Abcam Plc Exceeds Expectations

Growth is on track at Abcam Plc (LON: ABC); is there a bargain here?

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The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Every investor’s heart flutters when a company releases an ‘exceeding expectations’ statement, and that is exactly what AIM-listed protein research tool supplier Abcam (LSE: ABC) did this morning. Overall, second-half sales are up around 10%, and the firm’s new China operation delivered an exciting 20% year-on-year revenue growth in the final quarter of Abcam’s trading year.

The market likes it. Abcam shares are up almost 6% on yesterday’s close at 380p, as I write, providing welcome relief to existing shareholders who’ve clung on while the shares slipped from the 520p they achieved in early 2014.

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Hang on — the share price is well down from its highs and the latest market update is positive. I can feel my growth-at-a-reasonable-price receptors twitching!

Picks and shovels for scientists

If you’ve ever invested in the wild frontier of biotechnology or pharmaceutical development, you’ll know that hunting for the next blockbuster drug often involves putting your money into profitless research firm’s with a propensity to gobble cash as scientists beaver away hunched over their test tubes.

The most frequent outcome in the early stage life science sector seems to be that firm’s host a series of fundraisings that dilute investors’ interests into insignificance, making any eventual commercial gain meaningless to long-suffering shareholders. Such companies also have a propensity for going bust, which means total loss of investment.

Wouldn’t it be good to invest in a company that supplies the tools that this army of scientists needs to carry out their research, thus investing in the industry as a whole, rather than taking a mad punt on any one pie-in-the-sky investment story? Well we can, with Abcam.

Abcam produces and distributes protein research tools that enable life scientists to analyse components of living cells at the molecular level, which is an essential part of understanding health and disease. The firm’s vision is to create the world’s leading life science reagents company.

Amongst other things, the firm supplies a neat line in Monoclonals, Polyclonals and Conjugated Primary Antibodies – manna from heaven for any self-respecting research scientist needing high performance products with detailed technical specifications; which means most of them.

Driving growth

Abcam’s growth strategy aims for both organic and acquisitive progress and, as with any decent growth proposition, the firm focuses on quality, cost-control, and delivering operations as close to excellent as it can.

The formula has seen some success:

Year to June 2009 2010 2011 2012 2013
Revenue (£m) 57 71 83 98 122
Net cash from operations (£m) 15 20 25 24 39

That’s impressive-looking growth, but Abcam’s acquisition strategy means that fund-raising along the way has diluted investors’ interests to some extent.

Valuation

At a share price of 379p, Abcam trades on a P/E rating of about 21 and the shares yield a dividend of around 2.2%. Based on what we know, I think the firm is worth further research. We’ll find out more with the full-year results due on 9 September 2014.

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