Bells report
Strongest revenue quarter, driven by AUCOVID-19 testing
4QFY20 product revenue of $7.0m (up 351% y/yand 281% q/q), set a new record for GSS and beat BPe of $5m. We est. FY20revenue (incl. R&D rebate) at $13.6m (i.e up ~93% over pcp). The beat wasdriven by instrument sales of $1m (vs. BPe nil) and strong domestic demand forCOVID-19 testing, partially offset by lower than expected revenue from Europe.EU contributed >13% to 4QFY20 revenue (its highest contribution to date)driven by new customers. Our forward forecasts do not factor in instrumentsales as we believe most labs are likely to prefer reagent rentals rather thanoutright purchase. Cash at end of 4QFY20 was A$31.2m (below BPe $37.6m). 4Q20cash burn was materially ahead of forecast driven by a mix of higher capex oninstrumentation, higher inventory and pre-payments to suppliers. FDA EUA forCOVID-19 test is now expected in 1QFY21 (Filed in Apr’20). GSS has submittedits STI/Genital pathogen Kit for regulatory clearance in both AU and EU, with clearanceexpected in 1QFY21. Clinical trials to support FDA approval for the EntericProtozoan Kit is expected to start in 1QFY21. Recall the timeline for thesetrials were pushed back due to COVID-19 pandemic. FDA requirement of ~70% ofthe ~1500 specimen samples to be fresh is likely to impact trial completiontimelines during the pandemic. We continue to expect approval in FY22, whichwill be a key catalyst for the stock.
Valuation lifted to $3.45, Retain Buy (spec)
The net result of revisions to our model is a29% reduction in our FY20 Net loss forecast and a large increase in our FY21NPAT est. driven primarily by double digit percentage increase in our revenueforecasts, partially offset by reduced gross margin and interest incomeforecasts. Change to our absolute NPAT forecast for FY22 was not material.Specific COVID-19 testing reimbursement and secondary wave of infections iscontinuing to grow the volume of testing in US and AU. While we expect sometapering in volumes in 4QFY20, we believe it will be lesser than our previousforecast. We have updated our valuations for earning changes, market movementsand time creep. We have reduced the WACC we use to 8.25% (was 9.5%) andcontinue to apply a premium to our relative valuation given the improved outlook,translating to 16.2x FY21 EV/sales multiple. The net result is a significantincrease in our valuation for GSS to $3.45/sh (was $2.60/sh). We retain Buy(spec).
Disclosure: Bell Potter Securities acted aslead manager for GSS’ A$35m capital raise in 4QCY19 and received fees for thatservice.
| 1 | | Recommendation: | Buy, speculative | Previous Close: | .63 | Valuation: | .45 (was .60) |
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