Proactive Investors - Stifel (NYSE:SF), the American investment bank, has initiated coverage of hVIVO PLC (LON:HVO), the contract research organisation (CRO) specialising in human challenge clinical trials (HCTs), with a target share price of 27p.
This represents a 42% premium over the firm's current share price of 19p. The bullish stance from Stifel comes as hVIVO continues to demonstrate robust financial performance and strategic value in the pharmaceutical and biotechnology sectors.
hVIVO's business model
The company has carved out a niche for itself as the global leader in HCTs. This method tests infectious disease products by inoculating healthy volunteers in a highly controlled environment.
These trials offer speed, favourable economics, and significant strategic value for companies in the pharmaceutical and biotechnology sectors. According to Stifel, hVIVO has become the "go-to" partner for its clients, leveraging its extensive experience in designing and performing HCTs.
Growth prospects
The company has reported an impressive 30% year-on-year (YoY) revenue growth in 2022 and a three-year compound annual growth rate (CAGR) of 51%. With a diversified client base and a record net contracted order book of £78 million as of June 30 hVIVO has full visibility on contracted revenues into the second half of 2024.
It is EBITDA-positive, with £9.1 million reported in 2022 and an EBITDA margin of 18.7%.
For the year 2023, the company is guiding to approximately 15% growth in revenues to £55 million with a 19% EBITDA margin, metrics that Stifel considers highly achievable.
Additional revenue streams
Within hVIVO, two additional business units contribute to its growth. FluCamp is its dedicated volunteer recruitment platform, and Venn Life Sciences is its in-house consulting service. Both aim to drive new business opportunities and leverage cross-selling opportunities into HCT contracts.
Market trends and outlook
Given the renewed interest in infectious diseases and the growing demand for HCTs, several tailwinds and positive market trends are expected to benefit hVIVO.
The growing frequency and size of contract wins in recent years, along with a record order book and planned facility expansion, further instil confidence in the company's outlook.
In its note, Stifel concluded: "Given the developments and renewed interest in infectious diseases, we see several tailwinds and positive market trends for hVIVO.
"The growing frequency and size of contract wins in recent years, the record order book and planned facility expansion instil further confidence in the outlook and enhance the investment case."