Abcam PLC (LON: ABC) – Growth Driven by In-house Innovation

Abcam PLC is a UK based life science company that is engaged in the identification, development and distribution of reagents and tools used in life science research. The products of the Company include a wide range of antibodies and protein research tools that are used by researchers to study biological pathways, which are critical for scientific research, diagnostics and drug discovery. The headquarter of the Company is situated in Cambridge, UK, and it has operations around 15 locations globally with a total workforce of 1,500, of which 200 employees are PhDs. Abcam sells its product in around 130 countries. More than 450 antibodies of Abcam are validated for use on third-party platforms or for diagnostic use, and it has FDA approval for more than 20 products. The Company has been delivering revenue growth, and its operational activity is supported through acquisition, integration and investment in products and technologies. Abcam is listed on the FTSE AIM-UK 50 index. 

(Source: Company website)

Growth Prospects and Risk Assessment

Abcam has scaled investment for sustainable growth over the long-term, which has been supported by cash generation and strong cash position. In order to achieve future growth, the Company would extend its leadership in RUO bodies, where it will enhance antibody validation and production. Abcam would expand its business to new markets to drive growth, and it will launch a new line of products. The Company has entered into a partnership with instrumentation partners to become a leading discovery partner for biopharma.

 

Abcam is adapting to disruptive technologies and becoming a digital company; it has realigned teams and structure to drive digital transformation programmes. The Company is also hiring people in the digital team for smooth functioning at the technology site. It is adding new functionalities to enhance existing e-commerce platforms. The Company is also developing its manufacturing and development facility to attain scalability and reduce time in the development of the antibody. The inorganic growth would be supported by an acquisition that will provide new content and capabilities. It will also focus on breakthrough innovation opportunities where there are few or no tools.  

Growth Drivers

 (Source: Company website)

The Company makes an enormous investment in the development of innovative life sciences products. However, if a competitor develops and launches a better product, and if Abcam could not meet the changing customer needs, it is exposed to competitive risk. If it fails to recruit the right people for the development of the product, then it will affect the scientific and technological development. The Company generates a significant amount of value through acquisitions and integrations. If it fails to identify the proper or do not perform reasonable due diligence of the acquired asset, it will affect the business model and liquidity of Abcam.

Industry Outlook Dynamics

The global healthcare demand is rising following the increase in the ageing population, an increase in chronic disease and a focus on increasing access to healthcare. The global healthcare spending is expected to grow at 5% between 2019 and 2023, as per Deloitte report. These trends will support the demand for biomedical research, and research funding and capital investment to support the development of life science research reagents will also increase. The total addressable market size of the research use only (RUO) is expected to be around USD 8 billion, of which USD 3 billion is for research antibody and reagents, and USD 5 billion is for diagnostic treatment and disease treatment.

(Source: Company website)

After understanding the industry dynamics, we will analyse some key fundamental and shareholders statistics of Abcam Plc.

Recent Developments

On 3 November 2020, the Company unveiled that they would retain the existing Long-Term Incentive Plan (LTIP) metrics and targets contained in ABC's current Remuneration Policy, which was approved in 2018 by shareholders.

On 22 October 2020, Abcam announced the pricing of 8.9 million American Depositary Shares (ADSs), which was at US$17.50 per ADS (approximately US$156.5 million). The closing of the offering was made on 26 October 2020. The ADSs have been approved for listing on the NASDAQ Global Market

On 5 October 2020, the Company announced that Jonathan Milner had stepped down from the Board group.

Key Performance Indicators

 

(Source: Company Website)

 

A Glimpse of Business Segments (FY20)

Financial and Operational Highlights (for the year ended 30 June 2020 (FY20), as on 3 November 2020)

Financial Ratios (FY2020)

Share Price Performance Analysis

On 12 November 2020, at the time of writing (before the market close, at 10:41 AM GMT), Abcam Plc shares were trading at GBX 1,366.00, down by 2.71% against the previous day closing price. Stock 52-week High was GBX 1,584.00 and Low of GBX 943.00, respectively.

From a technical standpoint, we could see a positive movement in the share price based on the 50-day SMA (GBX 1,323.28) and 14-Day RSI (40.67). MACD line is placed above the central line, indicating a bullish setup.

Based on 2-years performance, ABC has outperformed the FTSE AIM UK 50 Index, but the performance was slightly below the FTSE All-Share Pharmaceutical & Biotechnology Index. ABC generated a return of around 14.42%, whereas the FTSE AIM UK 50 Index return was close to -0.82%, The FTSE All-Share Pharmaceutical & Biotechnology Index return was about 19.24%.

The Company’s stock has delivered a positive return of around 11.61% in the last year. In the last five years, Abcam Plc share price has delivered around 142% return as compared to the approximately 15% return of FTSE AIM UK 50 index, which shows that the stock has outperformed the index during the last five years.

Valuation Methodology: EV/Sales Approach (NTM) (Illustrative)

Business Outlook Scenario

Abcam delivered a resilient performance in FY20 despite the onset of a pandemic. In FY21, the global lab activity has improved slightly, and the Company is confident about the long-term growth potential with an attractive return profile. Given the uncertainty due to covid-19, the Company did not provide the FY21 guidance, but it stated that the long-term plans and financial goals of the Company are unchanged. The Company has stated that it will grow the number of viable products and establish a new web-platform to enable greater personalization. It will also focus on completing the next phase of global footprint in the US and China apart from seeking potential opportunities aligned to its strategies. The Company expects the operating cost to be higher in FY21 following the annualization of investments made in FY20.

(Source: Company website)

Considering the signs of recovery, trading as started on NASDAQ Global Market, decent operating & financial performance, high level of cash generation capabilities, and support from the valuation as done using the above method, we have given a “Buy” recommendation on Abcam at the current price of GBX 1,366.00 (as on 12 November 2020, before the market close at 10:41 AM GMT), with lower-double digit upside potential based on 12.16x EV/NTM Sales (approx.) on FY21E Sales (approx.). 

 

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

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