Investment Highlights
 

1. The company focus on bringing innovation capabilities to market through a wider range of distinctive products for the clients.

2. The group has a broad geographic reach and having more than 300 products sourcing partners. It has a broad range of tools and applications to support research and to combat Coronavirus pandemic.

3. The company conduct research in multiple areas such as Cancer, Cardiovascular, Cell Biology, Metabolism and Immunology etc. and has a wide array of products to make life better.

4. Their ongoing enhancement in existing digital channels and marketing automation has led them to grow data sheet view by 15% (year on year).

5. The group reported strong revenue growth with decent operational performance for the current period.

6. Focus is on business expansion through digital collaboration (between digital and supply chain teams), ERP, training and development programmes.

7. Efforts are put in to build the portfolio of immunoassay and extend the business to adjacent life science reagents.

8. The share price is currently trading near its 52-week low, which makes an excellent opportunity to buy this value stock.
 

Business Overview: Abcam PLC (LON: ABC)

Abcam PLC (LON: ABC) is a FTSE AIM 100 Index listed multinational life sciences company, which produces and markets protein research agents and tools to assist life science researchers and clinical communities. The group is based out at Cambridge, United Kingdom. It helps in advancing the understanding of biology and causes of disease by offering highly validated antibodies and other binders, assays to its customers to support research, diagnostic and therapeutic applications. The operations of the group are reported in six geographical segments, namely the US, China, Japan, UK, Germany and Other Countries. The group employ over 1,100 people (including over 212 PhDs) across all its locations.


(Source: Company Presentation)

The products of the company include:
 

1. For Proteomic research reagents: Primary and Secondary antibodies, peptides, kits and assays, lysates, cell lines and biochemicals.

2. For Diagnostics: Immunoassays and Monoclonal antibodies.

3. For Therapeutics: Monoclonal antibodies (require high levels of regulatory approval).
 

End markets of Abcam include:
 

1. Academic laboratories of universities and government institutions.

2. Clinical laboratories in biotech and pharma companies, catering diagnostic markets and drug discovery.

3. Core facilities located across research institutions, hospitals and organizations.
 

Key Statistics



A Glance of Strategic and Operational Milestones in FY2019 Considering the Future Priorities

Sustainability in antibody market and excellence in digital marketing

1. Surpassed the global market growth rate by their primary antibody revenue growth.

2. Provided over 7,000 high-performance recombinant antibodies.
 

Horizontal expansion
 

1. Provided more than 250 new SimpleStep ELISA® immunoassay products.
2. Expansion in recombinant protein production capability by launching protein science team.
 

Investment in Operational Capabilities
 

1. Adopted Group’s Oracle ERP system successfully.

2. Enhanced the capabilities across supply chain by investment in global teams.
 

Maintain the Attractive Economies
 

1. Increased gross profit margin of 0.6%, to 70.5% by increasing sales in higher-margin products.

2. Contingency plan for Brexit.
 

Tapping Opportunities in Inorganic Growth
 

1. Appointment of SVP Corporate Development for designing acquisition strategy.

2. Entered £200 million revolving credit facility to support future transactions.

3. Acquired Calico Biolabs.
 

Highlights of Strategic Key Performing Indicators in FY 2019 versus FY 2018
 

1. Recombinant antibody constant exchange rate (CER) revenue growth: 22% (Target was 20%+).

2. Immunoassay CER revenue growth: 22% (Target was 20%+).

3. Transactional Net Promoter Score: 59% (Target was 57% to 67%).

4. Total CER revenue growth: 9.2% (as against FY 2018).

5. Return on Capital Employed:20.8% (FY2018: 22.2%).
 

Accomplishments of 2020
 

1. 4^th March 2020: Abcam PLC has announced the acquisition of Marker Gene Technologies (entire issued share capital). The acquisition shall bring labelling capabilities and further proprietary assay development technologies to Abcam group.

2. 30^th January 2020: The group has purchased the assets of Applied StemCell, in relation to gene editing platform and oncology product portfolio. However, the financial terms for this transaction were not disclosed.

3. 14^th January 2020: The group has appointed Michael Baldock as Chief Financial Officer, came in effect from 3 February 2020.
 

(Source: Company Presentation)

Primary Markets and Growth Trends

According to the market research projection, the global monoclonal antibody-based therapeutics market is expected to reach over USD 200 billion by 2023, which is nearly double from the size in 2017, whereas the companion diagnostics market is projected to reach around USD 25 billion.

The core area of Abcam is ‘the global life science research reagents’ market, which has estimated addressable market size of approximately USD 3 billion and projected to grow at nearly 4% per annum. Among USD 3 billion, around USD 1 billion refers to primary antibodies, wherein Abcam contributes around three-quarter of its total revenue.

Moreover, Abcam is extending the capability of its commercial application in antibody engineering into therapeutic and diagnostic markets in alliance with diagnostic and biopharmaceutical companies, by leveraging the strength of its Custom Products and Licensing Activities.

As per industry forecast in 2017, the combined diagnostic and therapeutic antibody markets stood over USD 120 billion. Abcam targets to address up to USD 5 billion market by developing products related to vitro diagnostic (IVD), biological therapeutics, other antibodies and immunoassays.

Top Shareholders

 

Financial Highlights – Strong revenue growth in H1 Financial Year 2020 (31st December 2019, GBP, million)


(Source: Interim Report, Company Website)
 
In the first half of the financial year 2020, driven by growth in catalogue revenue and  In-house Catalogue revenue for the period, the group’s revenue increased by 10.8 per cent to GBP 138.2 million versus GBP 124.7 million in H1 FY2019. The gross profit stood at GBP 96.3 million in H1 FY2020 versus GBP 87.6 million in H1 FY2019, with a gross profit margin of 69.7 per cent for the period. Due to an increase in the operating expenses for the period, the reported operating profit declined to GBP 26.6 million in H1 FY2020 from GBP 33.4 million in H1 FY2019. The adjusted operating profit stood at GBP 33.4 million in H1 FY2020 versus GBP 40.8 million in H1 FY2019. The adjusted PBT (profit before tax) stood at GBP 32.8 million in H1 FY2020 versus GBP 41.1 million in H1 FY2019, reflecting a decline of 20.2 per cent. The reported PBT (profit before tax) declined by 22.8 per cent from GBP 33.7 million in H1 FY2019 to GBP 26 million in H1 FY2020. The reported diluted earnings per share declined by 6 per cent to 12.6 pence in H1 FY2020 from 13.4 pence in H1 FY2019.

Financial Ratios: Higher Profitability Margins versus Industry Median 
 
 

The reported EBITDA margin of 31.3 per cent for the H1 FY2020 stood higher than the industry median of 5.6 per cent. The reported Pretax margin of 18.8 per cent for the H1 FY2020 stood significantly higher than the industry median. Net margin reported was 18.90 per cent for the H1 financial year 2020 and stood higher than the industry median of negative 1.3 per cent. Return on equity for the H1 Financial year 2020 stood at 6.7 per cent, which was higher than the industry median of 5.7 per cent. On the liquidity front, Abcam Plc’s current ratio was lower than the industry median of 2.37, reflecting insufficient current assets to pay its short-term obligations. On leverage front, the debt-equity ratio of the Abcam Plc’s was 0.45x, which was higher as compared to the industry median of 0.14x.

Share Price Performance


Daily Chart as on 9th April 2020, before the market close (Source: Thomson Reuters)

On April 9, 2020, at the time of writing (before the market close, at 10:00 AM GMT), Abcam Plc shares were trading at GBX 1,110.00, up by 0.91 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 1,523.00/GBX 943.00.

Bullish Technical Indicator

From the technical standpoint, its shares were trading well above its short-term support level of 20-day simple moving average prices, which reflects an uptrend in the stock and carrying the potential to move up further.

Valuation Methodology

Method 1: Price/Earnings Approach (NTM)

 

To compare Abcam Plc with its peers, Price/Earnings multiple has been used. The peers are Oxford Biomedica Plc (NTM Price/Earnings was 116.21), Genus Plc(NTM Price/Earnings was 37.78), Consort Medical Plc(NTM Price/Earnings was 39.47), Dechra Pharmaceuticals Plc(NTM Price/Earnings was 23.73) and Bioventix Plc(NTM Price/Earnings was 29.47). The Average of Price/Earnings (NTM) of the company’s peers was 49.33x (approx.)

Method 2: Price to Cash Flow Approach (NTM)

 

To compare Abcam Plc with its peers, Price/Cash Flow multiple has been used. The peers are Sarepta Therapeutics Inc(NTM Price/Cash Flow was 117.73), Samsung Biologics Co Ltd(NTM Price/Cash Flow was 85.41), Genus Plc(NTM Price/Cash Flow was 36.43), Alkermes Plc(NTM Price/Cash Flow was 31.27) and Hikma Pharmaceuticals Plc(NTM Price/Cash Flow was 15.35). The Average of Price/Cash Flow (NTM) of the company’s peers was 57.24x (approx.)

Valuation Metrics


(Source: London Stock Exchange)
 
This analysis is a useful technique to decompose the different drivers of ROE. It can be further examined through three financial metrics which are: net profit margin, asset turnover and financial leverage. This analysis helps to deduce whether the company’s profitability, use of debt or assets that’s driving ROE.

Abcam Plc Vs FTSE AIM 100 Index (1 Year)


(Source: Thomson Reuters)
 
In the last year, Abcam Plc share price has delivered negative 5.59 per cent returns as compared to negative 22.84 per cent returns of FTSE-AIM 100 index, which shows that the stock has outperformed the index during the last year.

Dividend Yield


(Source: Thomson Reuters)

Abcam Plc has a dividend yield of 1.1 per cent, which is higher than the sector dividend yield of 0.54 per cent but lower than the industry dividend yield of 3.93%.

Abcam Plc: Total Return 5 Years


(Source: Thomson Reuters)
 
Abcam Plc has generated a total return of 132.66 per cent in the last five years versus the total return of FTSE All share of 1.2 per cent for five years period.
 
Growth Prospects and Risk Assessment

The company keeps on launching new platforms and upgrade the old products and services to become one of the market leaders in the healthcare market. The company, through its wide-ranging scope, had accelerated growth organically and through acquisitions. The group is exposed to the effects of political and economic risks. Global political uncertainty regarding trade policy also poses a risk for the group, including protectionist measures and regulation or legislation in local markets.

Business Outlook Scenario

The group hasdelivered strong revenue growth in the first half of the financial year 2020. The group has many value-accretive projects in the pipeline, with lower risk and higher capabilities. Diligent efforts are put in to accelerate the rate of innovation in antibodies and its availability to scientists and researchers. On 1st January 2020, the group acquired Expedeon’s proteomics and immunology businesses to enhance capabilities in protein-conjugation. Their ongoing enhancement in existing digital channels and marketing automation has led them to grow data sheet view by 15% (year on year). The group’s operations in China have been restored to full potential, which will improve operational and financial performance in the near term. The group has a wide range of tools and applications to support research related to the Coronavirus, which can prove to be a gamechanger in the growth of the operations and market value. The company has not changed its long-term outlook and expect to carry investment plans on time and achieve five-year financial goals. The group is also monitoring the developments carefully and will provide appropriate updates.

Over the course of 3 years (FY16 - FY19), the company’s revenue surged from GBP 171.7 million in FY16 to GBP 259.9 million in FY19. Compounded annual growth rate (CAGR) stood at 14.82 per cent.

Based on the decent prospects and support from the valuation as done using the above two methods, we have given a “BUY” recommendation at the current price of GBX 1,098 (as on 9th April 2020, before the market closed, GMT 12:45 PM), with lower-double digit upside potential, based on 49.33x Price/Earnings (approx.) on FY20E earnings per share (approx.) and 57.24x NTM Price/Cash Flow (approx.) on FY20E cash flow per share (approx.).
 
*All forecasted figures and Peer information have been taken from Thomson Reuters.

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