The Clinical Trials business should do revenue of betweenUS $29 million and US$31 million this year and should be able to grow at least 15% per annum there after. So that puts you on about US$40 million 2023. That should see you looking at a profit of @ US$10 to US$12 million for business ex healthcare that year. Using a straight line basis over 5 year of the minimum royalty the healthcare business should do US$2 million in 2023. Margin on healthcare should be 100% but lets call it 75% so we are looking at US$1.5 million. So we should be looking at US$ 11.5 m to US$13.5 million EBITDA in 2023.
Lets apply your 20 x to that number (I actually think that is low and P/E would pay closer to 30x). US$ 230m - US$ 270 m. At this point the company will have a net cash balance (assuming no divs or acquisitions) : Current cash US$ 7 million + 2021 net cash flow of US$ 22 million (15 from license pre payment and 7 from operations) + 2022 net operating cash flow of US$ 9 million ( CT + Healthcare) + 2023 net cash flow of US$ 11.5m (CT + Healthcare). That totals US$ 49.5 million.
So I reckon by end of FY 2023 you are looking at a company with US 49.5 million in net cash ( A$ 70 million). US$ 40 million in revenue (A$ 56.3 million) and US$ 11.5 m in PBT (A$ 16.1 million). I also reckon they would still be looking at good growth prospects at that point and also that in the FY23 there is the possibility of material upside to those numbers. Lets apply your 20 x to those numbers and add back the net cash. You get an A$ market cap of A$ 390 million. Pick a discount rate and discount it back, lets say A$350 million. That puts fair value at an additional 75% upside to todays price at about A$1.80.
I actually reckon if the chemistry between Eisai and management is good, Eisai will buy this out in 18 to 24 months as the asset is integral to the platform they are building. If that happens I reckon we will be looking at a number between A$3 and A$3.5 per share.
CGS Price at posting:
$1.03 Sentiment: Buy Disclosure: Held
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