Why I Would Buy Bioventix Plc Over GlaxoSmithkline Plc And AstraZeneca Plc

Dave Sullivan shows that small can be beautiful as he compares Bioventix Plc (LON: BVXP), Astrazeneca Plc (LON: AZN) & GlaxoSmithKline Plc (LON: GSK).

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Investing in the world of small caps can be a hazardous occupation: it comes with a serious wealth warning.  It is hardly surprising to find that most investors place their money into large and mid-cap companies — on the whole these stocks can be a lot more liquid and are generally safer investments.

But sometimes a company comes along and, as you look closer, it can make perfect sense to invest your hard-earned cash before investing in FTSE 100 giants.  Indeed, if you do your research properly, you can achieve truly spectacular results.  Today I’m going to be taking a look at Bioventix (LSE: BVXP), and explain why I would invest in this company before I considered an investment in either GlaxoSmithKline (LSE: GSK) or AstraZeneca (LSE: AZN). Let’s take a look…

GlaxoSmithKline

Shares in this FTSE giant seem to have picked up recently, recovering from a slump at the start of the year as the market panicked about drugs coming off-patent and pricing pressures impacting the bottom line across the globe.  Perhaps the market is coming round to the possibilities that may result from the recent asset-swap with fellow mega-cap Novartis, together with the results of the company-wide restructure, currently under way.  Investors are hoping that the company will unlock some value going forward, resulting in a more streamlined company.

At first glance the shares don’t look cheap, trading at around 17 times forward earnings. Even so, they are still expected to yield over 5% before taking into account the return of capital scheduled for the first half of the year.

AstraZeneca

The pressure has been on the company following the rejection of the Pfizer bid last year.  Whilst the market wasn’t overly impressed with the results reported by the company on Friday, there may be some rays of light for those investors prepared to look forward.

The company seems to be making progress across its six areas of business, with a number of collaborations and joint ventures announced to the market. Investors may start to see the potential of these and other collaborations as they progress.

The shares trade at around 17 times forward earnings and yield just under 4%. Whilst they don’t scream cheap, there may well be some potential for them to move higher in the medium term.

Bioventix

As we can see from the chart below, there has been one clear winner over the last 12 months:

For those that don’t know, Bioventix is based in the United Kingdom and has a market capitalisation of only c.£40m.  It is engaged in the development and supply of antibodies. The company is a biotechnology company specialising in the development of high-affinity (accurate) sheep monoclonal antibodies (SMAs) for use in immunodiagnostics focusing on the areas of clinical diagnostics and drugs of abuse testing – it is generally accepted that sheep make better antibodies than mice.

It has two main lines of business: antibodies produced at its own risk; and Contract R&D, which is sponsored work.

The company takes around 12 months to make antibodies, then the customers — such as Siemens and Roche — take from 2-4 years to formulate a prototype test, conduct field trials, submit data to regulatory authorities and obtain marketing approval.  This is initially an impediment to revenue growth – but delivers longer-term revenue continuity.  The company receives revenue from royalties based on the sales of final tests to hospital and clinics.

Whilst these tests are still relevant today, the company is not standing still and has plans stretching out all the way to 2030.  Whilst the shares don’t currently look like they are in the bargain bucket, trading at 18 times forward earnings and yielding 3.5%, I would argue that this is a quality company boasting excellent revenue visibility, currently entering the next stage of its growth.  As an added bonus, it has nearly 10% of its market capitalisation in cash, giving it the ability to pay special dividends in due course.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Dave Sullivan owns shares in Bioventix. The Motley Fool UK has recommended GlaxoSmithKline. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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