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Instem Plc: THE INVESTMENT CASE
INVESTMENT OVERVIEW

Huge jump in SEND orders helps Instem swing to a first-half profit; shares higher

Instem generated revenues of £10.5mln (H1 17: £10.3mln) in the opening six months of 2018, reporting a profit before tax of £0.1mln (H1 17: loss of £0.6mln)
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INVESTMENT OVERVIEW: INS The Big Picture
Shares have more than doubled so far this year

Instem PLC (LON:INS) saw its shares rise on Monday as the developer of software used by the life sciences industry to collate and transmit data swung to a profit in the first half of the year.

The major growth driver was its SEND platform, for which it received 75 orders in the six months ended June 30 – three times as many orders as it received for the same period last year (23). In early afternoon trading, Instem shares were 0.7% higher at 302p.

READ: Instem secures US$750k contract with Fortune 500 heavyweight

SEND stands for Standard for the Exchange of Nonclinical Data and is a protocol set up by the US Food and Drug Administration. It ensures that companies present data in a consistent format.

Among the contract-wins was one with a top five global, non-clinical contract research organisation, worth more than £1.7mln over the next two years.

Another big client, a “top-five preclinical CRO”, sent over £0.4mln worth of business Instem’s way in the first half.

The company also has its Provantis and Samarind products, both of which are available via the cloud. A Fortune 500 company adopted the Samarind RMS solution for its worldwide medical products regulatory tracking system.

Boss happy

“We are very pleased with the performance of the business during H1 2018, with regulatory requirements delivering the expected significant increase in demand for our technology-enabled outsourced services,” said chief executive Phil Reason.

“Growth was also particularly strong in the Asia-Pacific region, with bookings up over 60% on the prior year, primarily attributable to the continuing funding of Pharmaceutical Research & Development by the Chinese government."

He added: “With increasing momentum in the business from recent contract wins and the growing pipeline, we are confident about the outlook for the group for the rest of 2018 and beyond.”

Improved margins

Instem generated revenues of £10.5mln (H1 17: £10.3mln) in the opening six months of 2018, reporting a profit before tax of £0.1mln (H1 17: loss of £0.6mln).

Excluding various one-off costs and currency movements, adjusted pre-tax profits jumped to £0.8mln (H1 17: £0.1mln). Last year’s restructuring and a more favourable sales mix helped to boost margins.

Net operating cash inflows of £1.6mln (H1 17: outflow of £1.4mln) allowed cash balances to rise to £3.7mln (H1 17: £1.2mln).

The stock has more than doubled so far this year, reflecting the strong performance year-to-date. Shares were steady at 300p on Monday, having opened the year at 143p.

Analyst praises results

“The H1 performance provides the group with a very solid platform for delivery of our (and consensus) estimates for the full year,” said Progressive Equity analyst Gareth Evans.

“Revenue is tracking to historic patterns, and the H2 required EBITDA result appears highly achievable, when compared to prior years, and given the normal seasonality in the business.

“Further, the group has achieved this strong result despite ongoing investment in, and growth of, its capacity – across the group, but especially in relation to SEND and SEND services, where there appears to be clear growth already being achieved, but very material scope for further expansion given the scale of the relevant markets.

“Overall, H1 2018 is a strong signal of current performance, but also bodes very well for medium and longer-term delivery.”

 -- Adds share price and analyst comment --

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