Vindon Healthcare, through its operating subsidiaries, Vindon Scientific and Vindon Scientific (Ireland), provides environmental control products and services to the pharmaceutical, life sciences and food sectors. H108 results indicate that Vindon is on track to achieve the growth shown in our FY08 estimates. We maintain our target price of 21p but change our recommendation to Outperform from Buy on valuation grounds.
H108 revenues increased by 21% year-on-year to £2.56m, supported by a 17% increase in revenues from stability storage and other services. PTP (before deducting share option charges) increased by 45% to £0.88m, but EPS grew less rapidly, by 31% to 0.7p because of the dilutive effect of the May 2007 Placing to raise funds for the Kingsway site. The H108 results indicate that Vindon is on track to meet our FY08 estimates which show sales and PTP increasing by 18% to £5.88m and £1.69m respectively. Taking the prudent stance of assuming no material contribution to sales from mainland Europe or the US, or the stability storage of new product types, but with a substantial increase in the volume of product under stability storage following the move to the new Kingsway premises, our estimates show FY09 sales growth of 13% to £6.66m generating 19% growth in PTP to £2.00m. Given the current uncertainty in the property market, we are not modelling any profit on the disposal of the Diggle site.
Demand for Vindon’s products and services is likely to remain buoyant because of the need for major pharmaceutical companies to develop new drugs to replace those on which patent protection will lapse in the next four years. The new Kingsway facility, which was completed slightly ahead of schedule and in line with budget, provides ample capacity for growth in manufacturing and on-site stability storage. Importantly, it gives the space to accept a wider range of materials for storage under highly controlled conditions, giving the potential to deliver growth rates higher than those currently presented in our forecast. As the shares have performed well over the last month, we downgrade our recommendation to Outperform from buy, on valuation grounds.
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