Hvivo Share Price (HVO)

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Share Name Share Symbol Market Type Share ISIN Share Description
Hvivo Plc LSE:HVO London Ordinary Share GB00B9275X97 ORD 0.1P
  Price Change % Change Share Price Shares Traded Last Trade
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  -0.75 -3.49% 20.75 693,556 08:44:34
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20.50 21.00 21.375 20.75 21.375
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Health Care Equipment & Services 11.03 -18.86 -21.30 17
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Hvivo (HVO) Latest News

Hvivo News

Date Time Source Headline
06/2/202311:00ALNCNewshVIVO signs GBP6.8 million deal to test RSV antiviral drug candidate
06/2/202309:05UKREGhVIVO PLC Second Price Monitoring Extn
06/2/202309:00UKREGhVIVO PLC Price Monitoring Extension
06/2/202307:05UKREGhVIVO PLC Long Term Incentive Plan / PDMR Notification
06/2/202307:00UKREGhVIVO PLC GBP6.8m RSV human challenge contract signed
25/1/202312:38ALNCNewshVIVO expecting record year; 2023 orderbook soars by 65% against 2022
25/1/202309:06UKREGhVIVO PLC Second Price Monitoring Extn
25/1/202309:00UKREGhVIVO PLC Price Monitoring Extension
25/1/202307:00UKREGhVIVO PLC Trading update
17/1/202316:23ALNCNewsTRADING UPDATES: hVIVO wins contract; Dev Clever cancels shares
More Hvivo News
Hvivo Investors    Hvivo Takeover Rumours

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Posted at 08/2/2023 17:16 by njb67
Parob, possibly but much more likely is that this is retail investors. Hvivo has issued good results, it has been tipped by a number of popular stock pickers, and the share price is trending upwards, which draws in more retail investors/traders.

As far as I can tell, there are few if any institutional shareholders and none with a disclosable holding. If a company was viewing this as a takeover target, it would likely be very difficult to build up a significant holding without driving the share price up dramatically. It would be cheaper for them to agree a takeout price at an acceptable premium to the current share price.
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Posted at 08/2/2023 16:46 by pierre oreilly
Long term holders, don't forget to add on about 3.2p onto the hvo price when working out your profits (if you haven't sold polb that is). So, the adjusted hvo price is now about 24.7p for a true comparison.

As I see it, looks like either insts buying for their own book (not crossing a declaration boundary), or an inst buying for a bidder (ditto), or a potential bidder buying (ditto), or an investor with quite deep pockets investing.

Whether bull/bear/sensible or psycho, i can't see any other options to explain the recent day after day rise (25% on my original investment today, for those who don't see the advantages of ltbh). Any other possibilities?
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Posted at 07/2/2023 12:19 by sikhthetech
Pierre,

"Those who do could make a slug as more large institutional trades go through."

The old IIs buying...again...


Can you point me to the holding rns showing IIs buying?

As you said, when the share price was lower, without II buying it's just PIs trading..

Why didn't that institutional chain reaction occur over the 'last couple of years' or even now????

Have you changed your stance because the share price is rising so it's easier to sell the story of II buying?


Pierre Oreilly - 28 Nov 2022 - 11:20:57 - 547 of 1804 hVIVO plc - HVO
The key here (like all small caps in fact) is institutions buying in or increasing their stake. Without that, we'll get the pi driven 10p to 50p to 10p to 50p etc as it goes in and out of fashion.

I thought the institutional chain reaction would have occurred in the last couple of years, but it didn't. Maybe this year, maybe not, no one knows
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Posted at 06/2/2023 08:15 by njb67
Ina

Sorry, I disagree. In my view, options should be issued at the prevailing share price so that the option holder and all other share holders are equally rewarded by improvements in company performance.

I worked in the pharma industry for many years, and options were always granted at the prevailing share price.

Issuing at 11p simply creates a windfall payment and makes a mockery of the performance targets. In three years time, the CEO could pocket circa £400k even if the share prices was the same as today.
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Posted at 06/2/2023 07:58 by njb67
I am not sure that this LTIP award ia aligned with shareholders interests. If I read this correctly, then it will pay out in three years if the TSR is 22.5% higher than the 11p award price. Three issues for me.

(i) Why 11p? The share prices was around 16p when the CEO joined the company in Feb 2022, at a similar level to today. 11p is close to the lowest price we have seen since the CEO joined.
(ii) Where is the incentive to grow the company beyond where we are today? A 22.5% increase on 11p is under 13.5p, something that has been achieved already. Incidentally, 10% per annum TSR growth over three years is a 33% increase over index year, so not sure where 22.5% comes from
(iii) I am assuming the TSR will include the distribution that the company has said they intend to make at year end.

Based on the current 16p share price, this award is already worth £385k. That is without any increase in TSR from the date the CEO joined (distribution pending).

Had the share price been 11p when Mo joined, then I could understand the approach.
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Posted at 27/1/2023 13:50 by sikhthetech
"As a result, the broker has increased its target price for hVIVO shares from 21.60p to 25.10p and maintained its 'strong buy' rating."

wow, a 10% increase from the joint company broker and not far off the current share price Not much for a company supposedly growing strongly.

What happened to Finncap's, the joint broker, 44p, which was 1st mentioned in 2021. HVO clearly didn't reach it in 2022.


Given contracts are awarded many months in advance obviously the revenues will be 95% booked for 2023. Exactly as they were quoted as being book during 2022.



sikhthetech - 21 Nov 2022 - 13:14:38 - 421 of 1512 hVIVO plc - HVO
Rivaldo,

"With £53m of of the forecast 2023 £56m revenues already covered per Finncap there must be a good chance that HVO will beat expectations next year."

Rampers were saying similar last year(when these were Orph) for fy2022 revenue. It didn't make any difference. In fact the share price still continued it downtrend as expectations were missed, as usual.

The fact, as recent contract rns shows, is any new work will commence towards end of 2023 and revenue will be recognised in 2024, with some in 2023.

The fy2023 results probably announced in June 2024 (if they keep to same timetable as before), so 18months away and fy2024 in June 2025, so 2.5yrs away!!!!!
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Posted at 17/1/2023 11:37 by 1gw
But yump is definitely not right that this is the first Venn contract announced by HVO (i.e. since the reverse in 2019). "First time I remember Venn getting anything while within HVO." - if by that he means since the reverse, rather than since the name change.

It may or may not be the largest. It is (afaics) the largest for which they have published a value. HVO has announced a number of Venn contracts, but generally doesn't announce the value, presumably due to confidentiality restrictions. For example:

"a contract renewal with a major global pharmaceutical client worth £1.5m over two years."
hTtps://www.investegate.co.uk/open-orphan-plc--hvo-/rns/-1.5m-contract-renewal-for-venn-life-sciences/202111150700052927S/

"continues to sign multiple contracts and only those close to £1 million and above are announced."
hTtps://www.investegate.co.uk/open-orphan-plc--hvo-/rns/new-contract-win-for-open-orphan-s-breda-office/202107140701001452F/

"The renewal of this contract is expected to deliver significant revenue for Venn over the next twelve months."
hTtps://www.investegate.co.uk/open-orphan-plc--hvo-/rns/contract-extension-with-carna-biosciences/202102010700074290N/

"a contract renewal extending its consultancy services with a major top-3 global pharmaceutical client to December 2021"
hTtps://www.investegate.co.uk/open-orphan-plc--hvo-/rns/contract-renewal-with-top-3-pharmaceutical-client/202012220700024301J/

"The contract, which starts immediately, will run until December 2021 delivering significant revenues for Venn."
hTtps://www.investegate.co.uk/open-orphan-plc--hvo-/rns/venn-life-sciences-contract-wins/202012070700086763H/

"a new 2-year contract with a tier 1 German pharmaceutical company"
hTtps://www.investegate.co.uk/open-orphan-plc--hvo-/rns/new-2-year-contract-with-a-tier-1-german-company/202010300700076903D/

"significant revenue for Venn ... over the next 12 months"
hTtps://www.investegate.co.uk/open-orphan-plc--hvo-/rns/new-contract-win-with-carna-bioscience---carna--/202008040700040001V/
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Posted at 08/1/2023 18:00 by adorling
Good to see Motley Fool recommending buying HVO and adding to their own position. They have a huge subscriber base which should see momentum in HVO share price moving towards 20p and beyond to broker target of 32p.
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Posted at 23/12/2022 09:37 by sev22
This is the detailed report that featured in the Investors Chronicle a month ago without the tables, charts and diagrams.

I have decided to re-circulate it for all genuine investors who are serious about investing in hVIVO.

The share price has almost returned to the level it was at when Simon Thompson first tipped the company as a strong buy for 2023.

Alpha small company research.

17 November 2022.

Ride the boom in vaccine research.

A fast-growing specialist in human challenge clinical trials for infectious and respiratory disease vaccines has been winning new contracts that support a surge in profit.

Simon Thompson’s view:

‘There has been a material increase in pharmaceutical research and development (R&D) activity in infectious diseases during and after the Covid-19 pandemic. However, there are still only 26 infectious diseases that are preventable by available vaccines, according to the World Health Organisation. So, given the costs involved, and the fact that the vast majority of vaccine programmes fail, the drug industry is striving to get smarter in the way it develops vaccines. One way to mitigate risk is to conduct human challenge clinical trials as part of the development process. It’s a buoyant niche business that is driving huge demand for the services of one below the radar small-cap company. For good measure, its shares are materially undervalued.’

Bull points:

1. Strong contract momentum
2. 2023 order book covers 88 per cent of budgeted revenue
3. High repeat revenue
4. Blue chip client base
5. Contract size increasing
6. World leader in challenge studies
7. Only full-service provider in the field
8. Experienced chief executive to drive growth phase
9. Cross-selling opportunities
10. Potential spin outs of legacy investments
11. Merger and acquisition (M&A) target
12. Free cash flow improving

Bear points:

1. Potential competition from larger players
2. No guarantee of pipeline of contracts converting
3. Low institutional following

Contract research organisations (CROs) provide outsourced research support services to the pharmaceutical, biotechnology and medical device industries on a contract basis. In the wake of the Covid-19 pandemic there is an explosion in demand for these services as developers of vaccines seek to work smarter.

It has been a pivotal year for hVIVO (formerly Open Orphan), a rapidly growing CRO that specialises in testing infectious and respiratory disease vaccines and antivirals using human challenge clinical trials. It provides end-to-end early clinical development services for a broad and long-standing client base of biopharma companies.

Building on decades of experience, hVIVO is currently the only CRO focused on challenge studies, providing world class expertise and capabilities in challenge agent manufacture, a unique portfolio of established human challenge models to test a broad range of infectious and respiratory disease products, and specialist drug development and clinical consultancy services through its Venn Life Sciences subsidiary.

Established in 1989 as a spin-out from Queen Mary University, London, hVIVO has leveraged its insights in established human disease challenge models in influenza (Flu), respiratory syncytial virus (RSV) and human rhinovirus (HRV), to expand the use of viral challenge in further respiratory indications including asthma, and chronic obstructive pulmonary disease (COPD). Its history dates back to the UK Common Cold Unit in Salisbury, which ran human challenge studies from 1946 until 1989. The facility was a former military hospital that was donated by Harvard University and began human challenge studies to try to find a cure for influenza.

hVIVO’s portfolio of human challenge study models for infectious and respiratory diseases includes a recently established Covid-19 model, and several new models, such as Malaria, to address the dramatic growth of the global infectious disease market.

hVIVO runs challenge studies in London from its Whitechapel quarantine clinic, its state-of-the-art QMB clinic with its highly specialised on-site virology and immunology laboratory, and its newly opened clinic in Plumbers Row. To recruit volunteers and patients for studies, hVIVO leverages its unique clinical trial recruitment capacity via its FluCamp volunteer screening facilities in London and Manchester which have access to more than 250,000 volunteers. These newly opened facilities have expanded the scope of the business to enable Phase I and Phase II vaccine field trials, pharmacokinetic (PK) studies, bridging studies, and patient trials as part of large international multi-centre studies.

In addition, the group’s Paris and Breda offices have over 25 years of experience providing drug development services such as biometry, data management, statistics chemistry, manufacturing and controls (CMC), and medical writing to third party clients, as well as supporting the London-based challenge studies.

Strong contract momentum.

As a trusted partner to the global biopharma industry, growth is being mainly driven by the group’s market leading competitive position, as well as increasing demand for human challenge services in what is a rapidly expanding infectious and respiratory clinical trials market. To date, the group has completed over 60 human challenge studies, inoculating more than 3,500 volunteers, and boasts four of the world’s top 10 biopharma giants as active clients. The value it offers to its clients can be seen by the increasing size of the contracts being awarded. Only three years ago, the average contract award was worth £3mn-£4mn, whereas this year the group has signed three contracts worth more than £10mn in revenue.

Since the release of interim results in early September, hVIVO has announced a massive £13.4mn contract with a US biotechnology client, a repeat customer, to test its respiratory syncytial virus (RSV) antiviral candidate using hVIVO's established RSV Human Challenge Study Model.

The Phase IIa double-blinded placebo-controlled human challenge trial will take place at hVIVO’s specialist quarantine facilities in Whitechapel and will evaluate the efficacy profile of the antiviral against RSV infection. The study is expected to commence in the third or fourth quarter of 2023, with the revenue being recognised in 2023 and 2024. As part of the study, hVIVO will recruit healthy volunteers through its dedicated volunteer recruitment arm, FluCamp.

The contract is the tenth award and the seventh challenge study contract won this year, which have a combined total disclosed value of £65.4mn. It means that the record £80mn backlog of contracts that hVIVO reported in early September has increased further.

Brokerage FinnCap estimate that 88 per cent (£48mn) of its 2023 revenue estimate of £54mn is already contracted through the order backlog; as well as 21 per cent (£12mn) of its £59mn revenue estimate for 2024, thus materially de-risking analysts’ earnings estimates.

Typically, around 50 to 100 volunteers are recruited to a challenge trial, inoculated with the challenge agent (virus) and placed in quarantine for 10 to 15 days. They are then discharged and receive outpatient follow up visits. It’s a very cost-effective way for large pharma to develop their RSV vaccine candidates. That’s because the $10mn-plus cost of a challenge study represents a fraction of the total cost (typically well over $100mn) to take a vaccine candidate through to Phase III trial.

There are ethical advantages to human challenge trials, as they subject far fewer volunteers to the vaccine candidates. For instance, a Phase III trial of a RSV vaccine candidate could involve the costly recruitment of upwards of over 50,000 participants. This becomes of major significance for research into complicated diseases like malaria, where studies have shown that less than 10 per cent of preclinical vaccines progress to Phase III clinical evaluation and so there are many potentially effective vaccine candidates in need of testing.

Without the use of a preliminary challenge experiment, large malaria vaccine trials would be the only alternative. This would expose large numbers of people to many ineffective vaccines in less supervised conditions and with treatment less available than for human challenge studies. As all vaccine candidates pose a certain degree of risk, more people would be placed at risk of rare, serious side effects of ineffective vaccines than would occur in human challenge studies, which involve far smaller sample sizes.

The raft of contract wins this year highlights hVIVO's world leading expertise in its field, its ability to execute sizable contracts and the industry's renewed focus on developing new treatments for RSV. The group also continues to see growing demand for larger challenge studies from both new and existing clients as they seek greater clarity of data and pursue lower frequency endpoints to de-risk their programmes ahead of later stage field studies.

Challenge studies offer considerable insight into the development therapeutic in terms of appropriate dosing, timing of dosing and most relevant endpoint. In turn, these outputs allow the pharma company to optimise its Phase II and III field trial programme, thus increasing the probability of success, lowering the overall cost and accelerating the development timeline. It also allows early decision making to terminate vaccine candidates that are unlikely to be successful in Phase III trials, underpinning the “succeed fast, fail early” mantra.

Although vaccines are amongst the most effective public health interventions against infectious diseases, the time to develop a new vaccine is long and the probability of success low, with an estimated development time of at least a decade and a market entry probability of only 6 per cent. Both the time and the costs associated with the development of new vaccines through the phases of safety, immunogenicity (the ability of cells/tissues to provoke an immune response) and clinical efficacy are often prohibitive.

Therefore, carefully conducted challenge studies can offer substantial value by providing insights into host-pathogen interactions, determining host factors that contribute to infection, and identifying immune correlates of protection against infection/disease (how the immune system acts as a biological defence to protect against infection caused by foreign invaders, such as viruses). In turn, this can accelerate the development and testing of vaccines and diagnostics for infectious diseases. Challenge studies also provide information on vaccine efficacy, protection against specific pathogen strains, and resistance in a small number of volunteers. They are valuable for diseases, too, where animal models are poor predictors of the disease in humans or when the disease is sporadic and a Phase III clinical trial is not possible.

Growing CRO market opportunity.

Importantly, the global clinical CRO market is in a high growth phase with analysts at Results Healthcare predicting compound annual growth rate (CAGR) of 10 per cent through to 2024 - when it could be worth $62.2bn.

They also highlight the following key factors driving growth in the market:

● Robust funding environments, particularly for emerging biopharma.
● Rising costs for product development which stimulate the need for lower capital costs
requirements and flexible outsourcing models.
● Demand for accelerated development timelines and quicker routes to market.
● Globalisation of clinical trials which creates a demand for improved reach and access to patients.
● Expanding scope of CRO solutions and technology.
● Requirement for therapeutics expertise to address complex and chronic disease areas.

Although pharmaceutical companies continue to invest in research & development (R&D) globally, the returns from drug R&D have been decreasing. As a consequence, large pharma has steered towards outsourcing more of their pharmaceutical research, development, and manufacturing activities to CROs or CDMOs (Contract Development and Manufacturing Organisations) as this can be a more flexible and cost-efficient approach, compared to keeping these capabilities in-house.

Results Healthcare also notes that this outsourcing trend, as well as the greater number of drugs in development, has contributed to rising penetration of outsourcing partners in the global clinical and pre-clinical trials market. For instance, the global CRO penetration rate was 34 per cent in 2014 and this is expected to account for almost half of the total clinical trial market next year.

Despite the advancements made in recent years, there are still only 26 infectious diseases that are preventable by available vaccines, according to the World Health Organisation. Interestingly, for industry-sponsored drug development programmes, respiratory infections were the most actively researched vaccine category, accounting for more than a third of all vaccine development programmes, in 2020 and 2021. This highlights how well placed hVIVO is within the vaccine space with its challenge platform model portfolio.

Accounting for 8 per cent of the total clinical trial market in 2021, analysts at Global Market Insights predict the infectious disease segment could be worth $5.5bn by 2027. Of course, challenge studies still only represent a small and nascent segment of the broad CRO market, which after the Covid-19 pandemic is now receiving significant attention. Although difficult to assess the challenge study market, Liberum Capital estimates there are around 20 challenge studies conducted each year. Some of these trials are by academic institutions.

Using the prevailing average contract size of £6.7mn (based on hVIVO’s order book over the last two years), this indicates £100mn-£135mn of challenge study work each year, excluding any additional income through manufacturing and validating bespoke challenge agents. The market currently comprises three industry competitors – hVIVO, Swiss-based SGS SA and WCCT Global – and academic institutions.

hVIVO is the clear industry leader, having conducted 30 per cent of all challenge studies in 2021, up from a low to mid-teen per cent market share over the prior decade. Using the broad CRO market as an underlying annual growth trend and factoring in the 3 per cent growth rate in the number of infectious diseases therapeutics, Liberum estimates the challenge study CRO market could be worth £130mn-£170mn by 2024 and potentially £175mn-£240mn by 2028.

Research from Pharmaprojects and Citiline highlights that the number of active vaccine, anti-viral and respiratory compounds in development increased by 86 per cent from 2019 to 2021, another positive tailwind for hVIVO given the increasing penetration that outsourcing CRO services now plays in vaccine development programmes.

hVIVO also benefits from a major competitive advantage that acts as a barrier to entry to would-be rivals. Namely, the regulatory differences between geographies. That’s because challenge agents are not viewed as an investigational medicinal product in the UK, so there is no need to submit to the regulator. However, in the EU regulatory approval is required for the challenge agent and in the US, an investigational new drug application must be submitted.

The numbers highlight the group’s increasingly dominant share in this niche market. Around 60 per cent of hVIVO’s current order book relates to biotech customers and the balance relates to big pharma, with the group carrying out three active challenge studies for big pharma in the first half of 2022 and two full-service challenge studies with values exceeding £25mn. Moreover, hVIVO has signed up eight challenge studies with big pharma companies since 2018 and all the big pharma clients are repeat customers. Also, Venn Life Sciences (hVIVO’s complementary consultancy business) boasts an eye-catching 80 per cent level of repeat business from its biotech clients.

Venn Life accounted for 16 per cent of group revenue in the first half of 2022, and Hvivo’s management has been making strategic hires to expand the division’s service offering. It is also exploiting cross-selling opportunities, landing a £5mn RSV human challenge study contract that stemmed from Venn Life’s work on a client’s early clinical development programme.

hVIVO’s management views the Venn Life business as a key driver of the business, targeting growth in new areas including Advanced Therapy Medicinal Products (ATMP). These are medicines based on genes, tissues or cells.

Improving financials.

Backed by a bumper order book and having booked £9mn of group revenue in July and August 2022 (so after the half-year-end), house broker FinnCap expects the group’s hVIVO division, which carries out the challenge studies, to grow revenue from £29.4mn last year to £42.5mn in 2022 and account for 82 per cent of its total revenue estimate of £51.1mn (up from £39mn reported in 2021). Furthermore, taking account of challenge study contract wins, revenue from Venn Life, laboratory services and non-challenge studies, the brokerage estimates that £53mn of its 2023 revenue estimate of £56mn is already covered.

The growth is not at the expense of margins as brokers anticipate group gross margin to expand from 31 per cent (2022) to 33 per cent (2023) and 34.7 per cent (2024), while double-digit revenue growth is forecast to outpace an 8 per cent anticipated increase in operating expenses in both 2023 and 2024.

A rising gross margin in a positive sales cycle, with overheads well managed, sets the foundation for a high proportion of incremental gross profit earned to be converted into both Ebitda (earnings before interest, taxation, depreciation and amortisation) and operating profit: hence why the brokerage forecasts pre-tax profit of £3.6mn (2022) to rise to £5mn (2023) and £6.3mn (2024). On this basis, FinnCap expects earnings per share (EPS) of 0.49p (2022), 0.67p (2023) and 0.81p (2024), implying the shares are being rated on modest forward price/earnings (PE) ratios of 14 (2023) and 11.5 (2024).

It’s not just revenue, margins and profits that are on the rise as hVIVO’s operating cash flow and free cash flow generation is set to improve no end.

After a restructuring of the business following the 2020 merger of Open Orphan and hVIVO, and with the benefit of greater scale, free cash flow (FCF) is set to move from an outflow of £2.3mn last year to £3.8mn positive FCF this year, rising to £3.9mn (2023) and £4.9mn (2024). The implication being that net cash of £15.8mn (30 June 2022) could end this year at £18.8mn (2.8p a share), rising to £22.3mn (3.3p) in 2023 and £26.8mn (4p) in 2024.

These are material sums, the forecast cash pile at the end of next month equates to more than a third of the group’s current market capitalisation of £62.7mn. FCF yields of 6.2 per cent and 7.8 per cent for the 2023 and 2024 forecast period highlights the improving cash generation of the group as the operational leverage of the business model kicks in. In addition, it demonstrates the attractions of the business to larger rivals. There is hidden value in the group’s balance sheet, too.
Hidden balance sheet value.

hVIVO offers potential for monetisation of non-core assets, as highlighted by the demerger of PoolBeg Pharma (POLB), which was successfully completed in June 2021. Listed on London’s junior market, PoolBeg has a market capitalisation of £46mn, not far short of hVIVO’s own market capitalisation. Three other business assets remain from the hVIVO merger with Open Orphan which could realise value:

Disease in Motion® platform. This comprises an extensive database of infectious disease progression data that has been built up over the past 20 years. These data have applications for a wide variety of end users including Big Tech, wearables, pharma, and biotech companies, with whom the group has already had extensive discussions. In future clinical trials the company is planning to collect data on volunteers via wearable devices.

Imutex Limited. This is a joint venture between hVIVO and the SEEK Group, in which the group holds a 49 per cent equity stake. Imutex has a potential Phase III-ready universal flu vaccine candidate in development (FLU-v) and a Phase II-ready vaccine candidate for mosquito-borne diseases, including Zika, Malaria and Dengue Fever. FLU-v has a synthetic manufacturing process, which will make it particularly valuable in the current environment, given that there is expected to be increased demand for flu vaccines as result of the Covid-19 pandemic. Current annual flu vaccine supply is capped at 350mn doses per annum, as they are adapted for growth in eggs.

PrEP Biopharm Limited. The group holds a 62.5 per cent holding. PrEP’s lead asset, PrEP-001, is a viral prophylactic in Phase II for the prevention of upper respiratory tract viral infections and has potential for use against Covid-19.

Although market conditions are hardly conducive to monetising the value in these assets (the broader biotech sector has shed more than 25 per cent of its value this year)and it’s difficult to value them, FinnCap have given it a stab, valuing them at £60mn, or almost the same as hVIVO’s entire market capitalisation. The point is, that they are in the price for free given that net of cash on hVIVO’s balance sheet at the end of 2022, the group’s core activities have an enterprise valuation of £45.7mn even though they are forecast to generate operating profit of £4.1mn this year, rising to £5.4mn (2023) and £6.6mn (2024).

An enterprise valuation (enterprise value is market cap plus net debt) to operating profit multiple of eight times for next year is hardly exacting for a company that has such a high proportion of next year’s sales already booked, especially as end market demand for its CRO services is rising sharply.

Competitive landscape.

Liberum capital notes that the human challenge study market is led by hVIVO with few viable competitors. Two industry competitors exist with smaller offerings: SGS with a quarantine clinic in Belgium, and WCCT Global (owned by Altascience) based in California, USA.

SGS is a mid-tier global CRO, but its challenge study division is a small component of the group’s operations. It has a dedicated Human Challenge Unit 20-bed facility in Antwerp, Belgium, comprising eight single bed isolation rooms and a 12-bed ward style isolation unit, and a separate quarantine unit with 45 beds based in the University Hospital Antwerp. SGS also has a biosafety testing site in Glasgow where analysis on clinical samples from challenge studies as well as other non-challenge studies are performed. SGS’s expertise is in performing influenza challenge studies, but it also has Malaria challenge, and RSV challenge models.

WCCT Global is a subsidiary of mid-tier CRO/CDMO Altascience and like SGS its challenge study division is a small component of the wider group. Liberum estimates that WCCT Global has up to 60 beds that can be used for viral challenge studies, but they have been predominantly used for influenza and norovirus challenge studies.

In addition, there are around 30 academic institutions that can be seen as competitors in this space. However, they are largely research focused and lack the facilities, recruitment expertise and the scale to efficiently run commercial challenge studies for biopharma within a reasonable time. They rarely compete with hVIVO’s challenge study services.

It’s worth pointing out that hVIVO has only lost one competitive bid in its history, to SGS, due to lack of quarantine bed capacity at the time. It wasn’t a great loss as that contract was cancelled in the end due to poor efficacy results.

The group’s chief executive is 52-year old Yamin 'Mo' Khan, who joined the company as a non-executive director in October 2021 and was appointed to his current role in February this year. He previously worked at Pharm-Olam International, a global CRO, from 2000 to 2019. Khan made a maiden purchase of 510,204 shares at 9.8p each after the company’s interim results in September.

Shareholders.

HVIVO lacks institutional following with the shareholder base dominated by retail investors. As a result, the shares can be volatile with short-term price moves sometimes influenced by speculative buying and distorted by bulletin board posts.

That said, the shares can readily be traded on a bid-offer spread of around 0.25p and in decent bargain sizes.

Peer group comparisons.

The listed sector for CRO companies is niche and finding comparable peers is difficult. The most applicable UK peers are Ergomed, Ixico and Cambridge Cognition. Ergomed is undoubtedly the leader of the UK peer group: it is profitable, growing strongly and has potential to make acquisitions, fuelled by its cash generation and strong balance sheet. However, Ergomed trades on an enterprise valuation to Ebitda multiple of 20 times and a PE ratio of 29 for 2023, a 12-month period that is projected to deliver 12 per cent Ebitda profit growth, according to Edison Investment Research.

Smaller peers, Ixico and Cambridge Cognition, lag their peer group. Ixico is expected to report a loss in 2023 and Cambridge Cognition a small profit, hence the stratospheric multiples.

There are several international peers (ICON, Catalent, SGS, Charles River, Syneos Health, Medpace and PRA Group) which after years of consolidation have reached significant size and dwarf both hVIVO and Ergomed. These international large-tier CRO peers trade on 12-month forward multiples of around 16 times Ebitda to their enterprise value, based on analysis by Liberum Capital.

By comparison, hVIVO is rated on an enterprise valuation to Ebitda multiple of only 5.3 times for 2023, a 74 per cent ratings discount to Ergomed and a third of the rating of international peers. The smaller company also offers a free cash flow (FCF) yield of 6.2 per cent, or more than double that of Ergomed. Given that hVIVO is projected to deliver a CAGR of 28 per cent in EPS for the 2022 to 2024 forecast period – materially above its more mature peers – then it shouldn’t be priced on such a low multiple. Moreover, there is scope for hVIVO to monetise value in its legacy assets through demergers, so there is hidden value in the balance sheet which I have ignored entirely in the enterprise valuation calculations.

Target price.

On any basis, hVIVO’s shares are too lowly rated. They are priced on a single-digit earnings multiple to enterprise valuation even though the fast-growing company has reached an inflexion point whereby the operational gearing of the business model is set to kick in to propel earnings materially higher.

Assuming the company achieves analysts’ forecasts for 2023, hVIVO’s enterprise valuation in 12 months’ time would only equate to 4.9 times Ebitda for that year and a miserly four times Ebitda estimates of £9.7mn for 2024. A more realistic multiple would be 12.5 times Ebitda estimates of £8.4mn for 2023, which supports a target market capitalisation of £127.3mn and enterprise valuation of £105mn after factoring in a closing net cash of £22.3mn. On this basis, I have fair value of the equity at 19p. It could prove a conservative estimate.

It’s also worth noting that the share price seems to have finally formed a base in the 9p to 10.6p trading range, having deflated from a bubble valuation during Covid-19 lockdowns when day traders sent the shares soaring way above their intrinsic value. A share price break-out above the top of that trading range would be a strong signal that the consolidation period is finally over. BUY.
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Posted at 20/12/2022 20:02 by sev22
This is the detailed report that featured in the Investors Chronicle a month ago without the tables, charts and diagrams.

I have decided to re-circulate it for all serious investors because the share price has almost returned to the level it was at when Simon Thompson first tipped the company as a strong buy for 2023.

Alpha small company research.

17 November 2022.

Ride the boom in vaccine research.

A fast-growing specialist in human challenge clinical trials for infectious and respiratory disease vaccines has been winning new contracts that support a surge in profit.

Simon Thompson’s view:

‘There has been a material increase in pharmaceutical research and development (R&D) activity in infectious diseases during and after the Covid-19 pandemic. However, there are still only 26 infectious diseases that are preventable by available vaccines, according to the World Health Organisation. So, given the costs involved, and the fact that the vast majority of vaccine programmes fail, the drug industry is striving to get smarter in the way it develops vaccines. One way to mitigate risk is to conduct human challenge clinical trials as part of the development process. It’s a buoyant niche business that is driving huge demand for the services of one below the radar small-cap company. For good measure, its shares are materially undervalued.’

Bull points:

1. Strong contract momentum
2. 2023 order book covers 88 per cent of budgeted revenue
3. High repeat revenue
4. Blue chip client base
5. Contract size increasing
6. World leader in challenge studies
7. Only full-service provider in the field
8. Experienced chief executive to drive growth phase
9. Cross-selling opportunities
10. Potential spin outs of legacy investments
11. Merger and acquisition (M&A) target
12. Free cash flow improving

Bear points:

1. Potential competition from larger players
2. No guarantee of pipeline of contracts converting
3. Low institutional following

Contract research organisations (CROs) provide outsourced research support services to the pharmaceutical, biotechnology and medical device industries on a contract basis. In the wake of the Covid-19 pandemic there is an explosion in demand for these services as developers of vaccines seek to work smarter.

It has been a pivotal year for hVIVO (formerly Open Orphan), a rapidly growing CRO that specialises in testing infectious and respiratory disease vaccines and antivirals using human challenge clinical trials. It provides end-to-end early clinical development services for a broad and long-standing client base of biopharma companies.

Building on decades of experience, hVIVO is currently the only CRO focused on challenge studies, providing world class expertise and capabilities in challenge agent manufacture, a unique portfolio of established human challenge models to test a broad range of infectious and respiratory disease products, and specialist drug development and clinical consultancy services through its Venn Life Sciences subsidiary.

Established in 1989 as a spin-out from Queen Mary University, London, hVIVO has leveraged its insights in established human disease challenge models in influenza (Flu), respiratory syncytial virus (RSV) and human rhinovirus (HRV), to expand the use of viral challenge in further respiratory indications including asthma, and chronic obstructive pulmonary disease (COPD). Its history dates back to the UK Common Cold Unit in Salisbury, which ran human challenge studies from 1946 until 1989. The facility was a former military hospital that was donated by Harvard University and began human challenge studies to try to find a cure for influenza.

hVIVO’s portfolio of human challenge study models for infectious and respiratory diseases includes a recently established Covid-19 model, and several new models, such as Malaria, to address the dramatic growth of the global infectious disease market.

hVIVO runs challenge studies in London from its Whitechapel quarantine clinic, its state-of-the-art QMB clinic with its highly specialised on-site virology and immunology laboratory, and its newly opened clinic in Plumbers Row. To recruit volunteers and patients for studies, hVIVO leverages its unique clinical trial recruitment capacity via its FluCamp volunteer screening facilities in London and Manchester which have access to more than 250,000 volunteers. These newly opened facilities have expanded the scope of the business to enable Phase I and Phase II vaccine field trials, pharmacokinetic (PK) studies, bridging studies, and patient trials as part of large international multi-centre studies.

In addition, the group’s Paris and Breda offices have over 25 years of experience providing drug development services such as biometry, data management, statistics chemistry, manufacturing and controls (CMC), and medical writing to third party clients, as well as supporting the London-based challenge studies.

Strong contract momentum.

As a trusted partner to the global biopharma industry, growth is being mainly driven by the group’s market leading competitive position, as well as increasing demand for human challenge services in what is a rapidly expanding infectious and respiratory clinical trials market. To date, the group has completed over 60 human challenge studies, inoculating more than 3,500 volunteers, and boasts four of the world’s top 10 biopharma giants as active clients. The value it offers to its clients can be seen by the increasing size of the contracts being awarded. Only three years ago, the average contract award was worth £3mn-£4mn, whereas this year the group has signed three contracts worth more than £10mn in revenue.

Since the release of interim results in early September, hVIVO has announced a massive £13.4mn contract with a US biotechnology client, a repeat customer, to test its respiratory syncytial virus (RSV) antiviral candidate using hVIVO's established RSV Human Challenge Study Model.

The Phase IIa double-blinded placebo-controlled human challenge trial will take place at hVIVO’s specialist quarantine facilities in Whitechapel and will evaluate the efficacy profile of the antiviral against RSV infection. The study is expected to commence in the third or fourth quarter of 2023, with the revenue being recognised in 2023 and 2024. As part of the study, hVIVO will recruit healthy volunteers through its dedicated volunteer recruitment arm, FluCamp.

The contract is the tenth award and the seventh challenge study contract won this year, which have a combined total disclosed value of £65.4mn. It means that the record £80mn backlog of contracts that hVIVO reported in early September has increased further.

Brokerage FinnCap estimate that 88 per cent (£48mn) of its 2023 revenue estimate of £54mn is already contracted through the order backlog; as well as 21 per cent (£12mn) of its £59mn revenue estimate for 2024, thus materially de-risking analysts’ earnings estimates.

Typically, around 50 to 100 volunteers are recruited to a challenge trial, inoculated with the challenge agent (virus) and placed in quarantine for 10 to 15 days. They are then discharged and receive outpatient follow up visits. It’s a very cost-effective way for large pharma to develop their RSV vaccine candidates. That’s because the $10mn-plus cost of a challenge study represents a fraction of the total cost (typically well over $100mn) to take a vaccine candidate through to Phase III trial.

There are ethical advantages to human challenge trials, as they subject far fewer volunteers to the vaccine candidates. For instance, a Phase III trial of a RSV vaccine candidate could involve the costly recruitment of upwards of over 50,000 participants. This becomes of major significance for research into complicated diseases like malaria, where studies have shown that less than 10 per cent of preclinical vaccines progress to Phase III clinical evaluation and so there are many potentially effective vaccine candidates in need of testing.

Without the use of a preliminary challenge experiment, large malaria vaccine trials would be the only alternative. This would expose large numbers of people to many ineffective vaccines in less supervised conditions and with treatment less available than for human challenge studies. As all vaccine candidates pose a certain degree of risk, more people would be placed at risk of rare, serious side effects of ineffective vaccines than would occur in human challenge studies, which involve far smaller sample sizes.

The raft of contract wins this year highlights hVIVO's world leading expertise in its field, its ability to execute sizable contracts and the industry's renewed focus on developing new treatments for RSV. The group also continues to see growing demand for larger challenge studies from both new and existing clients as they seek greater clarity of data and pursue lower frequency endpoints to de-risk their programmes ahead of later stage field studies.

Challenge studies offer considerable insight into the development therapeutic in terms of appropriate dosing, timing of dosing and most relevant endpoint. In turn, these outputs allow the pharma company to optimise its Phase II and III field trial programme, thus increasing the probability of success, lowering the overall cost and accelerating the development timeline. It also allows early decision making to terminate vaccine candidates that are unlikely to be successful in Phase III trials, underpinning the “succeed fast, fail early” mantra.

Although vaccines are amongst the most effective public health interventions against infectious diseases, the time to develop a new vaccine is long and the probability of success low, with an estimated development time of at least a decade and a market entry probability of only 6 per cent. Both the time and the costs associated with the development of new vaccines through the phases of safety, immunogenicity (the ability of cells/tissues to provoke an immune response) and clinical efficacy are often prohibitive.

Therefore, carefully conducted challenge studies can offer substantial value by providing insights into host-pathogen interactions, determining host factors that contribute to infection, and identifying immune correlates of protection against infection/disease (how the immune system acts as a biological defence to protect against infection caused by foreign invaders, such as viruses). In turn, this can accelerate the development and testing of vaccines and diagnostics for infectious diseases. Challenge studies also provide information on vaccine efficacy, protection against specific pathogen strains, and resistance in a small number of volunteers. They are valuable for diseases, too, where animal models are poor predictors of the disease in humans or when the disease is sporadic and a Phase III clinical trial is not possible.

Growing CRO market opportunity.

Importantly, the global clinical CRO market is in a high growth phase with analysts at Results Healthcare predicting compound annual growth rate (CAGR) of 10 per cent through to 2024 - when it could be worth $62.2bn.

They also highlight the following key factors driving growth in the market:

● Robust funding environments, particularly for emerging biopharma.
● Rising costs for product development which stimulate the need for lower capital costs
requirements and flexible outsourcing models.
● Demand for accelerated development timelines and quicker routes to market.
● Globalisation of clinical trials which creates a demand for improved reach and access to patients.
● Expanding scope of CRO solutions and technology.
● Requirement for therapeutics expertise to address complex and chronic disease areas.

Although pharmaceutical companies continue to invest in research & development (R&D) globally, the returns from drug R&D have been decreasing. As a consequence, large pharma has steered towards outsourcing more of their pharmaceutical research, development, and manufacturing activities to CROs or CDMOs (Contract Development and Manufacturing Organisations) as this can be a more flexible and cost-efficient approach, compared to keeping these capabilities in-house.

Results Healthcare also notes that this outsourcing trend, as well as the greater number of drugs in development, has contributed to rising penetration of outsourcing partners in the global clinical and pre-clinical trials market. For instance, the global CRO penetration rate was 34 per cent in 2014 and this is expected to account for almost half of the total clinical trial market next year.

Despite the advancements made in recent years, there are still only 26 infectious diseases that are preventable by available vaccines, according to the World Health Organisation. Interestingly, for industry-sponsored drug development programmes, respiratory infections were the most actively researched vaccine category, accounting for more than a third of all vaccine development programmes, in 2020 and 2021. This highlights how well placed hVIVO is within the vaccine space with its challenge platform model portfolio.

Accounting for 8 per cent of the total clinical trial market in 2021, analysts at Global Market Insights predict the infectious disease segment could be worth $5.5bn by 2027. Of course, challenge studies still only represent a small and nascent segment of the broad CRO market, which after the Covid-19 pandemic is now receiving significant attention. Although difficult to assess the challenge study market, Liberum Capital estimates there are around 20 challenge studies conducted each year. Some of these trials are by academic institutions.

Using the prevailing average contract size of £6.7mn (based on hVIVO’s order book over the last two years), this indicates £100mn-£135mn of challenge study work each year, excluding any additional income through manufacturing and validating bespoke challenge agents. The market currently comprises three industry competitors – hVIVO, Swiss-based SGS SA and WCCT Global – and academic institutions.

hVIVO is the clear industry leader, having conducted 30 per cent of all challenge studies in 2021, up from a low to mid-teen per cent market share over the prior decade. Using the broad CRO market as an underlying annual growth trend and factoring in the 3 per cent growth rate in the number of infectious diseases therapeutics, Liberum estimates the challenge study CRO market could be worth £130mn-£170mn by 2024 and potentially £175mn-£240mn by 2028.

Research from Pharmaprojects and Citiline highlights that the number of active vaccine, anti-viral and respiratory compounds in development increased by 86 per cent from 2019 to 2021, another positive tailwind for hVIVO given the increasing penetration that outsourcing CRO services now plays in vaccine development programmes.

hVIVO also benefits from a major competitive advantage that acts as a barrier to entry to would-be rivals. Namely, the regulatory differences between geographies. That’s because challenge agents are not viewed as an investigational medicinal product in the UK, so there is no need to submit to the regulator. However, in the EU regulatory approval is required for the challenge agent and in the US, an investigational new drug application must be submitted.

The numbers highlight the group’s increasingly dominant share in this niche market. Around 60 per cent of hVIVO’s current order book relates to biotech customers and the balance relates to big pharma, with the group carrying out three active challenge studies for big pharma in the first half of 2022 and two full-service challenge studies with values exceeding £25mn. Moreover, hVIVO has signed up eight challenge studies with big pharma companies since 2018 and all the big pharma clients are repeat customers. Also, Venn Life Sciences (hVIVO’s complementary consultancy business) boasts an eye-catching 80 per cent level of repeat business from its biotech clients.

Venn Life accounted for 16 per cent of group revenue in the first half of 2022, and Hvivo’s management has been making strategic hires to expand the division’s service offering. It is also exploiting cross-selling opportunities, landing a £5mn RSV human challenge study contract that stemmed from Venn Life’s work on a client’s early clinical development programme.

hVIVO’s management views the Venn Life business as a key driver of the business, targeting growth in new areas including Advanced Therapy Medicinal Products (ATMP). These are medicines based on genes, tissues or cells.

Improving financials.

Backed by a bumper order book and having booked £9mn of group revenue in July and August 2022 (so after the half-year-end), house broker FinnCap expects the group’s hVIVO division, which carries out the challenge studies, to grow revenue from £29.4mn last year to £42.5mn in 2022 and account for 82 per cent of its total revenue estimate of £51.1mn (up from £39mn reported in 2021). Furthermore, taking account of challenge study contract wins, revenue from Venn Life, laboratory services and non-challenge studies, the brokerage estimates that £53mn of its 2023 revenue estimate of £56mn is already covered.

The growth is not at the expense of margins as brokers anticipate group gross margin to expand from 31 per cent (2022) to 33 per cent (2023) and 34.7 per cent (2024), while double-digit revenue growth is forecast to outpace an 8 per cent anticipated increase in operating expenses in both 2023 and 2024.

A rising gross margin in a positive sales cycle, with overheads well managed, sets the foundation for a high proportion of incremental gross profit earned to be converted into both Ebitda (earnings before interest, taxation, depreciation and amortisation) and operating profit: hence why the brokerage forecasts pre-tax profit of £3.6mn (2022) to rise to £5mn (2023) and £6.3mn (2024). On this basis, FinnCap expects earnings per share (EPS) of 0.49p (2022), 0.67p (2023) and 0.81p (2024), implying the shares are being rated on modest forward price/earnings (PE) ratios of 14 (2023) and 11.5 (2024).

It’s not just revenue, margins and profits that are on the rise as hVIVO’s operating cash flow and free cash flow generation is set to improve no end.

After a restructuring of the business following the 2020 merger of Open Orphan and hVIVO, and with the benefit of greater scale, free cash flow (FCF) is set to move from an outflow of £2.3mn last year to £3.8mn positive FCF this year, rising to £3.9mn (2023) and £4.9mn (2024). The implication being that net cash of £15.8mn (30 June 2022) could end this year at £18.8mn (2.8p a share), rising to £22.3mn (3.3p) in 2023 and £26.8mn (4p) in 2024.

These are material sums, the forecast cash pile at the end of next month equates to more than a third of the group’s current market capitalisation of £62.7mn. FCF yields of 6.2 per cent and 7.8 per cent for the 2023 and 2024 forecast period highlights the improving cash generation of the group as the operational leverage of the business model kicks in. In addition, it demonstrates the attractions of the business to larger rivals. There is hidden value in the group’s balance sheet, too.
Hidden balance sheet value.

hVIVO offers potential for monetisation of non-core assets, as highlighted by the demerger of PoolBeg Pharma (POLB), which was successfully completed in June 2021. Listed on London’s junior market, PoolBeg has a market capitalisation of £46mn, not far short of hVIVO’s own market capitalisation. Three other business assets remain from the hVIVO merger with Open Orphan which could realise value:

Disease in Motion® platform. This comprises an extensive database of infectious disease progression data that has been built up over the past 20 years. These data have applications for a wide variety of end users including Big Tech, wearables, pharma, and biotech companies, with whom the group has already had extensive discussions. In future clinical trials the company is planning to collect data on volunteers via wearable devices.

Imutex Limited. This is a joint venture between hVIVO and the SEEK Group, in which the group holds a 49 per cent equity stake. Imutex has a potential Phase III-ready universal flu vaccine candidate in development (FLU-v) and a Phase II-ready vaccine candidate for mosquito-borne diseases, including Zika, Malaria and Dengue Fever. FLU-v has a synthetic manufacturing process, which will make it particularly valuable in the current environment, given that there is expected to be increased demand for flu vaccines as result of the Covid-19 pandemic. Current annual flu vaccine supply is capped at 350mn doses per annum, as they are adapted for growth in eggs.

PrEP Biopharm Limited. The group holds a 62.5 per cent holding. PrEP’s lead asset, PrEP-001, is a viral prophylactic in Phase II for the prevention of upper respiratory tract viral infections and has potential for use against Covid-19.

Although market conditions are hardly conducive to monetising the value in these assets (the broader biotech sector has shed more than 25 per cent of its value this year)and it’s difficult to value them, FinnCap have given it a stab, valuing them at £60mn, or almost the same as hVIVO’s entire market capitalisation. The point is, that they are in the price for free given that net of cash on hVIVO’s balance sheet at the end of 2022, the group’s core activities have an enterprise valuation of £45.7mn even though they are forecast to generate operating profit of £4.1mn this year, rising to £5.4mn (2023) and £6.6mn (2024).

An enterprise valuation (enterprise value is market cap plus net debt) to operating profit multiple of eight times for next year is hardly exacting for a company that has such a high proportion of next year’s sales already booked, especially as end market demand for its CRO services is rising sharply.

Competitive landscape.

Liberum capital notes that the human challenge study market is led by hVIVO with few viable competitors. Two industry competitors exist with smaller offerings: SGS with a quarantine clinic in Belgium, and WCCT Global (owned by Altascience) based in California, USA.

SGS is a mid-tier global CRO, but its challenge study division is a small component of the group’s operations. It has a dedicated Human Challenge Unit 20-bed facility in Antwerp, Belgium, comprising eight single bed isolation rooms and a 12-bed ward style isolation unit, and a separate quarantine unit with 45 beds based in the University Hospital Antwerp. SGS also has a biosafety testing site in Glasgow where analysis on clinical samples from challenge studies as well as other non-challenge studies are performed. SGS’s expertise is in performing influenza challenge studies, but it also has Malaria challenge, and RSV challenge models.

WCCT Global is a subsidiary of mid-tier CRO/CDMO Altascience and like SGS its challenge study division is a small component of the wider group. Liberum estimates that WCCT Global has up to 60 beds that can be used for viral challenge studies, but they have been predominantly used for influenza and norovirus challenge studies.

In addition, there are around 30 academic institutions that can be seen as competitors in this space. However, they are largely research focused and lack the facilities, recruitment expertise and the scale to efficiently run commercial challenge studies for biopharma within a reasonable time. They rarely compete with hVIVO’s challenge study services.

It’s worth pointing out that hVIVO has only lost one competitive bid in its history, to SGS, due to lack of quarantine bed capacity at the time. It wasn’t a great loss as that contract was cancelled in the end due to poor efficacy results.

The group’s chief executive is 52-year old Yamin 'Mo' Khan, who joined the company as a non-executive director in October 2021 and was appointed to his current role in February this year. He previously worked at Pharm-Olam International, a global CRO, from 2000 to 2019. Khan made a maiden purchase of 510,204 shares at 9.8p each after the company’s interim results in September.

Shareholders.

HVIVO lacks institutional following with the shareholder base dominated by retail investors. As a result, the shares can be volatile with short-term price moves sometimes influenced by speculative buying and distorted by bulletin board posts.

That said, the shares can readily be traded on a bid-offer spread of around 0.25p and in decent bargain sizes.

Peer group comparisons.

The listed sector for CRO companies is niche and finding comparable peers is difficult. The most applicable UK peers are Ergomed, Ixico and Cambridge Cognition. Ergomed is undoubtedly the leader of the UK peer group: it is profitable, growing strongly and has potential to make acquisitions, fuelled by its cash generation and strong balance sheet. However, Ergomed trades on an enterprise valuation to Ebitda multiple of 20 times and a PE ratio of 29 for 2023, a 12-month period that is projected to deliver 12 per cent Ebitda profit growth, according to Edison Investment Research.

Smaller peers, Ixico and Cambridge Cognition, lag their peer group. Ixico is expected to report a loss in 2023 and Cambridge Cognition a small profit, hence the stratospheric multiples.

There are several international peers (ICON, Catalent, SGS, Charles River, Syneos Health, Medpace and PRA Group) which after years of consolidation have reached significant size and dwarf both hVIVO and Ergomed. These international large-tier CRO peers trade on 12-month forward multiples of around 16 times Ebitda to their enterprise value, based on analysis by Liberum Capital.

By comparison, hVIVO is rated on an enterprise valuation to Ebitda multiple of only 5.3 times for 2023, a 74 per cent ratings discount to Ergomed and a third of the rating of international peers. The smaller company also offers a free cash flow (FCF) yield of 6.2 per cent, or more than double that of Ergomed. Given that hVIVO is projected to deliver a CAGR of 28 per cent in EPS for the 2022 to 2024 forecast period – materially above its more mature peers – then it shouldn’t be priced on such a low multiple. Moreover, there is scope for hVIVO to monetise value in its legacy assets through demergers, so there is hidden value in the balance sheet which I have ignored entirely in the enterprise valuation calculations.

Target price.

On any basis, hVIVO’s shares are too lowly rated. They are priced on a single-digit earnings multiple to enterprise valuation even though the fast-growing company has reached an inflexion point whereby the operational gearing of the business model is set to kick in to propel earnings materially higher.

Assuming the company achieves analysts’ forecasts for 2023, hVIVO’s enterprise valuation in 12 months’ time would only equate to 4.9 times Ebitda for that year and a miserly four times Ebitda estimates of £9.7mn for 2024. A more realistic multiple would be 12.5 times Ebitda estimates of £8.4mn for 2023, which supports a target market capitalisation of £127.3mn and enterprise valuation of £105mn after factoring in a closing net cash of £22.3mn. On this basis, I have fair value of the equity at 19p. It could prove a conservative estimate.

It’s also worth noting that the share price seems to have finally formed a base in the 9p to 10.6p trading range, having deflated from a bubble valuation during Covid-19 lockdowns when day traders sent the shares soaring way above their intrinsic value. A share price break-out above the top of that trading range would be a strong signal that the consolidation period is finally over. BUY.
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