We visited Genovis yesterday and had a long meeting with CEO Fredrik Olsson. While our discussions were broad and strategic, we naturally also focused on current developments in a covid-19 context. Here is our take:
Continued gradual recovery in all key markets
Asia as a whole felt the impact of the corona crisis first and has also been early staging a comeback. Europe and the US were affected only late in Q1 with a peak in April and early May. Restrictions were widespread and in several cases extreme. Over the past 6-8 weeks, however, there has been a marked easing and a cautious opening of virtually all countries.
Indeed, Genovis sees the effect in its business. Week after week, activity levels have been edging higher – it is still quite some way to go (to reach full capacity and pre-corona levels) but nonetheless a big jump from the lows. Important.
Still, nobody knows where we are going from here. The progress is clear but patchy and the risk of setbacks and a second wave is, of course, real. Genovis’ strategy as well as our (positive) view of the investment case rest on the assumption that the world indeed does recover (fully) from this crisis, with sequential improvements quarter by quarter – 2021 thus seeing normal/good economic activity, globally. While hopefully a reasonable base case, considerable uncertainty remains – nobody knows what the virus will do next.
Product development in focus, recent launch Thermo Fisher related
Genovis chose not to put the brakes on as the corona crisis hit. It decided against cutbacks, temporary or otherwise, and opted instead for a change in priorities. While the focus on marketing activities shrank, more resources were channeled into product development.
Not only should Genovis be in a position to ramp up new product launches when customers again become more receptive, but the company says it now aims to double its previous targets of 2-3 launches per year on an ongoing basis. Thus, we can expect an annual rate of perhaps 5-6 product launches going forward, something we believe should help boost future sales growth.
Interestingly, recently Genovis also launched a ’new’ product, FabRICATOR MagIC, which stems from its cooperation with Thermo Fisher, a global instrument giant. Genovis says it sees increased opportunities for cooperation, not the least with instrument producers. The cross-over of instruments and consumables is attractive, and Genovis expresses curiosity about the possibilities to explore this space. In this context one must mention that Thermo Fisher is a highly acquisitive company.
Our financial projections are under review with an upward bias
Our impressions from the visit lead us to believe that Genovis may deliver positive growth in the underlying, core Analytics business in Q2’20 (due 13 August). Our current forecasts allowed the corona-related slowdown to cause a 7% dip in sales compared to the same period last year.
The combination of the seemingly steady recovery and the resilience of Genovis’ business model (large degree of recurring revenues) suggests there is a case for modest but positive growth after all. This would be very reassuring, in our view.
It is harder to judge what will happen to the bottom line. In Q1’20, Genovis suffered a loss at the EBIT level of Sek535k after stripping out one-off charges (Sek1.4m) related to the recent QED acquisition.
For Q2’20, we have penciled in a loss of Sek785k. The combination of a probably somewhat better top-line than predicted and a decent start for QED (despite California based and corona times) make us believe that the underlying results might be closer to zero in Q2’20 (or at least better than Q1’20). Further one-offs in relation to the integration of QED are possible, however, but we will in all likelihood treat any such charges as ’below the line’.
Promising changes to the Board
Genovis’ Board has undergone considerable change this Spring. It is now small (4) and headed by a new Chairman, Torben Jørgensen (also Chairman of Biotage). Torben has a great reputation in the industry, brings a strong and very relevant network, and his creative and business oriented profile is encouraging, in our view. Gearing up for faster growth, Genovis is now equipped with a dynamic and strong Board. Check!
Positive QED update
US company QED was acquired with effect from 2 May, 2020. While it has not been possible for Genovis to visit the company and meet employees, the initial focus has been on fast integrating the company in terms of business processes and systems. This appears to have been smooth and successful, and Genovis is now preparing to start focusing on the business during the second half. Strategically, though, we expect Genovis to hasten slowly and integrate QED with due care. We also sense that QED is doing rather well in the circumstances and expect the company to contribute positively to Q2’20.
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