Interactive Investor

Covid-19 tests and vaccines keep these two stocks trading high

17th September 2020 13:35

Graeme Evans from interactive investor

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The fight against coronavirus means one has seen a 900% sales increase and the other a “transformational” year.

The Covid-19 focus of Novacyt (LSE:NCYT) and Oxford BioMedica (LSE:OXB) continues to keep their shares near recent peaks after half-year results from the pair boosted hopes for further strong growth.

Novacyt's success in developing Covid-19 testing tools has propelled it from relative obscurity to one of this summer's most-popular shares on the interactive investor platform.

It predicts demand for its products will continue to grow well into the first half of 2021, with revenues for the current half set to outstrip the level achieved in today's interim results.

Shares have come off the boil since peaking at 491p in early April, but are moving back in that direction again as countries including the UK struggle to keep up with Covid-19 testing demand. The stock rose another 4% to 386p after the results, having been at 215p in June.

Oxford Biomedica rose 12p to 847p, which consolidates recent gains seen after the gene and cell therapy firm recently unveiled a new Covid-19 vaccine supply agreement with AstraZeneca (LSE:AZN)

The blue-chip pharmaceuticals giant will give Oxford Biomedica £15 million upfront to reserve manufacturing capacity at its new Oxbox facility, with the potential for £35 million or more from the making of multiple large-scale batches of the AZD1222 vaccine until the end of 2021.

Oxford Biomedica has been part of a consortium working with AstraZeneca and the Jenner Institute at the University of Oxford on the development of AZD1222 as a vector-based vaccine candidate. It is now in the third phase of clinical testing in the United States.

Underlying losses fell to £400,000 in today's results from £1.4 million a year earlier, with the company now forecasting earnings for the year to be in the low to mid-single digits.

Analysts at Peel Hunt said the guidance represented a further upside on their recent upgrade to forecasts. The performance has benefited from 24% growth in bioprocessing and commercial development revenues in the first half, as well as £10.6 million from licence fees and royalties.

Peel Hunt has a price target of 1,010p, while RBC Capital Markets is at 1,050p after a “transformational” year for the company. RBC added:

“There are several potential catalysts in H2, although there could be volatility around newsflow from AstraZeneca's Covid vaccine.”

Oxford's fortunes have been transformed in recent years by growing recognition of the benefits of cell and gene therapy, including in the treatment of diseases such as cancer.

Cash of over £50 million on its balance sheet, following a successful £40 million share placing in June, has left the group well placed to exploit future “significant opportunities”.

Chief executive John Dawson, who has led the company since 2008, said today: “The first six months of the year, continuing into the second half of 2020, have probably been the busiest I have known in my time at Oxford Biomedica, set against the backdrop of one of the most unusual times in our working history.”

His counterpart at Novacyt, Graham Mullis, said the first half of 2020 had been transformational after sales growth of more than 900%. This let it settle all outstanding debt and lay the foundation to deliver longer-term value to shareholders.

Supported by the prospect of strong cash flows over the coming 12-18 months, Novacyt is working to identify specific opportunities to expand its presence in respiratory and transplant clinical diagnostics.

It said:

“The directors expect to supplement the company's product portfolio and expand its core capabilities through executing selective and accretive M&A (mergers and acquisitions) at the right time.”

Full-year revenues are expected to exceed €150 million (£136.5 million) with underlying profits of more than €100 million, a level of performance the company believes will continue into the first half of 2021.

Novacyt's Covid-19 polymerase chain reaction test was developed by its molecular diagnostics division, Primerdesign, which also developed tests for other major incidents, such as the outbreaks of Swine Flu in 2009, Ebola in 2014 and Zika in 2016.

It has previously set a target of more than 10 million tests per month, which the Paris and Camberley-based company is looking to meet through its own production capacity as well as manufacturing partnerships.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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