25.01.2017 - Equity Research Report (english) // buy

Research Report (Update) – SYGNIS AG - english

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Unternehmen: SYGNIS AG
Branche: Biotechnologie-Pharma
Rating: buy
Kurs bei Erstellung in €: 1,66
Kursziel in €: 3,70
Mögl. Interessenskonflikt gem. §34b Abs.1 WpHG und FinAnv: 4;5a;5b;6a;7;10;11

SYGNIS AG is a life sciences company listed in the Prime Standard of the German Stock Exchange (Deutsche Börse). The company focuses on the development and marketing of innovative molecular biology technologies in the NGS (next-generation sequencing) sector. SYGNIS AG has acquired Expedeon Holdings Ltd. through a capital increase in kind. This expanded the product range into the field of proteomics, the second most important sector in the field of life science. Important synergy effects are arising especially in the sales area, as Expedeon has a direct sales network in the most important life sciences markets worldwide as USA, UK and Asia. After acquiring Expedeon Holdings Ltd., a portion of the liquidity inflow originating from the last capital increase was used for the acquisition of the US electrophoresis supplier C.B.S. Scientific. C.B.S. Scientific acts as a system provider in the field of electrophoresis and thus this acquisition too is to be viewed as a horizontal extension of the product range and thus the SYGNIS AG workflow.

The acquisition of Expedeon Holdings Ltd. will be crucial in determining SYGNIS AG’s future corporate development in our opinion. Consolidation of both companies alone results in considerably higher levels of revenues and profit, as is already apparent from the situation as at June 30, 2016. We must bear in mind with this that Expedeon was only included in the past reporting period from August 2016, i.e. for just two months. The positive effects should be significant in the fourth quarter of 2016 and in particular in the 2017 financial year, based solely on full inclusion of the new company and the integration successes in the sales division at SYGNIS AG. From the 2017 financial year, we have also taken into account inorganic effects from the acquisition of C.B.S. Scientific. At an annual revenue of USD 1.50 million (corresponding to €1.42 million), the laboratory supplier represents a positive contribution to earnings and liquidity.

According to statements from the company, a fall in the negative operating result is expected initially as part of the revenue increases expected, with the break-even point expected for the coming 2017 financial year at quarterly level. Break-even at the level of the overall year is projected for the 2018 financial year.

Aside from the typical effects of scale, our results forecasts also take into account potential synergy effects against the background of the consolidation of administrative structures and production capacities. The intention for instance is for synergy effects to be leveraged from the planned consolidation of production operations and manufacturing processes. Production operations and manufacturing processes are due to be relocated to the UK in the fourth quarter of 2016, which should result in further optimization in terms of the cost structure. The company’s future costs should therefore be characterized by development in administrative expenditures and in R&D costs that is disproportionately low compared with revenues. By contrast, the sales and production costs should become increasingly significant. The planned merger of the production sites of the two US-based companies, Expedeon Inc. and C.B.S. Expedeon in San Diego, is also to be viewed in this light. High profit margins are possible for the future as a result of effects of scale and synergies. Long term we expect an EBITDA margin amounting to 45.0%.

The fair value per share at the end of the 2017 financial year equates to a target price of €3.70 (previously: €3.95). The reduction in the revenue and results forecasts for the 2016 and 2017 financial years in particular have the effect of reducing the target price. Based on the current share price of EUR 1.66, we rate it a BUY.


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