Berenberg initiates coverage on Ergomed at 'buy'

Analysts at Berenberg initiated coverage on biopharmaceutical industry services provider Ergomed at 'buy' on Thursday, stating the group was "perfectly positioned".

Berenberg said it liked the company for its exposure to two growing end markets and its "niche" market positioning.

"Ergomed grew revenues at a CAGR of 28% in 2014-21 as it has benefited from growing clinical trial volumes, a shift to outsourcing and its positioning in higher-growth therapeutic areas like oncology. While there are several larger global contract research organisations, Ergomed is able to compete with these businesses given its depth of experience in a narrower range of areas," said Berenberg.

"Given that the majority of drug trial sponsors' key criteria for choosing a CRO partner are therapeutic area expertise and patient sourcing capabilities, being a specialist helps a smaller player like Ergomed to have a competitive offering. With Ergomed estimating that its addressable markets will grow at 10%-plus in the medium term, we forecast a relatively conservative 11% revenue CAGR in 2022-24E."

Looking ahead, the German bank believes Ergomed to be well positioned to grow ahead of both end-markets and take share through a combination of both organic and inorganic growth.

"For 2022E, Ergomed trades on 20x EV/EBITDA and 30x P/E for an EPS CAGR of 12% in 2022-24E," said the analysts.

Berenberg also issued the stock with a 1,450.0p target price.

Reporting by Iain Gilbert at Sharecast.com