H2 demand surge anticipated as US reopens
Today’s 2019 results were in line with our revised expectations - reporting adjusted EBITDA (post SBPs) of $370k (-$108k LY) on turnover up 14% LFL to £23.0m ($20.1m). Driven by strong top line growth from Medical (+21%, MIS) & Direct (+32%), together climbing 26% to $16.5m (72% of group).ClearStar also traded well up to February, although from mid-March onwards lockdowns began and corporate America shed millions of staff: leading to a loss of >30m jobs nationally. Equally the big 3 diagnostic laboratories (ie Quest, Lab Corp & Abbott) have since prioritised resource on COVID-19. Making it difficult for MIS to obtain capacity for its leading drug & alcohol services.
Even if the waters remain choppy for longer than predicted, we estimate ClearStar has sufficient liquidity to weather this transitory storm. Supported by gross cash as at 5th May of $3.8m ($1m net debt), after receiving a 2 year $1.1m loan (1% interest rate) under the Paycheck Protection Program (PPP).
These are uncertain times and therefore we have decided to withdraw our forecasts and valuation until there’s greater clarity. Currently the stock is attractively priced for patient risk tolerant investors - trading on a trailing EV/Sales multiple of 0.8x compared to typical industry multiples pre COVID-19 crisis of between 2.5x – 3.5x.The coronavirus will impact 2020 numbers, yet ultimately we believe the group will prosper.
Ideagen is a supplier of information management software to regulated industries. Co. supplies Governance, Risk and Compliance solutions principally to the Healthcare, Transport, Aerospace & Defense, Life Sciences, Manufacturing and Financial Services sectors.
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