Why Bioventix’s share price won’t see short-term upside

11th Oct '18 by Orangetree

8 comments 3339 reads

Bioventix was founded in 2003 as a biotechnology company specializing in the creation and supply of high-affinity sheep monoclonal antibodies (SMAs) for use in immunodiagnostics.

Current year sales came in at £8m (if you ignore backdated royalties of £0.8m), marking their eighth year of sales growth. Net profit came in at £5.7m, an increase of 15%, the growth rate won’t please shareholders because it’s a slowdown from last year earnings growth of 40%.

Bioventix most significant revenue contributor comes from the vitamin D antibody called vitD3.5H10. Sales rose by 23% to £3.4m. The usage of this antibody is for a number of small, medium and large diagnostic companies around the world for use in vitamin D deficiency testing.

Royalties from licensing the technology.

Why the market is loving Bioventix?

The following factors are the reasons why the market like Bioventix: -

1). Unique business model; - Bioventix spend very little on capital investment, therefore, requires little funding to become profitable.

That’s because Bioventix sells their technology to third-parties, who does the manufacturing and product development. In return, it receives royalty payments.

A license and royalty business produce high operating profit margin, which is currently earning 85%.

2). No debt; - Companies with no debt give shareholders more equity of the business, this lowers the probability of bankruptcy to (near) zero.

3). Requires little funding; - With a licensing and royalty business model, Bioventix spends little on manufacturing facilities, marketing and distribution.

4). Low capex; - Bioventix spends between £100k to £200k on capital investment each year, and this manages to generate increasing amounts of sales each year.

Valuation looks too high for Bioventix

Without knowing the market size or its potential, I can’t say whether Bioventix is expensive or cheap.

5bbf1dc7cfc9aBioventix_valuation_multipl

Apparently, that didn’t faze the market, as there were a host of good reasons for sending this company’s valuation multiple to new highs. Their latest earnings growth of 15% is now below that of the company’s PE of 28 times causing the PEG ratio to rise above one time. Therefore, (despite these positive attributes) Bioventix is no longer a cheap stock for short-term gains!

Here is a deeper look at Bioventix’s valuation below:

5bbf1df9b969dBioventix_change_to_valuati

Last year, the market was…

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Richard Goodwin

13th Oct '18

It is great to see you on Stocko again Orangetree. You are brave to take on everyone's favourite share!

Damian Cannon

14th Oct '18

Sorry Orangetree but I don't think that this is one of your better reports. There's no doubt that Bioventix (LON:BVXP) looks somewhat expensive on a P/E ~25 when forecast growth is 3.8% for FY19 and 12.7% for FY20. However this misses that fact that these forecasts are dependent on 2 elements:

1) Sales/royalties from current antibodies: the level of revenue here is pretty stable with moderate growth rates and a decline in the short term is unlikely since customers are very reluctant to stop using an approved test without there being a much improved replacement. The known loss here is sales from NT proBNP but that's not until July 2021.

2) Sales/royalties from new antibodies which, in this case, will all be from the Troponin test in the medium term. Now that Siemens have an approved test in the US they will be rolling it out globally, to hospitals which use their machines, and Bioventix (LON:BVXP) will benefit. The problem is that the growth trajectory is unknown and Bioventix (LON:BVXP) have almost no visibility of how much they will earn in FY19. So it's not clear that the analysts are including a lot for Troponin and income could be more than expected.

Looking back the company has posted healthy double-digit growth rates for a number of years (supporting a high P/E) and I think that investors are looking at the forecasts as a lower bound - which is why they're happy to invest. Obviously if Troponin fails to take off then the share price will suffer but it's very hard to see there being a real issue here since Siemens have the test ready to go, they have testing machines in hospitals around the globe and they decide then the test packs get rolled out.

Damian

matylda

Thanks for the analysis.

My own notes based on Stockopedia and a FinnCap Broker note on 8-Oct-18 give me the following...

EPS = 2016A (69p), 2017A (96p), 2018A (110.9p), 2019E (112.4p) and 2020E (126.7p).

This translates into EPS Growth, I think similar to your analysis, of 2017A (39%) and 2018A (16%).

The broker forecasts translate in EPS Growth of 2019E (1%) and 2020E (13%).

For this reason I too am in the camp of this is over valued at present considering the EPS growth and a current PE of around 25 or so.

Albertos

For me bull and bear cases are finally balanced.

Decider is if the bear case arises I feel this will crash.

One of the benefits of being a small investor is you can get out but I doubt this would be the case here.

Maddox

17th Oct '18

Hi Orangetree,

From a 3100p sp (date?) you predict a likely fall to 2635p (-15%) or 2325p (-25%). On 11th October when you posted BVXP closed at 2786p with the market already looking very bleak - so a short-term prediction in such volatile circumstances is a gamble to say the least!

Your analysis is sound as is your conclusion that BVXP is over-valued, on a historical basis, but I think it's a case of not seeing the wood for the trees. The investment decision rests entirely on whether the new Troponin test is successful or not, and if so, the quantum of that success.

Siemens are clearly backing this test, have a considerable investment in it, and the roll-out ready to commence. All of which I think is pretty persuasive and supportive of the valuation in both short and long-term.

Regards, Maddox

Orangetree

Thanks for your responses.

To clarify, I'm not pessimistic about Bioventix and thinks it is a GREAT BUSINESS. The only problem I have is that valuation overshot to the upside and AHEAD of the company's fundamentals.
Also, the next stage of growth will take time to realise.

P.S. I like this company a lot!

Thanks for the encouragement, Richard!

IMO, people should remember that GREAT COMPANIES do have their down spells from time to time. Take Apple, a company with a CULT following. During 2011, APPLE shares fell by 40% and bounce back to make new highs. In 2015, it fell by 30% and bounce back to make new highs.

The lesson here is nothing goes up in a straight line unless you are Bernie Madoff

"The lesson here is nothing goes up in a straight line unless you are Bernie Madoff"

Or Patisserie Valerie it seems!

Why Bioventix’s share price won’t see short-term upside

Why the market is loving Bioventix?

Valuation looks too high for Bioventix

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Orangetree

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