Clinical research services firm Ergomed (ERGO:AIM) released a trading update for the year ended 31 December 2019 saying that a strong focus on profitability will result in earnings being ahead of market expectations, giving the shares a 4.7% boost to 450p.

The shares have been on a tear over the last year, rising 149% as the company has returned to profitability.

Executive chairman Dr Miroslav Reljanovic commented, ‘with a robust financial position, strong order book and strengthened leadership team, we are firmly positioned to deliver on the promise of becoming a leading mid-tier pharmaceutical services specialist with a global presence’.

STRONG TRADING

The company indicated strong performance from both its clinical research organisation division (CRO), which plans and undertakes research trials on behalf of pharmaceutical companies, and its Pharmacovigilance (PV) division, which provides safety and regulatory services.

Revenues are expected to be in line with market forecasts at £68m, an increase of 26% over the prior year, with the CRO division seeing 23% growth to £32.6m and the PV division ahead by 29% to £35.4m.

According to Refinitiv, current consensus for earnings before interest, tax, depreciation and amortisation (EBITDA) are pegged at £12.3m which compares with £2.2m last year. The phrasing ‘ahead’ would normally indicate a 5% to 10% beat, implying £12.9m to £13.5m.

ONE-OFF BENEFITS NOT EXPECTED TO BE REPEATED

In the first half of 2019 around 45% of all revenues and new awards were in the areas of orphan drugs (rare diseases), which provided a one-off uplift in revenues and profits as the company was fully integrating the acquisition of orphan drug specialist PSR.

A strong backlog at the beginning of 2019 and significant new contract wins increased revenues without additional headcount, proving a boost to profits which is not expected to recur in 2020.

BUT POSITIVE OUTLOOK

The combined order book is expected to be around £125m at 31 December, up 15% year-on-year which will provide good visibility over continued revenue growth for 2020.

In addition, the company purchased Ashfield Pharmacovigilance earlier this month which will contribute a full-year of revenues in 2020 as well as provide scope for increased client penetration.

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Issue Date: 29 Jan 2020