Abcam PLC (LON: ABC) – 24.5% revenue growth of total in-house product during H1 FY21.

Abcam PLC (LON: ABC) is an FTSE AIM UK 50 Index listed multinational Life Sciences Company, which produces and markets protein research agents and tools to assist life science researchers and clinical communities. The Company was founded in 1998 and headquartered in Cambridge, UK. Moreover, ABC’s products include a diverse range of antibodies and protein research tools used by researchers critical for drug discovery and diagnostics. Furthermore, the key clients of ABC are researchers and scientist in academic institutions, pharmaceutical & biotechnology companies, research institutes and diagnostic companies. Abcam sells its products in around 130 countries. Currently, the Company is serving more than 750,000 customers all around the globe.

Abcam will announce unaudited results for six and twelve-months period to 30 June 2021 in September 2021.

 (Source: Company presentation) 

Growth Prospects and Risk Assessment

The Group made an increased investment in global operations, technology, e-commerce, digital marketing and research and development to achieve accelerated growth in the medium to long term. ABC would continue to invest in businesses to raise scalability of operational infrastructure, sustainable value creation and achieve optimum efficiency.

(Source: Company presentation)

The Company has achieved significant developments in the cell-line business as ABC opened a 16,000 sq. ft. research & development centre in Fremont during December 2020 to support cell line development and production. Moreover, ABC would enhance the operational capacity for protein development through expansion by opening Waltham, MA facility during 2021. Furthermore, the acquisition of Expedeon has brought a substantial growth of the conjugation and labelling business.

 (Source: Company presentation)

ABC entered into more than 40 new agreements during H1 FY21 and commercialized 100 additional clones through co-development programs, spanning platform, diagnostic and pathology partners. Nevertheless, more than 560 antibodies are approved for commercial usage on third-party platforms, and around 2,000 antibodies are undergoing evaluation process by partners.

Abcam is exposed to various operational risks such as the introduction of new technology by competitors, cybersecurity risk, failure to achieve the desired synergy from new acquisitions, and geopolitical and economic change. ABC is also exposed to financial risks such as currency risk, interest rate risk, credit risk and liquidity risk. Moreover, there is a risk of failure to deliver on Abcam's transformational growth projects, including the ongoing ERP implementation.

Industry Outlook Dynamics

According to Grand View Research’s latest report, the market size of the global life science analytics industry was USD 7.2 billion during 2019. Moreover, the industry is expected to grow at a CAGR of 7.9% from 2020 to 2027. The emergence of advanced technology in the life sciences industry and increasing digital penetration of life sciences companies would fuel market growth in the next few years. Moreover, the rapid usage of analytics in the clinical trial would also contribute to the development of the industry.

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

A Glimpse of Business Segments (H1 FY21)

Financial and Operational Highlights (for the six-month period ended 31 December 2020 (H1 FY21), as on 8 March 2021)

(Source: Company Website)

• In the first half-year, the Company delivered more than 8% revenue growth at constant exchange rates, as customers gradually return to labs. Moreover, the reported revenue surged by 6.7% YoY, with a growth of 7.8% YoY (at CER) in catalogue revenue and 24.5% YoY (at CER) in total in-house product revenue.
• In Custom Products & Licensing (CP&L), the revenue rose by 15.9% at CER to £8.5 million as compared with the previous year.
• Gross margin for H1 FY21 was 120 basis points higher than the last year's corresponding period, with a higher percentage of Catalogue revenue generated from in-house products.
• During the period, the reported operating profit and adjusted operating profit were down from the same period of the previous year, with an adjusted operating profit margin of 16.0%. The decrease in profit was driven by the impact of Covid-19, the planned investment, and the step-up in non-cash items (which includes share-based payments, depreciation and amortisation).
• In H1 FY21, the reported diluted EPS and adjusted diluted EPS were also down from the last year's corresponding period, reflecting the increase in the number of ordinary shares in issue and decrease in operating profit.
• The business stays cash generative at the operating level, with an increase of 139% YoY in the net cash position.
• The Company has improved its customer engagement levels, with average customer transactional Net Promotor Score (tNPS) increased by 7% pts year-on-year.
• ABC witnessed good operational progress across all areas. During the period, it has initiated over 40 partnership agreements with diagnostic and biopharma organizations, with the number of commercialized antibodies increasing to more than 560.
• Overall, sales were ahead of expectations, supported by the recent acquisition.
• It also completed a secondary listing on Nasdaq in the United States, with raising net proceeds of £126.5 million.
• The Company has appointed Mark Capone and Bessie Lee as Non-Executive Directors.
• Abcam also grew the specialty antibody portfolio, with signing of more than 40 new agreements. By the end of calendar 2024, the Company expects revenue outcomes to be in the range of £425-£500 million (at current exchange rates).
• The Company will also increase the rate of investment in areas (like digital marketing and e-commerce, research and development, technology and global operations), which gives steady growth over the medium and long term.

Financial Ratios (H1 FY21)

Share Price Performance Analysis

On 11 March 2021, at the time of writing (before the market close, at 8:02 AM GMT), Abcam PLC shares were trading at GBX 1,492.00, up by 0.40% against the previous day closing price. Stock 52-week High was GBX 1,740.00, and Low was GBX 943.00, respectively.

From a technical standpoint, 200-day SMA (GBX 1,420.77), 200-day EMA (GBX 1,455.31), and 14-day RSI (32.57) support an upside potential.

In the last two years, Abcam PLC’s stock price has delivered a return of ~29.56% as compared to ~28.45% return of FTSE AIM UK 50 index and a ~0.92% return of FTSE All Share Health Care Equipment & Services Index, which shows that the stock has outperformed the benchmark index and the benchmark sector.

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

Business Outlook Scenario

Abcam has demonstrated rising demand in the life sciences market well supported by increasing public funding and focus on clinically relevant biologics. Moreover, the strategic objectives of ABC are meeting the expectation in terms of timing and costs. The Company highlighted that it is making lucrative returns from the investments with a high return on capital employed and achieving operational excellence. Moreover, ABC develops most products aiming at high gross margins.

The Covid-19 pandemic had caused several operational headwinds like reducing lab accessibility to around 50% of labs globally, which is significantly decreasing the demand, particularly in ABC’s largest market, the U.S. Also, the Company remained highly cautious regarding the duration of the Covid-19 pandemic and provide clarity that laboratory activities would return to normal levels post-pandemic only. Furthermore, ABC had revised its revenue outcome to be ranging from £425 million to £500 million for calendar 2024 at current exchange rates. Overall, the Company would provide additional information when demand and laboratory activities would return to normal levels.

 (Source: Company Presentation)

Considering the decent revenue growth, attractive return on the capital, strong track record of M&A initiatives, robust business model, trading 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 1,492.00 (as on 11 March 2021, before the market close at 8:02 AM GMT), with lower-double digit upside potential based on 12.57x EV/NTM Sales (approx.) on FY21E Sales (approx.). 

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

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