Edison Investment Research Limited
London, UK, 25 March 2019
Edison issues initiation on Ergomed (ERGO)
We are initiating coverage on specialist pharmaceutical services provider Ergomed. We believe it should prove relatively resilient during the COVID-19 crisis and has the fundamentals in place to execute its growth strategy. Ergomed announced impressive audited numbers for FY19, with revenue up 26% to £68.3m and EBITDA up 5.5x to £12.5m. The FY19 announcement is effectively Ergomed's fourth profit upgrade for FY19 and a small beat on recently reset FY19 expectations. Ergomed trades at a discounted EV/EBITDA of 10.1x vs the contract research outsourcing (CRO) sector average of 11.5x (FY20). We value Ergomed at £186m or 399p/share. Ergomed's strong organic growth is benefiting from a clear strategic focus on high growth pharma sectors, margin control and order book growth (up 15% to £125m in FY19, giving 90% visibility to 2020).
We value Ergomed on an EV/EBITDA multiple based on our FY20 forecasts using a FY20e sector average ratio of 11.5x. We believe Ergomed's strengthened management, focus on growing segments (oncology, orphan drugs and pharmacovigilance) and potential resilience in responding to the coronavirus crisis support our valuation.
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