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DiaSorin shares: poised for recovery as non-COVID testing businesses come back online


Italian diagnostics company DiaSorin (DIA:MI) has been something of a Covid story over the last few months because of bumper sales of its SARS-Cov-2 test kits. The market is now questioning what will happen to demand for tests with the roll-out of vaccination programmes.

When the company said last month it would not give full year guidance “because of the uncertainty of the macroeconomic and health context” the market hammered its share price but we think there is now upside, especially given that the company has much more to offer than Covid test kits.

In its 2020 results, published in March, DiaSorin reported a 24.8% rise in revenues, driven largely by test kits. But it also reported a recovery across other business lines that had been hit in the early days of the pandemic and said it had contained operating expenses, giving it a solid earnings boost.

After the results were released, it held a conference call with analysts where it gave some reassuring comments about the return to normal for its baseline (non-Covid business), including its Lyme disease test kits, which have just won a CE mark, and tuberculosis test kits.

DiaSorin stock is still a Covid play

Even for investors looking for Covid plays, chief executive Carlo Rosa said that although there was a lack of visibility (due to the new variant, the speed of vaccination programmes and the impact of the flu season- a positive as Covid tests could become yet more routine for patients presenting with flu symptoms), the company would “pursue the opportunity for Covid”.

DiaSorin iss still seeing strong sales of molecular tests and it is rolling out antigen testing products. These are the products with a lack of visibility, however 3expected later in the year. But for antibody testing, DiaSorin was bullish and its hesitance to give a full year outlook is not because it necessarily expects bad news.

“Antibody testing for Covid is going to be the one that will stay with us and with the industry for many years. And this is because people are getting vaccinated, and there is going to be a need to test individuals and see how long the vaccine is going to last,” said Rosa, adding that he sees double-digit growth.

M&A activity on the horizon

Another fillip to the stock was provided recently by speculation in the market about whether DiaSorin will merge with another company, rumours that Rosa did little to squash during the 2020 results conference call.

In February, Bloomberg reported that DiaSorin was close to a deal with Luminex, which also makes Covid test kits. Luminex and DiaSorin both shot higher on the rumoured deal while DiaSorin itself refused to comment.

Rosa reiterated the company’s strategy to look for growth through acquisitions and said “let’s wait when an opportunity will materialise”, adding that DiaSorin certainly has the financial ability to make a “decent level of an acquisition”. So maybe not on the cards right now but soon.

Dividends solid, cash flow strong

DiaSorin reported a dividend of 1 euro per share, below average analyst expectations but nonetheless solid and a reflection of the group’s strong cash flow, which backs up Rosa’s acquisition ambitions. The negative elements such as the lower-than-expected dividend and the lack of visibility could already be priced into the stock.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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