Abcam PLC (LON: ABC) – Aims to deliver revenue ranging from £425 million to £500 million by 2024

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. Presently, the Company is serving more than 750,000 customers all around the globe.

(Source: Company presentation)

Growth Prospects and Risk Assessment

• Partnership with Biopharma & Abcam Inside – 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. In a nutshell, over 560 antibodies are approved for commercial usage on third-party platforms, and around 2,000 antibodies are undergoing evaluation process by partners.
• New Product Lines – The Company had significantly expanded its conjugation and labelling business through the acquisition of Expedeon during FY20. Moreover, ABC had made significant progress regarding the FirePlex® multiplex offering as it had added several new biopharma customers and a new high-throughput 1,536 well-plate product launched in January 2021.
• Building organisational scalability– The Company would continue to enhance business scalability by making increased investments in talent & team capabilities, manufacturing & logistics footprint, and digital capabilities. Moreover, ABC had recently opened a 16,000 sq. ft. state-of-the-art facility in Fremont, CA, to support cell line development and production. Furthermore, the Company would aim to complete various developments such as the construction of a new 100,000 sq. ft site in Waltham, MA, and expansions across the operations in California, Oregon, & China. 

(Source: Company presentation)

Key Risks

• Acquisitions & Integrations – The financial position could be hampered due to overvaluation of the target company, ineffective due diligence, and failure to identify proper synergies.
• Law, Regulation & Compliance – The changes in import/export regulations due to Brexit and changes to the regulation in China regarding the development of intellectual property might affect the top-line business of ABC.
• Transformation projects – ABC might get failed to deliver transformational projects as per customers’ expectations with regards to their digital experience.
• Ethical Business –The risk of not meeting high standards of quality and ethical business practice may adversely impact the operations of ABC. 

Subsequently, we will analyse the Key Fundamental Statistics & Key Shareholders Statistics of Abcam PLC.

T.Rowe Price Associates, Inc is the most significant shareholder as it holds nearly 20.58 million shares as of 31 March 2021.

Recent Developments

On 19 May 2021, ABC updated that Lady Louise Patten got retired from her role as a Senior Independent Director and Chair of the Remuneration Committee. Moreover, Giles Kerr would replace her as Senior Independent Director effective from the same day, and Mara Aspinall would chair the Remuneration Committee in the interim.

H1 FY21 Financial Highlights (for the six months ended 31 December 2020, as of 08 March 2021)

(Source: Company result)

• On a reported basis, the revenue grew by 6.7%, and at CER, the revenue rose by around 8.3% during H1 FY21. Moreover, the catalogue revenue had demonstrated a jump of around 7.8% at CER during H1 FY21.
• On the profitability front, the gross margin rose by 120 basis points to 70.9%, benefitted by higher-margin in-house products.
• Meanwhile, the Custom Products & Licensing ('CP&L') revenue increased by 15.9% during H1 FY21.
• With regards to the financial position, ABC had a net cash position of £211.9 million as of 31 December 2020, significantly ahead of the net cash position of £88.5 million as of 31 December 2019. 

Financial Ratios (H1 FY21)

Share Price Performance Analysis

(Source: Refinitiv, Thomson Reuters)

On 20 May 2021, at 09:47 AM GMT, ABC’s shares were trading at GBX 1,409.00, up by around 0.50% from the previous day closing price. Stock 52-week High and Low were GBX 1,740.00 and GBX 1,142.00, respectively.

On the weekly chart, the stock is trading above an ascending channel pattern for more than a year and currently getting support from the lower band of the pattern at the GBX 1,350 level, indicating the possibility of an upside reversal.

In the last five years, ABC’s stock price had delivered a positive return of ~123.97%, while the FTSE AIM UK 50 index (benchmark index) had produced a return of about 62.33%, and FTSE All-Share Pharmaceuticals & Biotechnology (benchmark sector) index had generated a return of about 36.69%. 

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook Scenario

The Company remained optimistic regarding the accelerated progress of Covid-19 vaccinations & pandemic control and shown confidence that it would gradually lead to a return to full activity in labs. Moreover, ABC had demonstrated rising demand in the life sciences market well supported by increasing public funding and focus on clinically relevant biologics. The Company highlighted that it would continue to generate lucrative returns from the investments with a high return on capital employed and achieve operational excellence. Moreover, ABC develops most products aiming at high gross margins. 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 positive outlook of the global antibody market, strong liquidity profile, strong revenue growth, increased commercialization of antibodies, robust profitability, 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 1,409.00 (as on 20 May 2021 at 09:47 AM GMT), with lower-double digit upside potential based on 70.36x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.). 

 

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

*The dividend yield is subject to change as per the stock price movement.

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