Clinigen Group: Still A Strong And Resilient Business Model
Edison | Jun 11, 2014 06:41AM ET
Clinigen Group Plc's (LONDON:CLINC) growth story remains intact, albeit somewhat dented. The timings and size of contracts means the revenue streams can be lumpy, but the project pipeline is healthy. The specialist niches it operates in are attractive, offering resilient organic growth with defensive qualities. We have reviewed our model, resulting in our previous £564-570m (683-690p a share) valuation range falling to £431-463m (511-561p a share).
Clinigen’s investment case rests on its growth prospects as it taps into attractive segments of the prescription drug supply chains. The strong earnings history, together with a similarly healthy outlook, supported a high rating. However, the H114 results disappointed as the revenue lines faltered. We take the opportunity to revisit our model and, having lowered our forecasts, conclude that the growth prospects are still attractive and, at these levels, the thesis remains persuasive.
h3 Timings of large contracts mask the progress made/h3Clinigen CTS and Clinigen GAP have a large number of programmes running concurrently, nonetheless the timings of the larger contracts can influence the revenues booked in a period. Hence Clinigen CTS’s weaker than expected performance (versus a strong H113), coupled with the ending of a larger programme in Clinigen GAP, were sufficient to dent investor confidence. However, the solid fundamentals driving both businesses remain in place.
h3 Medium-term growth prospects are unchanged/h3Clinigen operates in highly specialised and defensive niches that are benefiting from the drug industry’s greater outsourcing of non-core functions. Clinigen CTS is set to become a global leader in supplying comparator drugs for customers’ clinical trials, with medium-term growth rates of 8% pa boosted by share gains. Clinigen GAP is underpinned by a growing need for access programmes for specialist drugs, while the newly acquired products will drive Clinigen Specialty Pharmaceuticals’ growth.
h3 Valuation: A range of £431-463m (511-561p a share)/h3We value Clinigen using a combination of earnings-based metrics (P/E and EV/EBITDA), PEG ratio and a DCF valuation. Our new forecasts suggest Clinigen is worth £431m (511p a share) using P/E and £448m (530p a share) on EV/EBITDA. The PEG ratio suggests a value of £447m (529p a share) and the DCF-based method yields a valuation of £463m (561p a share).
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