Abcam PLC (LON: ABC) – Consistent with its five-year plan to generate profitable growth.

Abcam Plc is an FTSE AIM All-Share listed multinational life sciences company founded in 1998 and headquartered in Cambridge, the United Kingdom. It produces and markets protein research agents and tools to assist life science researchers and clinical communities. ABC’s products include a diverse range of antibodies and protein research tools used by researchers critical for drug discovery and diagnostics. The key clients of ABC are researchers and scientists in academic institutions, pharmaceutical & biotechnology companies, research institutes and diagnostic companies. Abcam sells its products in Europe, Japan, China, the United States, Africa, the Middle East, and the Rest of Asia Pacific. Presently, the Company is serving more than 750,000 customers all around the globe.

On 13 September 2021, Abcam would announce its H2 FY2021 results.

Recent trend of dividend payments

 (Data Source: LSE Website, Research done by Kalkine Group)

The chart above demonstrates the consistent dividend payment done by ABC from FY2017 to FY2020. The last dividend of FY2020, GBX 3.55 per share, was paid on 17 April 2020 (interim dividend). It had an ex-dividend date of 19 March 2020.

Growth Prospects

• Differentiated value proposition: ABC follows customer-centric innovation and identifies opportunities accordingly. It uses only antibodies in its research. The Company serves its customers better by its data-driven innovation platform, which helps in antibody discovery. It also brings distinctive insights using data analytics, which lead to high-quality products and personalised customer service globally.
• Growing market trend and market share gains: As per the management, research use proteomic tools have an estimated long-term growth rate of about 4%, while antibody development for clinical applications has an estimated long-term growth rate of about 4% to 8%. These growths are driven by productivity, like-for-like price inflation, research funding, research and development spending, etc. Furthermore, the Company has had a history of gaining market share every year since its inception.
• Partnership with diagnostic and biopharma organisations: The Company strives to make the transition from early discovery to clinical use. Hence, it is forming partnerships with diagnostic and biopharma organisations. The partners look for the best molecule to achieve their diagnostic goals and also a speedy outcome.
• Significant investments: The Company continues to invest to capitalise long-term opportunities and generate profitable growth in line with its five-year plan. Recently, the Company announced the opening of a new site in Boston, the US, for supporting its research and development, manufacturing and commercial activities. It is a significant step towards ABC’s global expansion.
• Sustainability initiatives: In October 2020, ABC applied to become a part of the UN Global Compact, the world’s largest corporate sustainability initiative. The management wants to operate the business in a sustainable way to bring value to science and society. Hence, it could help the Company to retain its partners and customers and grow further.

Key Risks 

• Intense Competition: With the rise in demand and new entrants, there is strong competitive rivalry in the market, which could put pricing pressure.
• Stringent regulations: The changes in import/export regulations due to Brexit and changes to the regulation in China regarding the development of intellectual property could affect the business of the Company.
• Integration of acquisitions: There could be an overvaluation of a target company. Also, the desired synergies may not be fulfilled after the acquisition. Hence, ABC’s financial position and performance could be hampered.
• Commercialisation risk: Covid-19 has created supply chain disruption, pipeline delay, and delay in testing. Hence, the roadblocks in commercialisation, like the lack of affordability and availability at the right time are worsened by these disruptions.
• Limited demand for lab products: There is still limited demand for lab products compared to the pre-pandemic levels. Also, the laboratory capacities are currently restricted.
  

Now we will analyse some key fundamental and shareholders statistics of Abcam PLC.

Recent Development 

Opening of new US facility in Boston, MA: On 13 July 2021, the Company announced the opening of a new site in Boston, the US, for supporting its research and development, manufacturing and commercial activities.

H2 FY2021 Pre-Close Trading Update (released on 1 July 2021)

• In H2 FY2021, the Company’s performance continues to exceed the management’s expectations without the foreign exchange impact. After the impact of foreign exchange, the performance meets expectations.
• As Covid-19 induced restrictions being eased around the world, the Company continues to increase its research activity.
• However, underlying demand is still below the pre-Covid level. Hence, labs are operating below their normal capacity.
• The management believes that policy changes and vaccination programmes would revive the demand, and subsequently, the research activities.
• The Company continues to invest to capitalise on long-term opportunities and generate profitable growth.

H1 FY2021 Financial and Operational Highlights (for the six months ended 31 December 2020 as of 8 March 2021)

(Source: LSE Website)

• On a reported basis, the revenue grew by 6.7%, and at constant exchange rates (CER), the revenue rose by around 8.3% during H1 FY2021. Moreover, the catalogue revenue had demonstrated a surge of around 7.8% at CER during H1 FY2021.
• On the profitability front, benefitted by higher-margin in-house products, the gross margin rose by 120 basis points to 70.9%.
• Meanwhile, the Custom Products & Licensing revenue increased by 15.9% during H1 FY2021.
• With regards to the financial position, ABC had a net cash position of £211.9 million as of H1 FY2021, significantly ahead of the net cash position of £88.5 million as of H1 FY2020.
• The Company has generated more than expected synergies from its recent acquisitions, with overall sales exceeding expectations.

Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 22 July 2021, at 7:15 AM GMT, ABC’s shares were trading at GBX 1,297.00, up by 0.93% against the previous day closing price. Stock 52-week High and Low were GBX 1,740.00 and GBX 1,142.00, respectively.

The momentum indicator RSI (14-period) is trading at ~38.92 level and moving towards the oversold zone. Hence, there could be an uptick in the stock price in the near term.

In the last five years, ABC’s stock has delivered a decent positive return of ~72.02%. Also, it has outperformed the FTSE All-Share Pharmaceuticals and Biotechnology index with a return of around 27.37% and the FTSE AIM All-Share index with a return of about 64.23%.

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

Business Outlook Scenario

ABC has delivered a resilient performance in H2 FY2021 amid challenging conditions. The Company’s performance continues to meet the management’s expectations, with gradually increasing research activity. Continuous investments to capitalise on long-term opportunities and generate profitable growth provide further confidence. The Company could benefit from its differentiated value proposition, growing market trend and market share gains, its partnerships with diagnostic and biopharma organisations, its significant investments and its sustainability initiatives going forward. The management believes in investing to generate shareholder value. The Board expects that the policy changes and vaccination programmes would drive a return to full demand levels worldwide.

Considering the positive outlook of the global antibody market, the Company’s sustainability initiatives, the decent profitability, liquidity and leverage position of the business, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Abcam Plc at the current price of GBX 1,297.00 (as of 22 July 2021 at 7:15 AM GMT), with lower-double digit upside potential based on 69.38x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

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

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

*The reference data in this report has been partly sourced from Refinitiv.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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