Bioventix - wide moat, strong growth, high ROCE, excellent cashflow and reasonable valuation

Tuesday, Nov 22 2016 by

Bioventix (BVXP)  1300p

Mkt Cap £65m Net Cash £5.4m 17.5x FY17 PE DY 3.3% (4.8% incl spec div)

I first read about Bioventix in an interview with Keith Ashwell-Lord on the Stockopedia website. I was really interested as it seemed to be a high returns business with a great moat and reasonable valuation. So I did my own research and along the way met Leon Boros (a great investor) who knows the company very well and owns a lot of it. I think this is a very very high quality company run by CEO Peter Harrison. It produces monoclonal antibodies from sheep gut, used in blood testing by global med tech companies like Beckman Coulter, Siemens and Roche. Revenues have grown at over 20% pa for the last 5 years and I expect further good growth over the next 5 years, although at a slower rate. The next 2 financial years will be bumpy due to the expiry of heart failure antibody NT ProBNP (13% of revenues). This should be offset by the start up of a Troponin test (also used to detect heart failure) by Siemens in Europe and the US and could produce peak sales of over £1.5m. Although there are no patents, the barriers to entry are very high and Bioventix has not yet lost a customer to a competitor. The royalty model means the company is very cash generative and has outstanding financial characteristics: Gross margins over 90%, EBIT margins >75%, ROCE >75%, £5.4m of next cash on the balance sheet and PE 17.5x June 2017 and a dividend yield of 3.3%. Any set back based on the expiry of the NT ProBNP royalty stream would be a buying opportunity to me as I am confident the Group will continue to grow both via its existing antibody library and via the start up of Troponin. I started a holding this summer and added more last week, but have only just got round to writing it up. Apologies.

More detail below:

Business Model
Bioventix was founded 2003, and IPO’d in 2012. Bioventix produces Mono clonal antibodies (MABs) made from Sheep blood cells. Antibodies bind to a particular molecule (antigen). So specific antibodies ONLY bind to specific antigens. Therefore antibodies are used by the manufacturers of blood testing machines like Siemens, Roche and Beckman Coulter in what are known as reagent kits…

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Bioventix PLC is a United Kingdom-based biotechnology company. The principal activity of the Company is the development and supply of antibodies. The Company specializes in the development of sheep monoclonal antibodies (SMAs) for use in immunodiagnostics focusing on the areas of clinical diagnostics and drugs of abuse testing. The Company's non-vitamin D business consists of antibodies, NT proBNP (heart failure), testosterone, Free Triiodothyronine (FT3) (thyroid hormone), estradiol, and various drugs, such as tetrahydrocannabinol (THC)/cannabis, and progesterone. The Company offers products for indications, such as thyroid, fertility, oncology, cardiac, vitamin D, drug of abuse, infectious disease and miscellaneous. Its sheep hybridoma technology produces cell lines that secrete SMAs. The Company offers a panel of SMAs to 25-OH D and has various 25-OH D2 and 25-OH D3 specific antibodies. It sells its products through direct sales and through distributors. more »

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9 Posts on this Thread show/hide all

pone 5th Nov '17 1 of 9

It is hard to believe that such an interesting company did not gather responses. I really like this company, and it is tremendously unusual to have a company with such small revenues have such predictable increases in their results one reporting period to the next. I guess this is a side effect of using a royalty model as well as having some product diversification.

My biggest concern here is does this tiny company have the ability to scale? Running the current year EPS through a reverse DCF calculator, the current price assumes an 18.5% compound growth rate for 10 years. Based on historical results, don't most of these antibodies max out around 1.5 to 2M UK pounds per year? There are only so many tests they can have in the pipeline given their small size. So isn't a risk here that they grow rapidly to a maximum threshold and then all growth suddenly stops? They then milk whatever revenue level they achieve with high margins, but the growth that is the basis for the extremely high share price would simply disappear, and along with that the share price would collapse dramatically. Asked differently, what is the maximum size this company could achieve in 10 years, given their business model?

I see the 2018 estimate showing a reduction of revenue, but it looks like the Vitamin D product - with its higher royalty rate - is more than compensating for the loss of the antibody that is coming off its royalty period. So I question just how down 2018 would be. A single unexpected down report is likely to collapse the share price significantly, so it is tempting to wait for that.

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pone 5th Nov '17 2 of 9

I guess the other concern here - given how small they are - is do they have an unusually high "key man risk"? Is the CEO the founder and also the brain trust of the R&D? If he dies, does the company effectively go into a runoff?

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VegPatch 5th Nov '17 3 of 9

What's your discount rate for the reverse DCF?

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gus 1065 5th Nov '17 4 of 9

Thanks for refreshing the thread and bringing back into focus Vegpatch's original excellent piece that I didn't see at the time. I bought a small holding in Bioventix (LON:BVXP) earlier this summer prompted by a discussion with a (non investing) medic friend who was talking enthusiastically about Troponin (she doesn't get out much) and subsequent follow up research. Quite a small share float and not very liquid which possibly helps make it quite a volatile share price.

Interesting company although seems to have come off the recent highs and there have been some recent Director sales. P/E now in the high 20's reflected in the low Value ranking but I think the investment case still justifies the rich rating. I agree a primary business risk is the reliance on key individuals although with only 15 employees or so in the company they're presumably all pretty key. I also noted the comment in the recent results release that they deliberately don't hedge their currency exposure (£ expense base vs. Euro and USD royalty stream) so for those interested this is quite a pure currency play.

Not sure if you've seen it, but I picked up a recent interview with Keith Ashwell-Lord (27/10) in which he mentions Bioventix (LON:BVXP) as one of his 3 core holdings (13:20 in). The whole interview is worth a view for anyone interested in his Buffetology approach.


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pone 5th Nov '17 5 of 9

In reply to post #236713

@Veg I am using 12% for the discount rate and 10 years at the primary growth rate followed by 10 years at 4%

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pone 5th Nov '17 6 of 9

In reply to post #236728

@Gus, you raise an interesting point on lack of liquidity. It looks like average daily volume for this stock is about 1/10th of 1% of the float. The recent large sale was only 1% of the float, and it greatly affected the price. Trading volumes are so low that the price could not quickly recover from that single day of trading. So the implications of that lack of liquidity are that the stock will rise rapidly after good news, but in the face of bad news or any situation where a significant percentage of the float wants out in a few days time, the share price will collapse very rapidly. Everyone is trying to get in and out of the room through a very thin door.

I really liked the Keith Ashworth-Lord interview. Do you know is there any way to get a public record of the trades in his Buffettology fund, even on a time-delayed basis?  Or does the UK require any disclosure of positions for funds a few times a year?

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gus 1065 5th Nov '17 7 of 9

In reply to post #236738

Hi pone.

It is pretty easy to get information on UK listed fund holdings on the internet without paying subscription fees. From a few mouse clicks, here is an analysis of the KA-L Buffetology fund mentioned in the article. I've specifically linked the page that shows the fund's top 10 (of 31 - roughly 36% of the total) holdings as of 31/10/17.

Pleased to say, I already hold four of these ( Games Workshop (LON:GAW) , Bioventix (LON:BVXP) , Dart (LON:DTG) and Trifast (LON:TRI) ). A case of "great minds think alike" (or more likely "fools seldom differ!").


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Irishmanabroad 11th Mar '18 8 of 9

At the risk of asking a silly question, the stock ranking for Bioventix has been declining over the last 6 months, for a company with a strong moat and I am puzzled by this

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Howard Marx 11th Mar '18 9 of 9

In reply to post #336813

The fall in the Bioventix (LON:BVXP) Stockrank is almost wholly due to the momentum rank falling from 90 to 52

This is due both to its share price momentum stalling + a lack of positive earnings revisions

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