London, UK, 14 June 2021

Ergomed (ERGO): FY21e EBITDA 'materially ahead' of consensus

Yesterday, Ergomed held its annual general meeting (AGM) and provided a high-level year to date trading update (four months to end-April 2021). The company guides to FY21e revenues in line with market expectations (Edison £119.6m; consensus £120.0m). Strong revenue growth has continued in its PrimeVigilance division, in line with prior trends (in FY20 revenues grew by 30%), and its CRO business has seen a further acceleration of growth from H220 (H220 service fee revenues up 13.5% vs H120). This indicates a continued rebound after a tough H120 for the CRO industry due to widespread lockdowns. The most pertinent takeaway is that adjusted EBITDA is now expected to be 'materially ahead of market expectations' in FY21 (Edison £21.7m; consensus £21.9m) due to effective cost management and the Ashfield and MedSource acquisition synergies being realised sooner than expected. We maintain our estimates and valuation of Ergomed (£683m or 1,400p/share) ahead of the more detailed H121 trading update due in July, but note upside potential to our estimates and possible consensus earnings upgrades.

We recently published an outlook report on Ergomed, where we outlined our base case valuation 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 also analysed the sensitivity of our valuation to a set of DCF assumptions (long-term sales growth and profit margins) and found that a bull case would correspond to a valuation of 1,950p/share, while a bear case would correspond to a valuation of 995p/share.

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