by Tom Winnifrith
Open Orphan (ORPH) was one of my tips of the year at a 4.6p offer. The shares are now 5.5p bid – the recent market sell off hitting it like nearly all other stocks. But the news today of a contract potentially worth £10 million plus really does slam home the message of how cheap the shares are.
There are currently no broker forecasts out there but that is something that I expect to change in the next few weeks. For what it is worth, in my late December share tip I wrote:
But it too has been hacking at its costs and would, I guess, have made it through to profitability in 2020 on a stand-alone basis. Put the two enterprises together and cut out some easy cost overlaps and you will create a business that will deliver, I reckon, sales this calendar year of c£30 million and a pre-tax profit of £2-3 million. And the next year those numbers could well be £40 million+ and £5 million. These are, I stress, my forecasts and the company is not allowed to comment on them or validate them, it is my work alone.
Today’s news is, in the context of those forecasts, pretty stunning. We are told:
Open Orphan is pleased to announce the signing of a new contract with a European Biotech Company for the provision of a RSV human challenge study. The study is projected to deliver £3.2 million in revenue all of which is expected to be recognised in 2020. If the study is successful, it is anticipated that an additional follow-on larger pivotal challenge study will commence end Q4 2020, delivering significant further revenue and expected to be a minimum of £7 million
So that is at least £3.2 million top line new business this year (possibly more) and potentially an eve bigger boost in the first half of next year. I am not altering my forecasts on the basis of today’s news but it is an indication that they are all the more credible.
In addition we are reminded, in the context of the Coronavirus pandemic that Open owns “Europe’s only commercial 24-bed quarantine clinic and on-site virology laboratory and is the only company globally with the capability to run an RSV human challenge study.” I’d imagine that it should be doing something of a roaring trade.
Open sits on net cash of c£5 million. At the current mid it is valued at just under £30 million so ex cash it trades on well under 1 times current year sales and on a PE of 8-12 falling to just 5. That is clearly far far too low and the shares remain a strong buy with a target of at least 10p if not more.
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