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On July 9th, 2021, I shared my first SA article about a British-based company named Abcam plc (NASDAQ:ABCM). Their business model is what I like to call the Amazon model in that they create and deliver the products critical for the drug companies so they can conduct clinical development for new drugs and diagnostic equipment in the medical space.
In their initial years of operation, they accumulated outside products and served as the middle agency in supplying the product to drug development companies. They are now scaling up where they are creating their own proprietary products that will give them a better opportunity to grow their revenues based on a better profit for such products. Plus, they are growing their product line by purchasing companies that have compatible products that can be blended into their well-managed full-line products used by their growing customer base. They have operating centers in the United States, European nations, China, Japan, the Middle East, Africa, and other Asia Pacific countries.
Abcam offers research products that include primary and secondary antibodies, and matched antibody pairs; cell and tissue imaging tools; cellular and biochemical assays; proteins and peptides; agonists; antagonists; activators; and inhibitors; lysates; and multiplex assays. Abcam has grown its business model into a one-shop supply organization for companies doing clinical research for new drugs and medical equipment. Having their expansive distribution centers located around the world they can supply their products on a timely basis to the end users—where time is money!
Their biological reagents and tools are used in clinical research for individual drugs and diagnostic equipment. Abcam’s product line is used in products geared toward the following medical conditions:
- Cancer
- Cardiovascular
- Cell Biology
- Development/Biology
- Epigenetics
- Nuclear Signaling
- Immunology
- Metabolism
- Microbiology
- Neuroscience
- Signal Transduction
- Stem Cells
With the constantly growing clinical development projects that involve mutual development activity on a global basis, Abcam is in an enviable position for providing their client with fast and efficient service for their needs. Not having the needed biological reagents available for a variety of locations could be expensive downtime for the relevant client’s ongoing clinical protocols. Abcam’s global location enhances its ability to service its client’s needs for a host of indications.
With this article, I would like to update the relevant events that have happened in the interim 15 months since my initial article. For a starting point, I should mention in July 2021, at the time of the initial article the stock was trading at $19.24. With the writing of this article, the stock price reflects it being down 15.8% in the interim time frame. Not as a defense or an excuse, but since July 2021, and especially in 2022 the stock market has had a massive correction resulting in extraordinary declines in the valuation of certain market segments—biotechs being a prime example.
Key Interim Events:
Abcam’s overriding goal is to grow the company through internally developed products and services. At this stage of their development management has been successful with this goal. However, they obviously will grow the company if they find a suitable company that has a product line that will blend into and support their growth efforts.
On August 2, 2021, Abcam announced they had made an offer to purchase BioVision, a company formed in 1999, located in the San Francisco Bay area. They made an offer of $340 million for the company where they would use existing cash on hand, and a drawdown on their existing revolving credit facility. At the time of the offer the previous 12 months that ended December 31, 2020, showed their revenues being $33.8 million. Based on this revenue they showed an operating profit of $12.6 million. Abcam projected that the BioVision ownership would be accretive to their earnings in the full-year results for 2022.
BioVision had been a supplier to Abcam since 2003, therefore they understood their product line and deemed it compatible with the product line they wanted for their growth and further profitability. What BioVision brought to the deal was a growing line of life science research products for biopharma, diagnostic and academic customers needing biochemical and cell-based assay kits. Plus, by this time in BioVision’s history their research and manufacturing operations had been relocated to Eugene, Oregon, where the University of Oregon is located. Eugene is a typical college town with a population of available and qualified workers for a bioscience company.
The second major event that is awaiting final approval, is in November when they will have a special meeting to approve the moving of their primary stock listing from the London Stock Exchange to the NASDAQ Global Market platform based here in the United States. Such a listing will bring more attention to the company and should provide more liquidity to the trading of their shares.
Rational for Abcam’s Growth Potential:
2021 was a unique year for the nations of the world and their respective economic system they have in place. The impact of Covid-19 was not a regional nor one nation phenomenon, rather it impacted nations from all regions of the planet. As for the economic endeavors, it would be hard to identify segments that were not drastically degraded from any semblance of functioning in a normal manner. And organizations with a worldwide business model, like Abcam, are exposed to greater chances their business model will be drastically impacted. However, with the specter of not having another pandemic anytime soon, a company like Abcam, the products they focus on will benefit greatly when the next pandemic arrives—and this will happen. But we must be better prepared the next time this event occurs.
If we learned one thing from Covid-19, it is simply the case that we humans must be ready for the next disease pandemic. Operating with this urgency, drug research on a worldwide basis will grow, and having the ability to have immediate access to the biological products and tools for conducting such research will offer Abcam the opportunity to expand its product line and thus generate more revenue and profits! It is my opinion that Abcam’s stock is getting ready to break its downward trend and now is a good time for investing in their shares by first establishing a small position –key your eye on a confirmed breakout as it nears the $20.00 level. Then add more to your holding.
Basic Financial Data:
Many of my fellow Seeking Alpha contributors often give a plethora of graphs and charts for the financial data from a company they are writing about. However, first and foremost, my articles are designed to provide a starting point where potential investors can do their needed due diligence based on their individual personal criteria for how and where they place their investment dollars. Looking at a static group of numbers without seeing them in full context and supporting information can present misleading information for the investor. For example—seeing a line merely stating revenue without breaking it out as to the source of that revenue isn’t what the investor needs to see. Seeing product revenue and a one-time milestone receipt combined under revenue is not helpful when investors need to send a steady and reliable inflow of revenues. As in the case with Abcam, what you want to know is what are their products generating in revenue from the marketplace. A one-time payment is exactly what it says—one time!
With that being stated the following are the basic financial numbers you can start your due diligence:
Data as of June 30th, 2022—1st Six Months Report:
- Total Revenues: GBP 185.2 million
- This GBP revenue converts into $199,029,800.00 (As of September 28, 2022)
- This represents a growth rate of 20% on a constant basis and up 23% on a reported basis. The 3% difference is based on foreign exchange rates, with the GBP declining against the USD and China renminbi.
- Gross Margins increased to 75.6% from 71.4% when compared to last year’s comp.
- Adjusted earnings were 14p per share—up 97% from 2021 comps. Revenues from the Americas (USA) being 43% of catalog sales—up 31%.
- Revenues in Europe, the Middle East, Africa (EMEA) were 26% of catalog sales—up 13%
- Revenues from the Chinese market represented 17% of catalog sales—a growth of 11%. But it should be noted that China is still being impacted by Covid, and certain areas are not back into full operation.
Historical Revenue:
- 2019-Fiscal Year (June)-259,900 million GBP
- 2020-Fiscal Year (June)-260,000 million GBP
- (Note) 2021-Fiscal Year Switch to Calendar Year (December)- 315,400 GPB
- 2022—End of June (2ndQ)—185,200 million GBP. Based on the full year, this projects out to be 371 million GBP. This appears to be a reasonable projection based on the increased products—both internal and through the addition of BioVision.
Abcam is maintaining its current projected growth for revenues being in the range of 450 million GBP to 525 million GBP by 2024. This projection is based on a constant exchange rate for this period. Should this trend continue, it will bode well for Abcam to be able to achieve its stated goals for growth and profits.
Conclusion:
In 2021 much of the world was still under the negative impact that the Covid pandemic was creating. Now in 2022, the respective economies have been recovering. However, China is still seeing some restrictions resulting from the lingering presence of Covid in their citizens. As for the stock market, there had been a nice rebound from the 2020 lows. However, certain market segments have not benefited from the recovery, and just last week we saw the market indexes having retraced all the gains and fallen into the bear sentiment range for the year.
Year-To-Date (YTD) we have seen major carnage being applied to the index performance for the biotechnology segments in the stock market:
- NBI (NASDAQ Biotechnology Index)—Down 21.9%
- SPSIBI (S&P Biotechnology Select Index)—Down 31.5%
There has been no place to hide among the biotech companies in 2022 unless it was related to a buyout and merger being involved. But it is my assumption that the biotech that has valid products and internal development programs for creating organic internal growth in their market penetration focus, there is a light at the end of the tunnel for the turmoil being seen in the world economy. However, this assumes we don’t have another pandemic, or the current Ukraine situation doesn’t turn into our Armageddon for mankind.
As for the world economy, I was able to recently learn from a logistic source there has developed a major decline in the shipment of goods coming into the US from Asian manufacturing companies. The number I obtained from my source was that his company saw a daily decline in shipments being unloaded for disbursement to retailer’s locations where they went from the mid-60s to as low as 25 shipments a day being processed. With Christmas shopping rapidly approaching, seeing such major declines in goods coming into the country is discouraging for big box stores and will eventually trickle down to the small retailers. This type of occurrence can create a domino effect that could impact the job market and needed revenue coming into the respective company involved in the chain for such products.
Now add in the upcoming election cycle and the closing three months of 2022, this will offer our investors much to keep their eyes on. Biotechs having operating funds for their drug projects shouldn’t be impacted by the retail slowdown. Abcam falls nicely into such a category. There will be a need for the products that Abcam offers, but having a happy consumer makes for a more upbeat total economy for the long-term investor.
As for investing in Abcam, I would first do your due diligence so you can understand what they offer for their worldwide customer base. Just be aware the current stock market is still showing some red flags for the economy. Has it reached the bottom and is ready to turn back upward—only time will tell! I have recently added to my position in Abcam in small purchases. For new investors, until the current downturn in the market has indicated a bottom in the current decline, I would start any position in their shares where I held back funds to add later.
Last week a major brokerage firm issued an upgrade for Abcam:
“RBC Raises Price Target on Abcam to GBP22 From GBP17, Citing First-Half Outperformance in Underlying Revenue Growth, Margins; Outperform Kept.
8:50 AM ET, 09/14/2022”
The above information was taken from Schwab’s trading platform for those investing with them. The same information should be available from the firm you make your stock investments.
Good luck with your future investing decision!
Editor’s Note: This article was submitted as part of Seeking Alpha’s best contrarian investment competition which runs through October 10. With cash prizes and a chance to chat with the CEO, this competition – open to all contributors – is not one you want to miss. Click here to find out more and submit your article today!
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