Investors in diagnostics specialist group Novacyt (NCYT:AIM) have been treated to two important pieces of news.

Earnings estimates are available for the first time since the company listed on AIM in 2017 after Numis starting research coverage on the stock, which has gone up by 7,190% in value this year.

Numis analyst Stefan Hamill believes Novacyt could emerge as a ‘long-term diagnostics winner’ based on a credible three-pillar strategy of organic, research and development, and accretive acquisitive growth.

Given the uncertain nature of when and if an effective vaccine becomes available, Hamill has modelled four scenarios labelled bear, base, bullish and blue-sky and then weighted them with the base and bullish cases each receiving 40% and the bear and blue-sky cases each getting 10%. The calculation values the business at £13.65 per share versus a 930p price at the time of writing.

Shares previously highlighted the possibility of a revenue cliff from 2021 as demand for testing abates and it should be noted that all of Hamill’s scenarios model for revenues and profits to fade by 2024.

In the base case, revenues reach €390 million in 2021 driven by testing demand growing during the peak flu months in the first half, before falling back to €81 million in 2024. Hamill estimates the shares are worth 950p in this scenario.

Bull case revenues reach €600 million in 2021 on the basis that the second phase of the UK Department of Health and Social Care (DHSC) contract is triggered and the blue-sky case has revenues of over €1 billion reflecting the contract hitting its maximum potential and Novacyt becoming a strategic supplier into the NHS. The bull case has the shares valued at £15, while the blue-sky value is £34.

Meanwhile the bear case factors in no upside from the DHSC contract with revenues forecast to reach €210 million in 2021 before slipping back to €41 million in 2024. The shares are expected to be worth 450p under this scenario, says Hamill.

The second piece of positive news was Novacyt’s acquisition of IT-IS International which is the exclusive manufacturer of its real-time polymerase chain reaction instrument range. The deal increases vertical integration and evolves the company into a broader diagnostic platform instrument and reagent manufacturer.

It gives the company end-to-end control of its near-patient testing system and increases the significant potential to win further contracts in decentralised settings such as the NHS and care homes.

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