- Abingdon has announced a “significant contract” in Europe
- Could this be the start of the awaited turnaround?
- Or is agreeing to subcontract a contrary signal?
- Abingdon Health Surged 11.6% Despite Higher H2 Losses
Abingdon Health (LON: ABDX) shares have not done well for investors this past year, falling from the high 60s to under 10 pence last night. That Abingdon share price is now up 25% this morning on the back of a “significant contract” announcement. It’s possible to view this in at least two different ways. That there’s a new contract is good, of course, it is, sales and revenue are good things. But if Abingdon is now happy to subcontract then what does this tell us about its ambitions to be selling tests directly?
The specific announcement is that Abingdon has signed a contract with a European customer to manufacture components for an LFD aimed at COVD-19 antigen tests. Which is good news, obviously – if you make LFD tests and or components for them and you gain a new customer then that’s a good thing. All of the raw materials required will be provided by the customer – that’s good, that alleviates working capital concerns. And the minimum contract value is claimed at £2.7 million.
We’re not told what the margin will be on the contract but even so, that’s good news.
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Abingdon has had its problems though. There was that process of being funded by the British government to make tests and then the subsequent difficulty of getting paid by said British government. That required a recapitalisation which is always a painful exercise. Then there was the announcement of applying for a CE mark to be able to sell in Europe. Again, good news, it’s just that large orders didn’t seem to follow. There are many other test makers out there, obviously.
It’s even possible to think that these varied small-sized test makers might have missed the boat a bit. The vast government contracts to provide free – to the consumer – tests in huge quantity have now pretty much stopped. The market is now directly marketed, will all of the higher attendant costs, tests direct to consumers. That’s a function more of a marketing network than a savvy lab and a good production line.
So, the excitement about testing companies might have come and gone. At which point gaining good cashflow at least by being a subcontractor might make good sense. There’s the plant there, newly built and available, why not put it to good use? Exactly what Abingdon is doing.
On the other hand, there was always this aim of doing that direct marketing and thus being able to pocket the retail margin. Subcontracting is fine but it’s not often a high margin activity. So, does this contract mean that Abingdon has secured decent cashflow off which it can build? Or is it an implicit announcement that the larger ambitions are to be abandoned and subcontracting, with those thinner margins, is where it’s at now?
Future estimates of Abingdon’s share price are likely to rest upon such calculations. Is this the securing of cashflow that allows the chasing of the test market itself? Or is it an admission that that’s gone and so subcontracting is the future?