Definitively showing you if Abcams a buy or sell

16th Apr '15 by mremington

5 comments 8189 reads

Abcam. Their share price has jumped about 20% over the last couple of months! Question is. Should you be getting in to get a piece of the action or should you be staying clear.

So who is Abcam?

According to my favourite info source, Wikipedia, Abcam is a biotech company with a global presence. There based in Cambridge, but they've got offices in all over the world.

Abcam breaks up their product lines into three part. Plus a sort of fourth catch-all for stuff that doesn't fit in nicely with the other categories.

- Core Primary Antibodies. The core business of Abcam. The one they started with when they founded back in 98.
- RabMab Primary Antibodies. A newer business, but with very high growth potential. About 15-20% each year.
- Non-primary Antibody Products. Again one of the newer businesses. The target for growth is even higher, at 25-30% per annum.
- The “other revenue." The catch-all category, which contains all the other products. It's much more unreliable income.

Their latest results were out for end Dec 2014. They showed some fairly healthy stats;

- Revenue growth up about 7%
- Profit after tax up again about 7%
- They met both the RabMab and Non-primary Antibody products growth target.

So onto the main questions, should we be a buyer or a seller.

The Positives

Momentum

The momentum behind the share price is looking good. Over the last six months, the price increased about 42%, whilst over twelve months it's up about 40%. Clearly the stock's in at the moment, it's a popular choice.

CFO

One great thing about the company is that it pumps out cash. The CFO (cash flow from operations) was around 100% of operating income. So for every pound their making of operating income, all of it is coming in cash.

Growth

Abcam has been doing pretty darn well on the growth front over the last six years. On average they've increased revenue by about 18% per year and they've increased profit even more, by about 24% per year.

The two charts show quite a trend for growth over those years. The one worrying thing, 2014 is below trend for both profit and revenue. Both only grew at about 4-5% for 2014. It could be a warning sign for things to come.

Managements got a clear plan of how to grow for the future, using RabMab and Non-primary products to drive that growth. They see 15 to 20% growth in…

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Edward Croft

16th Apr '15

I'm a big fan of Abcam and interviewed Milner a few years ago. I got under the hood of why their ROCE is so incredibly high and Milner told me a few of the company's secrets. I didn't reveal the extend of the moat in my article, but I take their core business model to be pretty impregnable. Been trying to buy it for 5 years, never can. It's finally breaking out... I wouldn't be surprised to see the P/E at 30x again.

mremington

Cleary a great business. Would love to know how they keep ROCE high. But, at this price and with Milner selling such a large chunk recently it seems a bit speculative to get in.

Cisk

Personally would cast my eye over a number of upcoming technologies which could take abcam's crown. For example Avacta (LON:AVCT) have recruited a number of high level staff from Abcam and could breakthrough with a competitive technology with better characteristics. High risk of course. But a £1bn mkt cap and the board having a weird policy of having a ceiling on their shareholding smells like something nasty.

17th Apr '15

It's very simple really. People often compare them to Amazon, but the similarity ends at being a web shopfront. The underlying economics are completely inverted for Abcam vs Amazon.

Amazon gets its highest margins on its newest products - as products (books/DVDs etc) age, margins and volumes decline. Abcam, by contrast, gets higher margins and volumes the longer products have been on the site. How do they do this?

Firstly, Abcam is a social media site, and scientists upload data about the antibodies they use onto Abcam's site. The more reviews and data sheets available on an antibody, the more valuable the antibody becomes to the research community and the higher the price Abcam can charge. So there's great economics to the ageing of products on the catalog, which is one of the reasons they put such a massive effort into getting as many products as possible onto the site.

The clever part of Abcam's model is that their suppliers have no idea which antibody is which on the website. They don't know which are their own supplied antibodies. Abcam relabels every single one with its own ids. So Abcam is able to keep purchasing costs low on its highest margin products.

That's how the ROCE stays so high. I love the model, just the share price is always so steep as many know about it. Have always thought this is a 15%+ compounder over a 10 year period. As ever, DYOR.

cig

Do you have a source for the claim that Amazon have margins that are an inverse function of product age? My impression is that they just put everything on the website on tight margins, and then stock manage according to demand in a product- and age-agnostic way.

Definitively showing you if Abcams a buy or sell

So who is Abcam?

The Positives

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Mremington

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