Novacyt: will these results revive the former stock market star?

It made fortunes for lucky investors quick to spot its potential during the pandemic, but it needs a lift from somewhere.

Novacyt (LSE:NCYT) focused on its longer-term credentials today after a rollercoaster 18 months in which its early mover advantage on Covid-19 testing triggered windfalls for some investors.

Annual results published today showed revenues jumped 20-fold last year to £277.2 million, as “a year of transformation” for the Camberley-based company meant 2019's loss of £5.7 million became a profit of £132.4 million in 2020.

Its diagnostics work linked to the pandemic has secured Novacyt's future and eliminated all long-term debt, with savvy investors who backed the AIM shares early in 2020 being rewarded with a rise of almost 7,000% during last year.

For those investors still on board, however, the outlook is far less certain after a 57% slide in shares so far in 2021, as Novacyt has become embroiled in a complex legal dispute over the supply of PCR (polymerase chain reaction) testing kits to the Department of Health and Social Care (DHSC).

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The company said today it generated sales of £88.4 million in the first five months of the year, but that £40.7 million of this related to the disputed contract with the DHSC.

The legal uncertainty has dampened interest towards the stock, including among ii investors in recent weeks, although Novacyt did its best with today's results to re-focus attention on the outlook without the DHSC contract.

It expects to benefit from strong growth in private testing as travel restrictions are eased, as well as through the likely increase in infection rates during the winter season. The company also sees significant growth from the launch of new products, including an expansion of its lateral flow antigen testing portfolio for both professional and home use.

If demand picks up in line with expectations, Novacyt expects full-year sales of about £100 million with an underlying margin in the region of 40%.

The 2020 transformation has given Novacyt the platform to become a major diagnostics player, with test, instrument and geographic expansion set to be accompanied by M&A activity.

Chief executive Graham Mullis said: “The board believes that Novacyt is well positioned to create sustainable, long-term value.

“We expect to see Novacyt continue to play a major role in Covid-19 testing and, specifically, we expect to see strong revenue growth in private testing as markets and international travel re-opens.”

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Shares, which peaked at 1,190p in late January, were 9% higher at one point today before settling unchanged at 357.2p.

Analysts at broker Numis see a potential recovery for the shares to 570p based on the company's ongoing drive to diversify its revenues profile during the current year.

They added: “The guidance looking forward prudently strips out further revenue from the DHSC pending resolution of the dispute and we have re-based our forecasts accordingly to better represent underlying progress, which has been encouraging.”