Technology solutions provider Instem (INS:AIM) reported full-year revenues to 31 December 2019 up 13% to £25.7m and adjusted pre-tax profit up 14% to £3.2m. The shares made a new all time high, rising 11.5% to 535p.
INDUSTRY GROWTH ACCELERATES
The company’s product suite helps pharmaceutical companies analyse, report and submit data to regulatory bodies. Global population growth and increasing life expectancy are key drivers for innovation and growth in new drugs, providing a supportive backdrop for Instem’s growth prospects.
According to the Pharma R&D review the pipeline of new drugs in research and development reached 17,737 over the last year, an increase of 9.6%, compared with 6% growth in 2019.
Early drug development registered faster growth of 13.2%, double the rate of growth in 2019 and more relevant as this segment represents a lot of Instem’s business.
Chief executive Phil Reason commented, ‘we have remained very busy, have good visibility over a strong H1 2020 performance and continue to have confidence in the longer term outlook for the business, supported by a strong cash balance at the end of April 2020 of £8.3m.’
STRATEGIC DEVELOPMENT/COVID-19
Recurring revenues, derived from support and maintenance contracts and software as a service (Saas) subscriptions, grew 9% to £14.9m. The business saw a 78% increase in new SaaS order volumes taking its proportion to 64% of total orders compared with 33% in the prior year.
The company generated £5.4m of cash from operating activities, up from £2.2m in 2018. Net cash increased 66% to roughly £6m, and has since increased to £8.3m at the end of April providing resources for further acquisitive growth in what is still a fragmented market place.
One beneficial impact from the lockdowns and working from home has been a ‘significant improvement’ in the number of acquisition targets and ‘reduced valuation multiples.’
The pandemic has impacted client-related site work, but in some cases the firm has found ways to complete much of the work remotely, increasing efficiency as travel time and expense is removed.
Some new business opportunities have been delayed in the early phase clinical sectors but none have been cancelled.
At this stage management are taking a cautious approach to the potential for continued global business disruption and are moderating their 2020 objectives.
Broker N+1 Singer has reduced its profit expectations for 2020 by £0.5m to reflect lower new business wins, but go on to say ‘nevertheless, we continue to expect strong PBT growth of 33% in FY20, of which we estimate 19% is organic growth.’
