Oxford Nanopore Technologies PLC (LSE:ONT) analysts are still doubtful about the DNA sequencing company's medium-term guidance despite narrowing full-year revenue guidance and reporting better-than-expected underlying profits for the first half.
It confirmed today a 33% decline in reported revenue due to the absence of Covid work, with Life Science Research Tools (LSRT) revenue up 16% to £86 million, or if excluding Emirati Genome Project and Covid-19 sequencing revenues, up 46% to £75.6 million.
For the full-year, LSRT revenue growth is expected to be in the range of 18-25% at constant currencies, from 16-30% previously, and underlying LSRT revenue, which excludes revenue from the EGP and ongoing COVID-19 sequencing, expected to grow by more than 40% from 30% previously, and 30% per year in the medium term.
Gross margin was 57.6% for the period, below consensus of 59%, though the underlying LSRT gross margin was up 280 basis points driven by improvements to flow cell margins from optimised manufacturing and efficiencies, and the company now expects the gross margin to be greater than 57% for the full year, down from 60% previously.
Debt-free, the company had cash and cash equivalents of £484 million that are expected to support ONT through to profitability.
All other medium-term guidance by the company also remains unchanged, with continued expectations for adjusted EBITDA breakeven in 2026 and targeting gross margins of 65%.
Analysts at Stifel said they currently forecast EBITDA positive in 2027, given their lower growth expectation for the business.
"ONT has delivered a 1H23 slightly ahead of consensus and our expectations with the beat likely aided by an FX tailwind in H123," they said.
"While encouraging, we continue to be wary of this ambitious growth rate in the near to medium term given a potentially deteriorating outlook in the life sciences and the research tools space given the current macro environment coupled with the entrenched nature of Illumina sequencing and the current niche applications of long-read sequencing.
"Given the solid start to the year, the tightening of guidance at the bottom end could perhaps be expected; yet, the reduction to the top end of guidance to 25% (from 30%) may be seen as disappointing to some. These above points support our view that whilst ONT's sequencing devices are highly innovative, adoption will take time and uptake is likely to be slower than some expect."
Stifel reiterated its 'hold'.
Broker Peel Hunt reiterated its 'sell' stance, with analysts saying they "can’t help but look" at the operating loss of £74.8 million compared to full-year consensus expectations of £124 million.
"We also continue to point out that analysts are still not sure about ONT’s guidance to breakeven on an EBITDA basis by FY26E," they added.
They said ONT’s valuation premium to peers has recently expanded to around 70% now, trading on a circa 9.3 times 12-month on a forward EV/sales multiple.