Bioventix - FY results v strong, look how fast the core is growing to offset loss of NT ProBNP
Bioventix 2700p
A good set of results today. Revs rose 31%, the business showed good operational gearing and EPS rose 39%. The business has £6.2m of net cash and is very cash generative. Graham N covers the results in some detail in his thread today here.
I wanted to add a few thoughts from my point of view as i have covered this company in some detail before in my initiation article (interestingly no comments at all !)
Revenue growth was driven by 1) growth in numbers of blood tests using BVXP antibodies and 2) the tail end of Sterling weakness vs Euro and vs USD. A major driver of revenue growth recently has been the huge growth of the Vitamin D test. Cracking this test was pretty demanding for BVXP and so management realised it could charge a premium for the test as it was v difficult for others to develop a competitive antibody. Usually BVXP earns a 2% royalty on the value of a blood test, but with Vit D they charge 4%. Hence that has been driving much of the revenue growth and now accounts for 38% of Group sales. What’s positive for me is that the Vit D test grew by 24%, implying the other 62% of sales grew by 36%
The Group does have its challenges ahead as a very profitable antibody called NT ProBNP, which had a finite commercial life, went off royalty in August. Originally this was supposed to be £700k looking back through my notes. But it has clearly been growing and Sterling has weakened so the hole to be filled is now larger at £1m. Counteracting this is the new high senstivity Troponin test for Siemens, used to detect heart attacks. Like all BVXP antibodies, BVXP has little visibility as it may send the antibody months (or even years) in advance. It gets a royalty in arrears each time the antibody is used in a test. So while the new Troponin test is really exciting BVXP doesnt know how well the test is faring against more standard tests. Also hospital clinicians may take time to get familiar with the Troponin test. So while the royalty stream from the NT ProBNP test has dropped off a cliff, its replacement in the portfolio will take time to ramp up. BVXP has low visibility, hence management is hedging its bets in the commentary.
Where i feel management may be being conservative into 2018 is the growth rate of the rest of the antibody portfolio. It is clearly growing gangbusters, up 36% excluding Vit D royalties. The Finn Cap analyst assumes a long term 5-10% growth rate of this portfolio. In business once things get momentum they tend to keep outperforming. Therefore I suspect, and this is purely my view, that the rest of the portfolio will continue to grow faster than the 5-10% long term rate that management alludes to. If the 62% of the portfolio which is non Vit D grows at 20% in FY18 rather than 10% that would add an extra £400k to sales, or would cover 40% of the shortfall from the end of the NT Pro BNP royalties. At 93% Gross margin, that would be an extra c£370k of EBIT. It wont make up for all of the shortfall, but takes some pressure off the ramp up of Troponin. Also Vit D is unlikely to just stop in its tracks, so maybe that will continue to grow at say 10% in 2018.
The shares have rerated over the past 12 months and now trade on c29x FY18 PE. Thats pretty high but in my experience, high quality companies tend to get "lucky" whereas low quality companies tend to be "accident prone". BVXP definitely falls into the "lucky" camp to me. I am therefore prepared to hold on despite the high rating.
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17 comments
http://www.bioventix.com/wp-content/uploads/bvxp-presentation-oct-2017.pdf
Original presentation from Oct 17 subject to restated percentages in my post above.
Peter's presentation revealed that the FY17 growth rates (vs FY16) from his October presentation were systematically off. VitD was 31% (instead of 24%), NTproBNP (continuing contract) was 11% (instead of 10%), testosterone was 13% (instead of 12%), T3 was 49% (instead of 33%), drugs was 104% (instead of 50%), estradiol was 39% (instead of 30%) and progesterone was 106% (instead of 51%). They bridged the gap caused by the loss of the NTproBNP royalty with growth from the existing portfolio and an "almost insignificant" contribution from troponin. VitD comments a bit concerning as they experienced no sequential growth (Jul-Dec 17 compared to Jan-Jun 17) in a product where there isn't much seasonality. So Peter's previous comments on "plateau" may have come to fruition though could still grow at "market" rates of 5%+. All the troponin upside yet to come and Peter suggested that Siemens were excited about the potential for more regular measurement of troponin (outside of A&E) in at risk patients because of the new levels of sensitivity. Back royalty "bonus" likely to form core of a special dividend in the autumn. Back royalty relates to a continuing product and will therefore project into the future and is incorporated into 1H18 rev growth (excl. back royalty). 2019E estimates adjusted upwards by finnCap by less than the value of the newly found royalty.
Thanks for this gsbma99. That is really valuable data. Totally covering the gap from the loss of NTproBNP is very nice.
It is nice to see that the back royalty will be carrying on, so an extra c. £250k going forward?
VegPatch did you get anything else from meeting management this week?
Pete
I am glad you liked the piece.
I am meeting management today so will feedback my thoughts in next couple of days.
As an aside I also think growth is now likely over the next year depsite the loss of NT pro BNP which accounted for 11% of revenues.
I see 2 directors sold shares recently.
I sold my holdings yesterday as advised on twitter. I love the company, but strongly believe the SP will come off a bit, especially if we see a rate rise next month.
My guess it could be the debtors line (ie the amount of money owed to Bioventix by their customers). This has grown from £2.6m to £3.3m on the balance sheet. Basically BVXP gets paid 3 or 6 months in arrears by its customers after the quarter end. Its customers figure out globally how many tests and what sort have been done using BVXP antibodies and therefore what they owe BVXP. They then wire the money into BVXPs bank account. The debtor days have always looked large. I am seeing management soon. I will clarify this.
Thanks for the info, prompted a good look at this share.
As a result of yesterday's results the Stock rank has improved from 77 to 82, the share price has dropped a few % (albeit from new highs) and more strangely/worryingly it has now passed the filter for the "Cooking the Books" screen and acquired a "High" rating for Earnings Manipulation risk!
Can anyone explain that?
2 out of the 3 checks in the "cooking the books" screen check for very high price/sales ratio, on the grounds that it is harder to lie about sales than profits in the accounts. Bioventix (LON:BVXP) has a legitimately very high P/S ratio since such a huge proportion of the sales drop straight through as profit. Therefore I'm not concerned about its appearance on this screen.
(I hold BTW - my largest holding in fact, even after coming off the boil the last few days)
I wonder if the "infectious disease" exclusive is BRAHMS Procalcitonin? Sheep polyclonal is referenced (https://www.accessdata.fda.gov/cdrh_docs/pdf17/K171338.pdf). Procalcitonin is measured to determine presence of sepsis (https://en.wikipedia.org/wiki/Procalcitonin). If this is Bioventix it would be good news as it's already approved in the US.
your knowledge is way beyond my pay grade!
I am seeing PH tmrw. I will ask him and see his reaction
many thanks
Apparently references to sheep polyclonal should be disregarded. On that basis, Brahms Procalcitonin isn't using a Bioventix antibody.
Hi VegPatch. Thanks for a great write up on Bioventix (LON:BVXP).
I wondered if you were able to glean any useful insights from your meeting with PH the other day?
Many thanks.
Thats very kind (flattery will get you everywhere!)
What did I learn?
PH is very conservative. Maynard Paton shows just how conservative in his analysis of Peter H's outlook statements which always predict "modest growth".
https://maynardpaton.com/2017/...
Troponin will be slower to ramp up, but it will ramp up as 1) its a better test than the one used currently and 2) Its mandated by Governments around the world. I have it growing to £300k of revs in FY18 then £500k, then £1m.
Here is a small table with historic numbers for individual antibody royalty streams. Overall the business grew at 31% in FY17, and I estimate c10% of this was due to Sterling weakness. Therefore its pretty clear the business is humming along, even if we exclude the positive impact of GBP weakness relative to USD and EUR.
For the sharp eyed amongst you, you will see there is a discrepancy between the total in the table of say c10% of sales between the table and the declared Group revenue. I believe this is because BVXP makes antibody sales and also gets R&D funding which are not part of the royalty streams.
My thesis is that it is very unlikely that there is a wide ranging slowdown from current run rates. If you think about it: Siemens, Roche, Beckman Coulter conduct millions of blood tests every year. So once a test using bioventix antidbodies gets momentum it is very unlikely to stop dead in its tracks. Bioventix has about 10 antibodies which provide meaningful revenues ranging from testing for Cannabis, heart attacks, testosterone, and estradiol. Therefore my estimates are higher than Finn Caps. I get 5% topline growth in 2018 despite a loss of NT ProBNP. Finn Cap is -5%. Post 2018 I see the business accelerating to >10% revenue growth driven by adoption of Troponin.
The only other point is that I feel we will get an ongoing stream of special dividends
Hope this helps
Hi VegPatch
I was directed towards your posting and after doing my own research bought into £BXVP on Friday – I’ve had a pretty good result today (except I should have bought more) – who knows what tomorrow will bring but thanks!
I think your premise about the core growth of £BXVP has been vindicated (ignoring the£ 0.7m relating to prior years).
FWIW I disagree that they are in "a transition period when earnings are set to be flat through FY 2019" - they look to be growing to me no matter what the analysts say.
Phil
I hope the "pipeline" slide makes a reappearance in Peter's results presentation. I always enjoy trying to figure out who they might be working with and which companies have filed for marketing clearance in the US (haven't been able to find equivalent EU database).
I think that the "therapeutic drug" exclusive which was previously on the pipeline slide might be Carbamazepine with Roche (https://www.accessdata.fda.gov/cdrh_docs/reviews/K151578.pdf).
Cortisol looks to be Roche (K152227), approved April 2016. Aldosterone looks to be DiaSorin (K130321)
I also like the fact that they are working on a number of "singles" as well as looking for the next Vit D. Every little helps especially if it's recurring every year.
That's a very useful analysis VegPatch, thank you. Maynard Paton also wrote a good update today https://maynardpaton.com/2017/10/16/bioventix-outstanding-2017-results-but-cagey-troponin-remarks-may-leave-29x-pe-rather-exposed/
FWIW, I am comfortable holding for the long-term. If there were to be a significant sell-off, I would be happy to buy more from a long-term income perspective. it has given me back plenty of cash this year via divis and top slicing and I would be happy to reinvest some of that, if the opportunity were to arise.
Well done to the whole Bioventix (LON:BVXP) team for another excellent year!