Record sales and a COVID-19 wildcard

AGY is a long-established specialist in the prevention, diagnosis and treatment of allergies. Pollinex Quattro (PQ) is an ultra-short-course subcutaneous allergy immunotherapy (SCIT) platform, which continues to make strong market share gains in a competitive environment. Several products using the PQ platform are in late-stage development in order to move them to full registration under new EU and US regulations. Another reassuring trading update states that the company has hit new records and has the resources in place to fund its pending R&D investment programme required to get its products approved by the regulators.

• Strategy: AGY is a fully integrated pharmaceutical company focused on the treatment of allergies. There are three parts to its strategy: i) continued development of its European business via investment or opportunistic acquisitions; ii) the US PQ opportunity; and iii) further development of its pipeline.
• Trading update: Sales in the past quarter were affected by the difficulty associated with patients attending hospitals during the COVID-19 lockdown. Despite this, June returned to “normal” and underlying sales in fiscal 2020 have grown 7% to £78.2m. AGY has strong gross cash of £37.0m to fund its future R&D investment.
• COVID-19 test: With financial support from government and official institutions in Spain, AGY has invested into expanding its microbiological diagnostic facilities (AT Immunolab) to run COVID-19 tests. At full capacity, its real-time SARS-COV-2 test is expected to be able to perform 200,000 tests a year.
• Risks: Over the next two years, AGY will be running several important clinical trials which, by their very nature, have binary outcomes. This is mitigated to some extent by the company’s long-standing experience. Forecasts must be viewed as provisional in the event of a second wave of the COVID-19 pandemic.
• Investment summary: Despite COVID-19, AGY has reported another record year for sales in fiscal 2020, with June reassuringly returning to “normal” levels. Operating efficiencies and the timing of R&D investment have led to a strong EBIT performance. AGY is trading on an EV/sales of only 0.80x 2021E, which, in our view, is too low for a company with a long and profitable product history, and well below the multiples commanded by its direct competitors.