PBKM — Onboarding a new majority shareholder

Polski Bank Komórek Macierzystych (BKM)

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Research: Healthcare

PBKM — Onboarding a new majority shareholder

Polski Bank Komórek Macierzystych (PBKM) is benefiting from market consolidation of cord blood banking services in Europe. It operates 14 stem cell banks cobranded under the FamiCord umbrella, covering one-third of the European market for newly acquired samples. Recent steady growth (2014–18 revenue CAGR of 17%) has been fuelled by both organic development and M&A. Further substantial acquisitions would require additional capital. The share price has stabilised at PLN62 – the price of the forthcoming PLN218m capital raise. This implies an FY19e P/E of 11.5x, c 64% below the peer-group average.

Written by

Michal Mordel

Analyst, Investment trusts

Healthcare

PBKM

Onboarding a new majority shareholder

Pharma & biotech

5 November 2019

Price

PLN62.0

Market cap

PLN352m

Share price graph

Share details

Code

BKM

Listing

Warsaw

Shares in issue

5.7m

Business description

PBKM operates a group of stem cell banks under the FamiCord Group brand. The company is the largest industry player in Europe, operating mainly in Poland, Spain, Turkey, Hungary and Portugal. With 440k stored biological samples, it is among the five largest global players. It develops stem cell therapy for the treatment of a number of diseases, including amyotrophic lateral sclerosis.

Bull

Clear sector leader.

Business model based on subscriptions securing stable cash flow generation.

Ongoing R&D projects are potential value kicker.

Bear

Risk of reduced client trust following the default of competitors.

Demand highly dependent on disposable income.

Rapid inorganic growth and integration costs affecting short-term profitability.

Analysts

Michal Mordel

+44 (0) 20 3077 5700

Milosz Papst

+44 (0) 20 3077 5700

Polski Bank Komórek Macierzystych (PBKM) is benefiting from market consolidation of cord blood banking services in Europe. It operates 14 stem cell banks cobranded under the FamiCord umbrella, covering one-third of the European market for newly acquired samples. Recent steady growth (2014–18 revenue CAGR of 17%) has been fuelled by both organic development and M&A. Further substantial acquisitions would require additional capital. The share price has stabilised at PLN62 – the price of the forthcoming PLN218m capital raise. This implies an FY19e P/E of 11.5x, c 64% below the peer-group average.

Solidifying its leading position in Europe

PBKM continues with its M&A agenda, recently acquiring IVI Cordon in Spain and taking full control over Bebecord. It is present in nine European countries, with partners in a further 14. Management seeks further M&A deals with an acquisition value in excess of €60m on its priority list and further potential targets worth c €150m. PBKM is initiating enrolment in clinical trials for the treatment of amyotrophic lateral sclerosis (starting in Q419/Q120). It is also engaged in three R&D consortia clinical trials with a 10–38% share of IP rights.

Securing capital for further expansion

PBKM’s H119 adjusted net income was €2.2m (H118: €3.4m). Net revenue improved 21% y-o-y, driven by both M&A and organic growth, with number of stored samples increasing 89% y-o-y to 320k (like-for-like growth of 14%). The number of stored samples paid for under a subscription model increased 13.4% y-o-y to 110k. The profit decline was due to increased headcount, M&A-related one-offs and integration costs, as well as a €0.3m impact of the new VAT regime in Hungary. Meanwhile, the margin on sample storage increased slightly. PBKM guides to €0.8m in R&D costs (net of grants) in H219 (H119: €0.4m). Its net debt to LTM EBITDA was sound at 0.9x (H118: 0.0x). Its capital base will be strengthened by a €49.8m (62% dilution) equity issue subscribed to by Active Ownership Fund, which will increase its stake from 32% to 58% and in turn trigger a tender offer to reach 66%. The AGM approved the issue, which should close in 2019.

Valuation: In line with issue price

Based on current Refinitiv consensus, PBKM trades at an FY19e P/E and EV/EBITDA discount of 64% and 17% to medical services peers, respectively. This is despite its leading market position and the high proportion of predictable cash flows in its subscription model. The current share price is PLN62.0, which is the agreed price of the forthcoming capital raise.

Consensus estimates

Year
end

Revenue
(PLNm)

EBITDA
(PLNm)

EPS
(PLN)

DPS
(PLN)

P/E
(x)

Yield
(%)

12/17

148.9

46.0

6.20

0.89

10.1

1.4

12/18

161.6

50.2

7.32

0.00

8.6

N/A

12/19e

189.9

39.9

5.40

N/A

11.5

N/A

12/20e

199.6

48.2

5.95

N/A

10.4

N/A

Source: PBKM, Refinitiv consensus as at 4 November 2019.

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This report has been prepared and issued by Edison. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

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This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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