Genovis: Clear 2021 winner in a positive Covid-19 vaccine scenario

A challenging year behind

Due to a traditionally strong focus on direct sales and manual lab activity being key amongst the company’s end-users, the restrictions on travel and interaction which have characterised the corona crisis have been a real challenge for Genovis during 2020.

Hopes of the situation restoring itself during the second half of last year and a potential return to normal mode were crushed in the final quarter, as the virus produced a frantic second wave that has yet to peak. Restrictions, which had been eased during the summer, were soon back in full swing.

Yet Genovis managed to weather the storms

We immediately pointed out the likely headwind, if temporary, for Genovis as the crisis hit in March last year, and have been closely following the company’s hard work to manage the whole situation as well as possible.

We have been encouraged by four things, in particular.

• Organic growth still respectable – we predict 21% in Q4 and 16% for 2020 as a whole
• Financial resilience – we expect a profit for 2020 as a whole
• Logical shift in focus towards product development bodes well longer term
• Encouraging strengthening of the board

While top-line growth fails to impress compared to the normal rate, it is nonetheless comforting to see Genovis continuing to grow at a reasonably healthy pace in the circumstances. Another positive is Genovis avoiding dipping far into the red during the worst quarters – despite having just built an organisation poised for accelerated growth and not reducing capacity as the crisis struck. Instead, Genovis prioritised product development (reallocating resources from marketing) and we believe the pipeline of new products is now strong. We also viewed the streamlining of the board and the appointment of Torben Jørgensen as the new Chairman as an exciting step. All good.

Positive outlook – on the basis of the vaccine working and the world to now slowly recover

Going into 2021, the number one issue for the economy, stock market and certainly Genovis, is whether the vaccine will be reasonably fast and efficiently distributed, and whether it will be sufficiently effective against the virus – and new variants.

While not making predictions about these developments per se, our base case rests on the assumption that a massive global vaccination campaign is indeed carried out during the first half of 2021, and that things will then slowly improve from the early summer onwards. On such basis, there is a case for normal conditions starting to emerge during the second half – with scope for 2022 being a reasonably normal year. Wouldn’t that be something?

Again, a corona loser such as Genovis is likely to benefit significantly from such backdrop. Not only could we expect underlying growth in Analytics to pick up further (we currently predict 22% for 2021), but there is also a case for the important and expected follow-up order in the new Bioprocess Area to materialise during the second half of the year.

Genovis shares performed well in 2020 as a whole, up 26%

The Genovis stock staged a solid performance overall in 2020. Finishing the year at SEK 31.5, the stock was up 26% (from SEK 25.0), i.e. double the rate of the OMXPI.

The journey was volatile, however. The stock took a severe beating as the corona crisis initially caused global markets to crash (down to around SEK 17 in late March). It revived strongly with the markets, however, with added fuel from signs of Genovis handling what for the company was increasingly looking like a transition year, rather well. It then peaked at SEK 37-38 (intra day) during the summer, lost steam during the autumn but picked up again as the year drew to a close (closing at SEK 31.5).

So where do we go from here?

Our long term view has remained clearly positive throughout the turbulent past 12 month-period. We have repeatedly stated that there are no signs of the long term case cracking, only that Genovis’ great growth story may be temporarily slowed, depending on how events will unfold in the end (nobody really knows what the virus will do next).

Thus, investors who wish to be exposed for a scenario whereby the vaccines do bite and that we slowly but surely will grind back to some form of normalisation as we go through the year, have every reason to build (long term) positions in Genovis at this point.

Our base case remains SEK 50 per share and our bull case still stands at SEK 100. The long term case and upside potential are thus still fully intact, but the new argument is that the near term risks may be shrinking and uncertainty fading with sentiment likely to gradually change foot in favour of previous corona losers.

 Key financials 2019-2022E