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Edison Investment Research Limited
London, UK, 2 June 2021
Ergomed (ERGO): What's next after stellar 2020 performance? Although most of 2020 was challenging for the contract research outsourcing (CRO) sector, for Ergomed it was a transformative growth period due to well-balanced pharmacovigilance (PV) and CRO offerings. Ergomed managed to withstand global woes caused by the COVID-19 pandemic and delivered another solid year of growth, organically and through acquisitions. We believe the company will continue to benefit from a clear strategic focus (oncology, rare diseases and pharmacovigilance), order book growth and margin control and strong secular CRO sector growth. Our valuation of £683m or 1,400p/share is virtually unchanged.
We maintain our estimates and our valuation is virtually unchanged at £683m or 1,400p/share derived from our DCF model implying an EV/EBITDA multiple of 30.5x based on our FY21 forecasts. We note that Ergomed trades at a premium EV/EBITDA (FY21e) of 26.9x compared to the peer average of 20.0x (in line with Medpace). In this report, we analyse the sensitivity of our valuation to a set of DCF assumptions (long-term sales growth and profit margins). We find that a bull case would correspond to a valuation of 1,950p/share, while a bear case 995p/share. The AGM trading update in June 2021 and full H121 trading update in July 2021 are the next catalysts.
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