-out a company that could grow to become a midcap.

More time will tell whether the belief that some have, has been worth holding onto the long-term investment rationale, which I accept has been dented by the recent share price action.

[tongosti] 14/4/2022 09:01

Wishful thinking taking over for a change pal - how come the price went down throughout the buyback period? Keen for you to elaborate - if you can.

[wan] 14/4/2022 09:00

One very large overall and evolving opportunity is how healthcare is changing in terms of delivery, and as a consequence of the pandemic. In this regard, in my opinion it's also worth watching Amazon (excerpts follow)-

In an internal email, Amazon's new healthcare boss lays out the 'four key pillars' of the company's growing health ambition
Eugene Kim 12 hours ago

Amazon's new healthcare boss said his team will center around these four key pillars: primary care, pharmacy, partnerships, and technology.
Neil Lindsay was named Amazon's new healthcare boss late last year.
Lindsay also formally announced the additions of two new VPs to his team.
Amazon's healthcare team will primarily focus on four core areas going forward as its new leader looks to establish the future direction of the retail giant's new business.

In an email to the team on Monday, reviewed by Insider, Amazon's SVP of health and brand Neil Lindsay laid out the "four key pillars" of the company's healthcare business. Lindsay, who was put in his newly created position late last year to oversee Amazon's main healthcare initiatives, said the decision was made after months of discussions with his leadership team across Amazon's pharmacy, primary care, diagnostics, and other healthcare projects.

Amazon Care: Amazon's primary care offering, which is now available in 50 US states

Amazon Pharmacy: Amazon's online pharmacy service, which is also now available in 50 US states

Partner Services: Team focused on "determining what other offerings we might need to make available — often with and through partners — to make it easier for customers to find what they need to get and stay healthy," the email said.

Storefront and Shared Tech: Team that will build the technology to "make it easier for customers to find, buy, and engage with the healthcare services and products they need," the email said.

It also has a separate diagnostics unit and other health projects, including Halo, a fitness tracker for sleep and heart rate.

Full story, worth reading/digesting in Business Insider -

[wan] 14/4/2022 08:30

Clearly there was demand for the share buyback, and that should be 'crystal clear' to most observers.

Going forwards, and amongst other (subsequent) future updates/news, I wouldn't be surprised to also see the announcement for the new remuneration scheme for the new management.

[tongosti] 14/4/2022 08:12

The only reason for share buybacks is management looking after their share options and KPIs. Why do you think there were illegal 40 years ago?!?! There were millions of shares being bought yet the market went down. mr Market tells you selling pressure is far bigger than buying one. Classic demand supply imbalance (agreed this is beyond your area of expertise old chap)

[wan] 14/4/2022 07:46

Buywell...Under your scenario of NAV/share, hardly any companies would be
undertaking share buybacks!

You know as well as I do, that there are many underlying reasons for share buybacks, and we know from the Growth Strategy that EKF are not short of growth opportunities and are indeed investing accordingly. So, it's probably best to stick with the share buyback representing an expression of confidence in the business and the effective execution of the growth strategy.

[buywell3] 13/4/2022 23:15

wan

Ref your reply about buybacks shown below

Share buybacks only make sense when the NAV/share is above the current share price and therefore shares are being bought at a discount to the NAV/share.

Which then could in some cases be like the company buying back its own debt at 50p in the £1.

As we stand here the advfn NAV/share is BELOW the current share price so the board are literally using shareholders money to buy £1 coins for £1.50 each.

advfn have the NAV at circa 20p and the buybacks have been at twice the price or 4 times the price if Net Tangible Asset Value per share were used

Net Tangible Asset Value PS * 11.26 p
Net Asset Value PS 20.42 p


This in effect is cash wasteful and could lead to the share price falling due to the market seeing such an action as a waste of valuable capital reserves in prevailing and deteriorating market conditions .

Worthy of consideration ?

----------------------------------------


wan5 Apr '22 - 09:13 - 2616 of 2648
0 1 0
Buywell...5,950,000 to be precise!

I duly noted SBI's results.

There is an important and fundamental difference regarding the buyback. SBI's recent acquisition, along with future earnout payments are all payable in cash. Whereas EKF's recent acquisition was satisfied by the issue of new ordinary shares at 80p+ to the value of £10mn. A similar amount of shares are now being bought back at 40p+ and held in treasury. And as my post 2612 above alludes to, the treasury shares could potentially be utilised to satisfy the ADL earnouts.

And wouldn't it be good business if the shares at the various earnout anniversaries are materially higher than current buybacks, potentially meaning in my book that the treasury shares were even better value (to EKF and its investors), bearing in mind that the price per share issued to satisfy any earnout payments will be calculated using the average mid-market closing price of EKF’s shares for the five working days immediately preceding the issuance date of such shares.

Obviously we don't know where the share price might be come October (1st ADL anniversary), but we know there will be news flow between now and October and we know there are various developments in the pipeline, including further execution on the Growth Strategy.

So, for the purpose of an example and perhaps only for those with a positive and longer term view on EKF. Imagine a scenario where earnouts are calculated at an average mid-market closing price of EKF’s shares at 60p+ (being conservative!) when EKF are holding shares in treasury bought at 40p+.

Food for thought!

[tongosti] 12/4/2022 16:40

A collapse slowly starting two years ago only to convert into a Big Bang is "short term" for our good old Wan - you're the man:)

[wan] 12/4/2022 10:06

Too busy atm to respond to short-term matters!

Bearing in mind that EKF is upgrading and installing a range of state-of-the-art new fermenting technology, anyone who has been paying any attention to the fermentation market for life sciences (Danaher's acquisition of Aldevron, for a cash purchase price of approximately $9.6 billion last year and signalling the increasing interest in this area), may ultimately get a better view on what lies ahead for EKF's Life Science division (and potentially in turn EKF's laboratory and Point-of-Care divisions). Especially as this will result in proprietary third party products, and perhaps underappreciated, proprietary EKF diagnostic enzymes.

I particularly like the fact that EKF's existing site in Elkhart, Indiana, will also become a development and tech transfer site supporting the new larger fermentation site, which adds a new dynamic for EKF's existing and potential new customers (as exemplified by the increased interest in EKF's fermentation offerings post the ABEC announcement), and indeed a new dynamic for EKF itself in terms of diagnostic assays.

[tongosti] 12/4/2022 08:46

Wan - if those buybacks couldn't help arrest the decline, what will? Moral - Mr Market is bigger than anyone in this game. Hence it pays to listen to him.

[matthew palmer] 11/4/2022 16:51

Anyone on TECHINVEST, I am wanting to form a group of similar minded people to discuss its views etc and information.

Click my name and send a message.

[matthew palmer] 11/4/2022 16:42

Anyone on TECHINVEST, I am wanting to form a group of similar minded people to discuss its views etc and information.

Click my name and send a message.

[tongosti] 08/4/2022 17:30

Share buybacks were illegal on both sides of the pond 40 years ago. And for a good reason. It's simply financial engineering signalling growth (contrary to what naive players may believe) has dried up.

[cisk] 08/4/2022 16:44

Re buybacks - they shouldn't have done it at all.

IMHO buybacks are for large corporates who have a cash cow business who want to achieve management bonuses based on increase in EPS and surefire way is via a buyback. I worked on one of the first utility ones in the UK way back - and that was the only objective. It's like putting up a sign saying we have no other use for the cash and we don't know what to do with it. So a big mistake I feel.

Far better to keep the money in the business.

Anyway, too late now. Let's hope they don't do another tranche.

[tongosti] 08/4/2022 12:41

Wise words indeed - can't agree more.

[buywell3] 08/4/2022 08:53

Re buybacks , IMO they have bought way too soon

The 9M is about to dry up today with 200k buybacks left

No sensible investor would have weighed in with this falling knife situation

You wait till the chart forms a bottom