Small Cap Value Report (22 Aug 2016) - BVXP, TRCS

22nd Aug '16 by Paul Scott

27 comments 17077 reads

Good morning - and greetings from the Greek islands!

Yes, I'm on holiday for the next fortnight, but am happy to continue keeping an eye on the market, and giving a quick view on the day's small cap results & trading updates.

We haven't got access to our villa yet, so my laptop is perched on a white plastic table, by the beach, whilst the 9 family members I'm holidaying with are having a dip in the sea. Internet access isn't great, so this may or may not work.

Bioventix (LON:BVXP)

Share price: 1085p (up 11.3% today)
No. shares: 5.1m
Market cap: £55.3m

Trading update - for y/e 30 Jun 2016.

It's positive - ahead of market expectations;

The Board is pleased to report that revenues for the financial year ended 30 June 2016 are expected to be in excess of £5.3M (2015: £4.33M).

A strong performance during the financial year has been supplemented by a positive exchange rate effect.

Since the cost base of the Company follows the same trajectory as in previous years, both revenues and profits before tax are expected to be ahead of market expectations for the year ended 30 June 2016.

Valuation - FinnCap says this morning that revenue was expected to be £4.8m. So £5.3m is a significant beat. Also factor in that BVXP achieves super-high profit margins, and that should feed through into a sizeable profit beat, I reckon.

FinnCap also says that net cash is likely to be around £5.2m at 30 Jun 2016, so almost 10% of the market cap.

The broker is expecting EPS to rise by 13-20% in each of FY2016 and FY2017, pending a full update of its forecasts shortly.

Outlook - this bit sounds double-edged;

The Board is encouraged by the recent development activities of our partner, Siemens Healthcare Diagnostics. A Bioventix-created antibody is being used in a Siemens troponin product that is under development, as mentioned in a scientific presentation at the August 2016 American Association of Clinical Chemistry.

Troponin remains an important product for Bioventix’s future performance, as we expect to commence significant sales during the financial year ending 30 June 2018, which will offset revenues from other products which are expected to reduce during this period.

I'm a bit concerned that sales of other products are set to reduce. This seems to undermine the bull case somewhat - that product revenues are annuity-like.

My…

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andrea34

22nd Aug '16

For any holders of LOOK, they announce another acquisition today:

Lookers plc, one of the leading UK motor retail and aftersales service groups, announces that it has acquired Knights North West Limited ("Knights Group"), for £27.2m in cash. The acquisition introduces BMW and MINI to the Company's portfolio of prestige brands for the first time, and further expands its motor division in the West Midlands.

The acquisition is being funded from the Company's existing bank facilities.

Knights Group is an experienced retailer of BMW and MINI models across the West Midlands, with six dealerships in Stafford, Stoke-on-Trent and Crewe. With a particular focus on service and customer commitment, Knights Group complements Lookers' strategy of improving the motor retail environment. The acquisition brings the total number of Lookers dealerships to 166....

The addition of Knights Group to the Company's motor division follows the conditional purchase of the Drayton Group announced on 15 August 2016, which on completion will add seven Mercedes-Benz dealerships in the West Midlands. Together, these acquisitions substantiate the Group's strategy of accelerating growth in the motor division following the proposed disposal of its parts business, announced on 10 August 2016.

Noodle Hat

see sharesoc event youtube vid for more info on how their revenue/ licenses etc work. Good presentation from CEO. The main takeaway i think is future revenues look good and growing - slight unknown if there will be a small gap between loss of income stream and start of replacement.

https://www.youtube.com/watch?v=4XrPMGREWz4

biloseli

Paul, one more thing to add to the excellent comments above about Bioventix (LON:BVXP): it took them a few years to realise the benefit they could get from perpetual licences for their intellectual property. I got the impression from Peter Harrison they once thought manufacturing the antibodies was the way to make money. It was only later they realised the intellectual property inherent in the antibodies (i.e. discovering them) was more valuable. As a result, older licences are less favourably structured, and revenue streams from older antibodies will wither as licences expire, but the antibodies they have developed more recently should create long-running or perpetual "annuity-like" revenue streams. So I think the bull case is intact. This is my largest holding.

franks8580

I hold Lookers and have held them pre brexit. The shares are suffering from the post referendum blues as a lot of the cars are from the continent. The outlook is uncertain as the Brexit negotiations have not started and the outcome is uncertain. The shares look a real bargain but when you take the lost opportunity costs as the shares will be in limbo till some certainty prevails, it looks like it's upside will be limited for a while..........I will be holding

Paul

Enjoy the break and not too many ice cold beers..

iwright7

Biloseli,

One of my largest holdings too and having met Peter Harrison and watched the above June 16 video link for the 1st time just now I was again struck by the particular niche Bioventix (LON:BVXP) has developed. I do think Peter is wisely cautious with his new antibody projects, but there was one particularly self effacing comment. It occurs 46 mins in: "For the next 5 years revenue growth will just continue without me doing anything because its already in the can at our customers". No caviat regarding proBNP income hitting them hard, which I believe reflects the sticky and growth nature of their antibody business. How many other CEO's would be confident enough to state the above on camera?

The market likes today's beat revenue and profit expectations announcement and with almost 80% operating margin a £1M boost to year on year sales is bound to boost 2016 EPS substantially. I believe you are absolutely right about "annuity like" revenue stream for many years to come.

Paul Scott

Thanks for the extra info on Bioventix (LON:BVXP) - very interesting.

The bulls certainly have it today - up 20% at the time of writing!

Regards, Paul.

The bulls certainly have it today - up 20% at the time of writing!

Just as well for me - it's otherwise been quite a rough year! Note to self for next time: "do not load up on cyclical small caps just before country votes on leaving major trading bloc"!

Have a great holiday Paul.

Boros10

Siemens discussed its new Troponin assay using a sheep monoclonal antibody at the recent AACC which may have prompted today's disclosure.

See session A-075, "Development of High Sensitivity Cardiac Troponin 1 Assay on the Siemens ADVIA Centaur Immunoassay System".

https://www.aacc.org/~/media/files/annual-meeting/2016/abstracts/aacc16_am_a063a094.pdf?la=en

As others have pointed out older licences had a fixed duration. The loss of revenue from one of the two NP ProBNP assays occurs in August 2017 (FY 2017/18). At the half year the Company said it represented 15% of revenue. If is not clear what revenue is being referred to here. Is it the revenue at the time of that RNS or is it the expected revenues in the year that the royalties are lost. What does seem clearer from re-reading the H1 2016 RNS is that the 15% should be calculated on total revenues and not just royalty revenues.

I had previously assumed the lost royalties were £400k (based on a conversation with Peter in 2012), but the actual figure is closer to £700k as this royalty stream has grown strongly in the intervening period. It is encouraging to see management being more confident about the launch date for the Siemen's Troponin assay and forecasting that its royalties in FY 2017/18 will offset the loss of the NT Pro BNP royalties.

I think EPS should be around 68p for FY 2016 and 75p+ for FY 2017. EPS growth might be zero in the transitional FY 2018, with EPS growing strongly in FY 2019 and FY 2020. I am confident that EPS of 100p is achievable in the not too distant future. The dividend for FY 2016 should be around 40p and 45p in the following year but focus will increasingly turn to the cash surpluses building on the balance sheet.

apad

Nah it was my email last week asking PH if it was Siemens:-) Pretty obvious.
apad
ps
Bit of a shock to get a reply from the horses mouth, but he side-stepped the Cardiac Troponin interval:-(

tads

Re. Bioventix . Please note that the Tropinin test being developed by Siemens is in the order of 10 times more sensitive than existing tests. In a clinical situation this is highly relevant. The number of tests of this nature carried out worldwide must be enormous . Very happy holder.

I am away on holiday and have only just managed to get access to my Bioventix spreadsheet. I see I have been a tad too optimistic in my forecasts for FY 2016 based on today's news (see my post above). I now think fully diluted EPS will be around 64.7p in the year just ended. This would put the shares on a historic P/E of around 17.8x.

Assuming a 15% increase in revenues in the FY 2017, my forecast EPS rises to 76.1p for the current year, an increase of 17.6%. I've conservatively assumed there will be some decent cost increases which explains why my bottom line only grows a bit faster than the top line. If I am correct, the P/E for the current year is around 15.1x (using a SP of £11.50).

Assuming no revenue growth in FY 18 and troponin fuelled increases of 20% in each of FY 19 and FY 20, EPS could reach 116p by 2020. If sales growth in those latter two years were a more pedestrian 10%, then EPS would still end up at 93.6p by 2020.

Housemartin2

Hi Boros10 - does your EPS for 2017 factor in the beneficial effect of the current exchange rate or have you just assumed no effect as forecasting ex rates is pretty meaningless ?

peterthegreat

The key point is that there is uncertainty about Bioventix because the sales of the antibody to be used in the tropnin test are as yet unknown, yet these are expected to offset falls in the sales of other antibodies. You can never be sure what sales of a new product will be. The concern with Bioventix is that difficulty with a single product can cause serious problems as the company has relatively few products and is very small. However, I like the profit margins and ROCE and one of my favourite fund managers, Keith Ashworth-Lord likes the company. For me, I prefer to pay up for the much more highly rated company, Abcam, as this has "strength in numbers of products" and has so many antibodies in its catalogue that it has been likened to the Amazon of the antibody business. Like Bioventix, Abcam has remarkably good profit margins and ROCE and a strong balance sheet.

gsbmba99

188k heart attacks in UK per year but 1 million A&E presentations with chest pains (https://www.bhf.org.uk/news-from-the-bhf/news-archive/2015/october/blood-test-to-improve-heart-attack-diagnosis)

In the US, 735k heart attacks per year (http://www.cdc.gov/heartdisease/heart_attack.htm). Chest pain represents 5% of emergency department visits (http://emjclub.com/podcast/high-sensitivity-troponins) and 2006 data suggested overall 119m A&E visits (http://www.cdc.gov/nchs/data/nhsr/nhsr007.pdf) suggesting about 6m A&E presentations with chest pain yearly.

"Despite widespread testing, around 2-3% of patients with myocardial ischemia or infarction are discharged home from the ED, and missed MI accounts for more malpractice dollar awarded than any other single diagnosis. It is likely that risk of malpractice lawsuits has at least in part led to the high admission rates for chest pain seen in the US, which ranges from around 40% to as high as 80% in some institutions according to data from medicare beneficiaries. This is in spite of data suggesting that only 13-23% of patients presenting to the ED will ultimately have a diagnosis of acute coronary syndrome." (http://emjclub.com/podcast/high-sensitivity-troponins)

The benefit of an extremely accurate, rapid and sensitive test is apparent in the above. 2-3% are discharged when they shouldn't have been and 40-80% are admitted when only 13-23% should have been.

I think this paper was written using the Siemens high sensitivity troponin test - http://www.ahjonline.com/article/S0002-8703(15)00462-7/pdf. This bit at the end caught my attention "Considering recent results indicating similar diagnostic accuracy for AMI among hs-cTnI assays, it
is likely that similar 0-/1-hour algorithms can be developed for other hs-cTn assays."

Rusty2

I'm a long holder of Bioventix (LON:BVXP) and topped up on the recent fall. I hear what you say and I think those are valid points. Another problem with BVXP shares is they are illiquid and the spread is wide, around 7% today although it does vary quite a lot. Had a quick look at Abcam (LON:ABC), profits look pretty flat over last few years and margins are decreasing, BVXP margins are over double, at the moment the shares do look expensive considering the lack of forecast growth, PEG is 3.24. But it looks a good company.

back2value

23rd Aug '16

Bioventix, on the face of it, looks a little too good to be true. But I accept that, if they've discovered the biotech equivalent of a bottomless gold mine, it might still be a great investment. Good luck!

Laughton

24th Aug '16

Some more positive news for car dealerships (I hold Lookers (LON:LOOK) and £MMH):-

In the six months to June 2016 UK sales of second hand cars reached a new record high. The Society of Motor Manufacturers calculates that volumes are up by 7.9 per cent over the period taking sales through the 4 million barrier. Chief executive Mike Hawes added, ‘the growth of the used car market has reflected the record demand for new cars in recent years, but future growth in high cost purchases will depend on stable consumer and business confidence’.

If used sales are up does that not imply new sales are down? Is this positive news?

To me it means when people are changing their car they are buying used instead of new. Not sure this is good news for car dealers.

Well it might do but, as I understand it, dealers make more profit on used cars than they do on new.

Yes that maybe so but proportionally more used cars are not sold by dealers, most are sold privately or by the supermarket type sellers. Also less tie-in with servicing.

Small Cap Value Report (22 Aug 2016) - BVXP, TRCS

Bioventix (LON:BVXP)

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Paul Scott

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