Company Overview: Atomo Diagnostics Limited (ASX: AT1) is a medical device company headquartered in Sydney, Australia. It is engaged in providing medical devices for the blood-based rapid test, intended for specialised use and self-test functions. It has emerged as a global leader in the development of point of care devices for RDT; the all-in-one RDT platforms makes it simpler for users to test and screen for chronic conditions and infectious diseases. The objective of AT1 is the expansion of global sales and continued development of its proprietary rapid test device technologies. It is currently increasing its market traction in the US, Europe and global health markets by selling approved Atomo finished tests to healthcare distributors and Atomo devices to diagnostic customers.
AT1 Details
Increasing Production Capacity to Strengthen Market Share: Atomo Diagnostics Limited (ASX: AT1) is an Australia-based medical device company, which is engaged in the supply of unique, integrated rapid diagnostic test (RDT) devices to the global diagnostic market. The market capitalisation of the company stood at ~$180.54 million as on 8th January 2021. The company is mainly focused on the growth of global sales and continued development of its proprietary rapid test device technologies. Despite the significant economic and financial uncertainty, the company got successfully listed on ASX in April 2020 and raised capital of ~$30 Mn via the issue of 150,000,010 ordinary shares at an issue price of $0.20 per share. The company operates two business models for developing and commercialising diagnostic devices, which comprises of selling finished products and original equipment manufacturer (OEM) devices. During FY20, the company strengthened its production capacity to double and now producing 750,000 devices monthly.
Looking forward, the company will continue to make prudent investments for strengthening its production capacity on the back of rising demand. In addition, the company seems well-placed to maintain its meaningful rates of growth in Finished Products and OEM contracts. In the second half of FY21, the company is planning to launch Atomo COVID-19 antibody and antigen rapid tests in Australia. Moreover, the company would also be focused on rolling out a digital solutions program in order to assist in increasing transition to decentralised healthcare.
During FY20, the company utilised its IPO proceeds and became a debt-free medical device business. During the quarter ended 30th September 2020 (Q1 FY21), the company witnessed a rise of 65% in cash receipts from customers to $3.04 million from $1.84 million in Q4 FY20. This helped the company in becoming cash flow positive at the operating activity level. The company closed the quarter with a cash position of $26.3 million and zero debt.
Increasing Production Capacity (Source: Company Reports)
Strong Customer Demand: During Q1 FY21, the company experienced robust customer demand, which was derived from COVID-19 point of care antibody testing. During the quarter, the company recorded revenue (unaudited) amounting to $2.5 million. In the month of September 2020, AT1 extended its partnership with Access Bio for launching a COVID-19 rapid antigen test in Australia, New Zealand and India. In addition, the company has secured the non-exclusive rights to market COVID-19 rapid antigen test of Access Bio in Australia, NZ and India under the Atomo brand.
Robust Topline Growth: During FY20, the company established a solid foundation for ongoing success, which is likely to be supported by solid growth in revenues, repayment of debt and investment in capacity and new applications. For the year ended 30th June 2020, the company recorded a rise of ~10x in revenue to $5.37 million from $0.54 million in FY19. This robust growth was mainly aided by the rise in product registrations and in-country launch of HIV products by the Group’s HIV products distribution partners, and the growth in the other OEM business in Europe and the United States. In addition, the benefit from a move towards more efficient economies of scale, and COVID-19 test sales resulted in growth of gross margin to ~60% from ~18% in FY19. As of now, the company is on a track to become EBITDA positive, which is being reflected by decent improvement in underlying EBITDA loss to $2.38 million in FY20 from a loss of $4.08 million in FY19.
Key Financials (Source: Company Reports)
Details of Top 10 Shareholders: The following table provides an overview of the top 10 shareholders of Atomo Diagnostics Limited. Dalraida Holdings Pty. Ltd is the largest shareholder in the company, with the percentage holding of 16.22%.
Top 10 Shareholders (Source: Refinitiv, Thomson Reuters)
Key Metrics: During the span of the last three years (2017-2020), the company has maintained a decent improvement in profitability ratios (EBITDA, Operating, and Net Margin). On the liquidity front, the company recorded a current ratio of 21.94x in FY20 as compared to the industry median of 2.52x, which indicates that the company is well-positioned to address its short-term obligations against the broader industry. Cash cycle for the year stood at 247.4 days against 1,707.2 days in FY19. Coming to the leverage side, AT1 posted nil debt to equity against the industry median of 0.12x. Asset to equity ratio for FY20 stood at 1.05x as compared to the industry median of 1.58x.
Key Margins (Source: Refinitiv, Thomson Reuters)
Synergistic Agreements with Access Bio, Inc (USA) and NG Biotech (France): In response to COVID-19 pandemic, the company inked partnership agreements with Access Bio, Inc (USA) and NG Biotech (France) for commercialisation of COVID-19 antibody RDT on Atomo’s platform. As a result of this agreement, the company has expanded its footprints in the market of North America, Europe, and Australia. As per the terms of the agreement, Access Bio is responsible for selling at least 2 million products by 30 September 2021. In the event of achieving this target, exclusive rights of Access Bio in the US, Canada and Mexico would automatically be extended for 12 months with the same obligations and threshold as for the first year. In the earlier December 2020, the company reached an agreement with PrEP Health Pty Ltd ((PrEP Health). As per the agreement, PrEP Health will distribute Atomo HIV Self-Test through its online PrEP subscription service in Australia. PrEP Health is required to purchase minimum 10,000 HIV tests from Atomo during CY2021 for deployment in Australia.
Key Risks: The company’s business growth could face disruption by the uncertainty in relation to COVID-19 pandemic. In addition, the company is sensitive to the rising market share of competitors and interruptions in the industry in which it operates. Also, failure in receiving new approval could pose barriers to the company’s growth. The company is also exposed to the risk arising from new laws, regulations, standards and corporate compliances. Moreover, the business is also sensitive to financial risks, such as credit risk, liquidity risk, and market risk (including foreign currency risk, price risk and interest rate risk).
What to Expect: The company is well-capitalised to deliver on its advised global strategy going forward. It will be driven by growth in recurring revenues with established partners and proven responsiveness to emerging opportunities. During FY21, the company is intending to ramp up the strategic commercialisation and distribution partnerships in the key global markets. In addition, the company would roll out new Atomo finished products in high-value diagnostic segments throughout professional use point-of-care markets. For 2H FY21, the company would focus on setting up US business and dedicated resources in order to support an increased focus on US market scale-up. The company is currently under the next phase of capacity expansion and focused on reaching the total production capacity of around 1.3 million units per month in Q3 FY21.
Key Valuation Metrics (Source: Refinitiv, Thomson Reuters)
Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)
Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)
Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months
Stock Recommendation: The company is one of the leading market players in fully integrated rapid tests with the sale of more than 2 million devices globally. In addition, the company has pipeline of next- generation RDT devices and applications to generate growth in years to come. In the last three and six months, the stock of AT1 has corrected by 11.11% and 5.88%, respectively. As a result, the stock is trading towards its 52-week low levels of $0.280, offering a decent opportunity for accumulation. On a technical analysis front, the stock has a support level of ~$0.294 and a resistance level of ~$0.355. We have valued the stock using the price to earnings multiple based illustrative relative valuation and arrived at a target price with an upside of low double-digit (in percentage terms). Therefore, in light of the decent cash position, debt-free balance sheet, solid growth in topline, improvement in EBITDA, focus on increasing production capacity, uptick in demand for its products, synergistic agreements, and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.315 per share, down by 1.563% on 8th January 2021.
.png)
AT1 Daily Technical Chart (Source: Refinitiv, Thomson Reuters)
Disclaimer
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as personalised advice.