The Bioventix (LSE: BVXP) share price looks a little shaky today following the release of the antibody developer’s full-year results report. In fact, after peaking in April near 4,000p, the stock is down almost 14% at the current 3,456p, as I write.
Long may the ‘correction’ continue, I say, because although the enterprise displays stunning metrics relating to quality, I feel that the valuation had been getting ahead of itself. For example, the forward-looking earnings multiple for the current trading year to June 2020 is running just over 27.
Good figures
The underlying figures in this report are pretty good, as we’ve become used to. Turnover increased by just over 16% compared to the year before and profit before tax moved more than 14% higher. I reckon it’s worth focusing on the underlying figures because a one-off, back-dated royalty payment flattered last years results making today’s headline comparisons look weak — and the financial outcome here is not weak at all in reality.
However, City analysts following the firm don’t expect earnings to expand in the years ahead any faster than today’s outcome indicates. Because of that, I reckon there’s scope for a valuation down-rating. And if that happened, I’d be a keen buyer of the shares.
Yet I can’t ignore the firm’s robust and defensive-looking business model. A small team of 12 full-time equivalents toils daily to research, develop and commercially supply high-affinity monoclonal antibodies for use on blood-testing machines used by hospitals and other labs around the world.
As well as income from selling physical antibodies, Bioventix earns around 70% of its annual revenue from royalties generated when its customers resell diagnostic products incorporating Bioventix antibodies to their downstream end-users.
I like two things about the set-up. Firstly, those revenues work on a royalty system, which means they are uncapped and linked to the usage of the product. Secondly, that the sector strikes me as being un-correlated to general macroeconomic conditions, which means the cash flowing into the business is likely to remain steady.
Sticky revenues
Indeed, it takes between four and 10 years before the firm’s initial research work generates royalties because of the long development and approvals process required. One consequence of this is that “there is a natural continuity of use as a result of a reluctance by a customer to change from one antibody to another.”
And the prospect of steady cash inflow leads to decent dividends for shareholders, which Bioventix demonstrates in its dividend record. Ordinary dividend payments are around 200% higher than they were five years ago, and on top of that, the company announced a special dividend today of 47p. Without the special dividend, the yield stands at about 2.1% and with the special, it is around 3.5%.
I think the company is a decent bet for long-term growth and dividend income, and I’d be a buyer of the shares if the market knocks the valuation lower from where it is now. This one’s on my radar, and I’m poised to pounce!
