LON:BVXP | Bioventix - Should I Stay Or Should I Go?

19th Mar '19 by jonno

10 comments 2227 reads

More accurately the heading should read to top slice or hold, but I couldn't resist borrowing the lyrics from the Clash, for a little dramatic effect.

I am sure that the continuing increase in the share price of Bioventix (LON:BVXP) will not have gone unnoticed by many members of the Stockopedia community, who like me hold the share. The increase in the share price has resulted in Bioventix (LON:BVXP) representing about 12% of my portfolio. In the interest of risk management I have been tempted to top slice but as yet have resisted. The decision, whatever it may be, comes down to, in my opinion, the age old conundrum of fear versus greed.

In support of the former the share price has risen significantly and is trading at a PE of 30 plus, next year's earnings. Top slicing helps to re-balance the portfolio and provides funds for alternative, although not necessarily more successful investments. Finally it helps mitigate the potential impact, should the fast approaching interims disappoint.

The alternative view is that as a company Bioventix (LON:BVXP) has historically under promised and over delivered. Peter Harrison is first and foremost a scientist. He is pragmatic and not given to hyperbole. So when he states that he remains 'utterly convinced' in the ultimate success of the new troponin test (Sharesoc October 2018), he is to be listened to.

Bioventix (LON:BVXP) enjoys enviable institutional support e.g Keith Ashworth Lord (Buffettology Fund) and Gervais Williams (Miton), also Peter Harrison currently holds about 8% of the company.

Depending on one's view you may side with Lord Lee who advises sticking with something good if one is already invested. Conversely Stephen English in his investment philosophy states "I strive to increase robustness by consistently recycling the expensive holdings back into the cheap holdings". I have great respect for the views of Lord Lee and Stephen English and endeavour to learn from both. In the end it is a matter for the individual.

All views and thoughts welcome.

Jonno

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doug2500

19th Mar '19

Good question. Both about Bioventix (LON:BVXP) and generally.

I fall into the holding winners camp to really let them do their thing and compound over the years, but my conviction in this approach is not totally solid.

On the whole I would say it's worked for me, and I've certainly regretted selling a few holding for a quick, small profit. But there's occasions when I've felt something is expensive (like now in BVXP's case) and it has fallen back and taken some time to recover, or hasn't recovered yet.

I guess I suffer from dichotomy (have I used that right?) in that when a share is cheap I think I know more than the market and buy it (you have to really) but when they are expensive I generally worry that the market knows something that I don't and so I don't sell!

I guess I'm just greedy and ,especially with small caps, you just never know what's round the corner to cause a re-rating - earnings, take overs etc.

But maybe I'm scared of missing out on compound growth by selling, I guess I'm more scared of this than scared of share price falls.

Albertos

I have held Bioventix (LON:BVXP) in the past but no longer.

Purely to add to the debate I think the bear case is pretty simple - its horrendously expensive and illiquid. Its fwd PER is 33 for a company that is growing at @10% per annum and to be brutal this is a company that has revenues of only £9m projected for 2019 (MV is 23x sales). The bull/status quo case must be Bioventix (LON:BVXP) considerably beats these forecasts but as a past holder my view was the future was always pretty opaque. I was sort of comfortable at £25 - £30 but at the current levels?

My concern when I held was always if there was any bad news the price reaction would be dramatic. We are all aware of some of the massive price falls based on minor profit warning - my view was it would be doubled here.

This share has a massive fan club both with institutions and PI's and I really wish you well and hope the SP continues to rise - but it's really not for me and I wonder if some have considered the risks here of the perfect being proved wrong because perfection is what is being priced in.

Phil

Damian Cannon

Good post. I sold out today, after holding for almost 5 years, because P/E ratio inflation seems to have got out of hand compared to analyst estimates for growth. Yes Bioventix (LON:BVXP) often does better than expected but they can't be doing too much better than in-line right now since they'd have to put out a trading update if they were. So while I have huge belief in the quality of the business I've decided that I don't want to have 10% of my portfolio at risk when the results come out.

Damian

ISAallowance

Hi Jonno,

I find myself in the same position as you - Bioventix (LON:BVXP) along with Burford Capital (LON:BUR) overly-dominate my portfolio having grown consistently for a few years - a nice problem to have. The question I then have to constantly ask myself is can the position size still be justified?

Phil has given a concise explanation of the bear case above - it is expensive on almost any metric.

The bull case as I see it is that you effectively get 3 companies in one - firstly a 2.5% bond at current share price (£1 per share div including specials), secondly a conventional growth company, with the steady growth (up to now at least) in core antibodies, other antibodies, and with the troponin revenue also expected to kick-in shortly. Finally, you also get a blue sky pharma company thrown in as well, given the long term potential of the collaborations underway on other heart attack markers and early stage alzheimers diagnostics.

Hence I personally might top-slice, but only to help me continue to hold.

I don't disagree that the sp could be exposed at the upcoming interims - any further delay on first troponin revenues could be very badly received by the market. However, AIUI, troponin revenues will eventually arrive, it is simply a matter of when, so I have mentally prepared myself for a little short term portfolio volatility.

abtan

I completely agree with this assessment (though full disclosure, I sold out around the £30 level for a nice profit).

Amazing company. Revenues and profits will continue to grow but would I buy a company with average growth rates for £200m when it is currently only making £9m per year? Not really, but then the price is £40 (and I don't have £200m) so what do I know?

On another note, when I was researching the troponin test and its importance, I came across a BBC article on the matter, in which they interviewed a doctor, who by complete coincidence happened to be a friend from high school. His response to me:

"To be honest I’ve never heard of Bioventix- I assume it’s one of a number of companies chasing a point of care troponin test"

Now I'm no expert on Troponin, or how good the Bioventix (LON:BVXP) test is vs competitors, but his statement combined with the company indicating in the last results that sales were below expectations spooked me enough to sell out...for now at least.

jonno

Thank you for your thoughts, all cogent and well articulated. A tough call but as ISAallowance mentions a nice problem to have. Also as Phil observes Bioventix (LON:BVXP) is very illiquid, so selling on any disappointment would be difficult and expensive. Conversely if there is good news on the uptake of the Siemens new troponin test, the share price is likely react positively. I remain of the view that troponin will in time be very successful for the company, but it is the speed of take up that is the fly in the proverbial ointment.

I shall see what tomorrow brings and decide what to do.

gsbmba99

20th Mar '19

Looking at beyond five years, some of the items in the pipeline are very interesting. There are four projects in the "high" revenue potential category - secretoneurin (with CardiNor), beta amyloid (with Pre-Diagnostics), cMyC and the biotin project. All but biotin are in the "low" probability category. In the past, Peter has said that "high" revenue meant >£1m of royalty but some of these tests could be much larger. Secretoneurin clinical trials should be concluding soon and report this year. This looks like an interesting job posting (https://scholarshipdb.net/jobs-in-Norway/Postdoctoral-Fellow-With-Knowledge-In-Ivd-Biomarker-Research-And-Validation-Cardi-Nor-As=nGj4cdAE6RGUVQAlkGUTnw.html). Beta amyloid was recently awarded EU Horizon grant funding to conduct clinical trials on their Alzheimers diagnostic test. Unlike competing tests which seem to be reliant on mass spec, this one has been designed from the start to run on high-throughput machines. Also, the secretoneurin and beta amyloid tests are patent protected as to diagnostic method. CMyC in early research has demonstrated better results than troponin for ruling out myocardial infarction and its abundance earlier on relative to troponin means cMyC would be better suited to a hand-held or point of care device which doesn't have the same sensitivity as a normal testing machine. CMyC also isn't "exclusive" like troponin where revenues will be limited to Siemens and, to a much lesser extent, Beckman.

To complete the circle. I have just sold 60% of my holding at 3785p, which by good fortune is a sizeable profit. It was a difficult decision and one that Keith Ashworth Lord or Leon Boros would perhaps not agree, but it is one with which I feel comfortable and mitigates the risk going forward.

As previously mentioned Bioventix (LON:BVXP) is highly illiquid and I had to make several attempts before obtaining a quote. My remaining holding will enjoy the benefits of any future success and I can always buy back in if the opportunity presents and circumstances merit.

The art of compromise as they say...find me a fence and I will sit on it.

All the best

Rusty2

I have sold mine this morning at 3800p, I remember before they fell back to around 2300p, I will be looking to buy in if they fall back to around 3000p. Yes illiquid stock, difficult to sell this morning.

stepone

If anything, the appearance of a thread like this makes me think it might be time to buy some more :-)

I've been worrying that BVXP looked a bit frothy for a couple of years now, and if Troponin fails to take off like they hope, then there could be a serious fall (£20?).

But my experience has been that it is often a mistake to sell - you should find good companies and hold them forever. The royalty business model and large margins surely mean that BVXP will be a decent dividend payer for some time to come.

Having said all that, I did sell a third of mine at the start of the month for a tactical switch into Hurricane, hoping for a positive outcome on FPSO hookup. I'm expecting BVXP to fall back after the results (seems to happen every year) at which point I will probably swap back in.

Basically I am saying that BVXP is a quality company that should be held forever, but that humans are weak and occasionally give into tempation :-(

StepOne

Bioventix - should I stay or should I go?

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Jonno

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