Shares in specialty pharmaceutical services company Ergomed (ERGO:AIM) traded 6% higher on Tuesday to 730p after the board said it was exploring ways to make shareholder distributions through restarting dividends or buying back shares.

First-half revenues to 30 June 2020 grew 14% to £40.4 million, driven by 26% growth in service fee revenues to £36.9 million. Margins increased as a result of good cost control and operational leverage, which boosted adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) by 40% to £9.1 million.

Full-year consensus EBITDA is around £16.6 million, suggesting more upgrades to come after the company signaled a continuation of growth in the second-half.

BOOST TO US REVENUES

Revenue growth was driven by strong organic growth in Pharmacovigilance (PV) sales which grew 36% and in total were 62% higher year-on-year to £26.1 million, boosted by the acquisition of PrimeVigilance USA, which more than doubled US revenues to £14.4 million.

The PV business is about drug safety and relates to the collection, detection, assessment, monitoring, and prevention of adverse effects with pharmaceutical products. Encouragingly the company reported ‘significant new client wins’ and some multi-year contract renewals while cross-selling also boosted new business. Increasing automation in the PV division is expected to boost efficiency and increase capacity, boosting margins.

The contract research outsourcing division (CRO) was impacted by some delays to clinical studies which saw service revenues 6.7% down to £11.9 million on an underlying basis. However the company stressed that the majority of projects were unaffected as they focused on essential research in rare diseases and cancer.

The order book grew 28% to £151.4 million providing high visibility for the second half and beyond. Cash generation was very strong with operating cash flow more than doubling to £8.1 million from £3.3 million a year ago. The company finished the half with £14.1m of cash after paying £8.1 million for Prime Vigilance USA and is debt free.

The company expects the strong business momentum to continue into the second half of the year driven by demand for both PV and CRO businesses.

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Issue Date: 22 Sep 2020