Genetic Signatures Limited

GSS Details

Business Update: Genetic Signatures Limited (ASX: GSS) is a specialist molecular diagnostics (MDx) firm engaged in the commercialisation of 3base™, its proprietary platform technology to hospitals and labs. On 21 December 2021, GSS updated that it has developed EasyScreen™, an enteric protozoan kit for detecting the SARS-CoV-2 variant and other new variants such as Omicron.

• The company is engaging with customers in Europe to promote the enteric range of kits within the suite of EasyScreen™ products and seeking regular feedback. It is gearing up to receive orders for enteric tests and has added sites for testing. The SARS-CoV-2 testing is continuing at a slower rate but is expected to rise in 2022.
• The company plans to accelerate clinical trials for its enteric protozoan detection kit to seek US FDA product approval (510K). GSS expects to complete the clinical product trials before the March quarter-end and targets ~40% of the addressable market in the next five years.

Q1FY22 (ended 30 September 2021) Highlights:

• The company recorded net operating cash inflows of ~$3.04 million during the quarter. Notably, the company witnessed an increase of ~18% YoY in revenue in Q1FY22, due to the robust demand for the EasyScreen™ SARS-CoV-2 detection kits in Australia.
• GSS introduced an updated SARS-CoV-2 test kit which reduces the time and increases the throughput per batch. The company plans to add this enhancement to other EasyScreen™ products. The sales of reagent kits contributed to more than ~98% of total revenue during Q1FY22.
• GSS held ~$33.03 million cash and cash equivalents as of 30 September 2021, with nil debt.

Revenue Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces technological changes, regulatory delays, peer competition, and the risk of product failure and supply chain disruptions.

Outlook:

• GSS expects to deliver at least ~$21 million in sales for 1HFY22 and expects the testing volumes for the new Omicron variant to continue to increase in 2022.
• The company envisions expanding the current range of diagnostic products for sale in the US, Europe, and Australia. It plans to target high throughput pathology groups, government programs, and hospitals to build long-term customer relations.

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 stock of GSS gave a positive return of ~35.60% in the past month and a positive return of ~48.54% in the past six months. The stock is currently trading above the 52-weeks’ average price level band of $1.040 - $2.130. The stock of GSS has a support level of ~$1.600 and a resistance level of ~$2.150. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price with a correction of a high single-digit (in % terms). The company might trade at a slight discount than its peers’ median EV/Sales multiple, considering the decrease in the current ratio, increased cost of freight & materials, and the USFDA trials for the Enteric Protozoan kits, and other expenses. For this purpose of valuation, few peers like Oncosil Medical Limited (ASX: OSL), Palla Pharma Limited (ASX: PAL), Anteotech Limited (ASX: ADO), and others have been considered. Considering the current trading levels, decent returns in the past month and the six months, indicative downside in valuation, volatility in the healthcare space, and key risks associated with the business, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the current market price of $1.795, as of 31 December 2021, 12:32 PM (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.

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