Genetic Signatures Limited

GSS Details

Q1FY22 Financial and Operational Highlights: Genetic Signatures Limited (ASX: GSS) is engaged in the research and commercialisation of identifying individual genetic signatures to aid in the diagnosis of infectious diseases. During the quarter ended 30 September 2021, the company recorded the highest ever revenue of $12.4 million in its history, reflecting a rise of 129% over Q4FY21 and 18% over Q1FY21. The revenue growth was mainly backed by the Demand for its EasyScreen™ SARS-CoV-2 Detection Kit in Australia.

• The company’s operational performance during the quarter was strong as SARS-CoV-2 outbreaks continued, which may provide revenue growth in FY22.
• During the quarter, GSS undertook one key project, which is the development of its new next-generation “sample-to-result” instrument, specifically designed for 3base™.
• GSS recorded cash inflows of $2.9 million, with receipts from customers of $10.3 million.

Revenue (Source: Analysis by Kalkine Group)

Key Risks:

• Clinical Trial Risk: The company’s operational and financial health could be impacted by the failure of an ongoing clinical trial.
• Regulatory Risk: GSS is exposed to a more complex regulatory environment; any non-compliance could lead the business to fines, penalties, etc.

Outlook:

• GSS is in a decent position to meet current and ongoing global customer demand after the significant uplift in its capabilities as well as the substantial improvement in the manufacturing capacity.
• Looking forward, the company is focused on leveraging the market access by introducing customers and potential customers to the full Genetic Signatures’ product suite.
• The company has scheduled to conduct the 2021 Annual General Meeting on 19 November 2021.
  

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative) 

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The company closed Q1FY22 with a cash balance of $33.0 million and nil debt. The stock of GSS has been corrected by ~12.91% and ~25.28% in the past one and nine months, respectively. The stock is trading below its 52-week low-high average of $1.040 - $2.130, respectively. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight premium to its peers’ average EV/Sales multiple, considering the growing demand for products and focus on leveraging the market, etc. For the purpose of valuation, peers such as Oncosil Medical Ltd (ASX: OSL), Trajan Group Holdings Ltd (ASX: TRJ), and Anteotech Ltd (ASX: ADO) have been considered. Considering the expected upside in valuation, highest ever quarterly revenue, demand for products, deleveraged balance sheet, decent liquidity position, decent outlook, current trading level, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $1.300, as on 17 November 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

GSS Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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