The last time I covered speciality pharmaceutical business BTG (LSE: BTG), I concluded that investors should avoid the company as time runs out for it to replace revenues from its CroFab snake antivenom.
CroFab is the company’s second best-selling product. But next year it loses patent protection and BTG faces the prospect of a revenue cliff when competitors enter the market.
To offset the possible impact of CroFab’s decline, management is hoping to bring new products to the market with the aim of doubling annual revenues to $1.5bn within five years. In June, City analysts remained sceptical that the company would be able to hit this goal, and I had my doubts as well. But it looks as if BTG is making progress.
At the end of June, BTG announced a tie-up with the PERT Consortium to advance the science of Pulmonary Embolism treatment and today, the firm has announced the acquisition of US medical device maker Novate Medical, bolstering its portfolio of vascular therapies.
BTG is paying $20m upfront for the company, with a further $130m pending, depending on the device hitting certain sales-related milestones.
The device called the Sentry can be used as an implant to prevent blood clots in leg veins from travelling to the lungs. It recently received approval for sale from regulators in the US. BTG plans to launch it in the next few months.
Revisiting expectations
This one acquisition won’t solve all of BTG’s issues, but it does show that the firm is moving in the right direction.
Efforts by the company are certainly convincing analysts that it can overcome next year’s patent cliff. Since May, analysts have increased their growth forecasts for the enterprise in 2019 by around 10%. Earnings per share (EPS) are now projected to jump from 29.7p for fiscal 2018, to 34.1p for 2020.
With a further $210m of cash available for acquisitions, BTG still has plenty of growth potential. As market sentiment towards the company improves, I believe it could generate impressive returns for investors.
The one problem with BTG’s shares is that they only offer a token dividend yield of 0.1%. So, if you’re looking for better divided returns, FTSE 100 champion Royal Mail (LSE: RMG) shouldn’t be overlooked.
A better income buy
Compared to BTG, I think Royal Mail’s growth potential is relatively limited. The company is expanding overseas, which is helping to offset some of the revenue declines in its home market, but analysts are cautious on growth over the next two years.
Still, as an income play, Royal Mail is highly attractive. The firm has been selling some of its lucrative property assets to pay down debt and strengthen the balance sheet, so it’s now almost debt free. What’s more, even though the company’s growth is expected to be limited over the next few years, the dividend per share is still covered 1.5 times by EPS.
These metrics are highly appealing, and they indicate to me that the group’s 5.4% dividend yield is entirely sustainable. Today, the shares are changing hands for just 12 times forward earnings, which seems about right for a company with a mixed growth outlook, but a sustainable market-beating dividend yield.
