The Motley Fool

Alongside AstraZeneca, I’d buy this small-cap share in the pharmaceutical sector

After many years in the doldrums, the FTSE 100’s AstraZeneca is seeing its R&D pipeline produce new treatments. I think it’s a good time for me to be holding some of the firm’s shares. That’s because some of the products could go on to achieve big sales and profits for the company. On top of that, they’ll likely be protected by new patents.

But I’m also keen on some small-cap shares in the wider pharmaceutical sector. For example, today’s audited full-year results report from Ergomed (LSE: ERGO) is full of positives. And the share price has risen a bit today too.

Claim your FREE copy of The Motley Fool’s Bear Market Survival Guide.

Global stock markets may be reeling from the coronavirus, but you don’t have to face this down market alone. Help yourself to a FREE copy of The Motley Fool’s Bear Market Survival Guide and discover the five steps you can take right now to try and bolster your portfolio… including how you can aim to turn today’s market uncertainty to your advantage. Click here to claim your FREE copy now!

Doing its bit for the coronavirus pandemic

The small-cap company provides specialist services to the pharmaceutical industry. And on 18 March, it announced its involvement in a clinical study aimed at finding a treatment for patients with Covid-19, who have developed serious respiratory complications. The study is sponsored by the Papa Giovanni XXIII Hospital in Bergamo, Italy, and supported by EUSA Pharma (EUSA).

That’s a small part of the company’s activities, which span “all phases” of clinical development, post-approval pharmacovigilance, and medical information. And today’s figures reveal to us some patterns of fast growth within the business. In 2019, revenue grew by just over 26% compared to the prior year, and adjusted EBITDA shot up by a little over 440% to £12.5m. Looking ahead, the order book of future contracted revenue rose by a just under 14% to a smidgeon above £124m.

Executive chairman Dr Miroslav Reljanović described in the report how 2019 has been a “transformational” year for Ergomed.  He reckons the business performed “strongly” and the acquisition of Ashfield Pharmacovigilance after the end of the period was a “major strategic step” for the company in the US.

Growth on the agenda and strong finances

Growth is on the agenda, but the firm is monitoring “closely” the escalation of the coronavirus outbreak. Reljanović thinks Covid-19 poses an “unprecedented” global healthcare challenge. And he hopes Ergomed can use its “expertise and proven capabilities” to advance drug development and improve outcomes for coronavirus patients.

Meanwhile, the balance sheet looks strong with no borrowings. Cash and equivalents rose by almost £175% in the period to just over £14m, which compares with lease liabilities of just under £5.5m.

I reckon cash inflow has pushed profits higher, which combines with the strength of the firm’s finances to provide a solid base for further expansion. But, just to make sure, the company agreed a new £30m credit facility with its bankers to fund its growth strategy and to help with any challenges that may arise because of the coronavirus.

My guess is we can expect further progress abroad in the years ahead. In 2019, around 42% of revenue came from mainland Europe, the Middle East and Africa, 37% from North America, 19% from the UK, 2% from Asia, and a tiny comparative amount from Australia.

Meanwhile, with the share price close to 340p, the forward-looking earnings multiple for 2020 sits near 18. That strikes me as fair for a company with decent growth prospects.

The high-calibre small-cap stock flying under the City’s radar

Adventurous investors like you won’t want to miss out on what could be a truly astonishing opportunity…

You see, over the past three years, this AIM-listed company has been quietly powering ahead… rewarding its shareholders with generous share price growth thanks to a carefully orchestrated ‘buy and build’ strategy.

And with a first-class management team at the helm, a proven, well-executed business model, plus market-leading positions in high-margin, niche products… our analysts believe there’s still plenty more potential growth in the pipeline.

Here’s your chance to discover exactly what has got our Motley Fool UK investment team all hot-under-the-collar about this tiny £350+ million enterprise… inside a specially prepared free investment report.

But here’s the really exciting part… right now, we believe many UK investors have quite simply never heard of this company before!

Click here to claim your copy of this special investment report — and we’ll tell you the name of this Top Small-Cap Stock… free of charge!

Kevin Godbold has no position in any share mentioned. The Motley Fool UK has recommended AstraZeneca. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.