hVIVO (LSE: HVO) was a penny stock only a couple of months ago, but a recent share price rise has seen it break above the £100m market-cap ceiling.
This follows a flurry of positive updates from the pharmaceutical services company, including the payment of its first ever dividend.
Here, I’m going to look at how much the company paid out to shareholders and explain why I think the stock is a buy.
Post-Covid hangover
Above, we can see that the share price rocketed in early 2021 after the firm was involved in the world’s first Covid-19 human challenge study.
However, once that excitement wore off, the stock embarked upon a painful 18-month slump.
Over a four-year timeframe, though, the shares are actually up 185%. So this has been a rewarding stock to own long term, even if the journey has been anything but smooth.
Rapidly expanding market
hVIVO is a specialist contract research organisation (CRO) that conducts human challenge trials on behalf of a range of global pharmaceutical clients.
These studies involve intentionally exposing healthy volunteers to an infection in a controlled environment. They provide incredible value for biopharma companies, as they offer quick and cost-effective data ahead of larger Phase 2 clinical trials.
Since 2020, many companies have been looking to test vaccines and antivirals against specific viruses that have the potential to trigger the next pandemic. This is creating rising demand for hVIVO’s services.
Record order book
In recent months, the company has announced multiple new contracts.
- In February, it secured a £6.8m deal to test a respiratory syncytial virus (RSV) antiviral drug candidate
- In June, it signed an agreement with a US biopharma client to develop the industry’s first challenge model for respiratory infection human metapneumovirus (hMPV)
- In July, it inked a £13.1m contract with a global pharmaceutical giant to develop an influenza B virus challenge model
The firm now expects to report H1 revenue of £27.3m, a huge 52% year-on-year increase.
Meanwhile, the group’s contracted order book now stands at a record £78m. This gives management strong revenue visibility stretching into the second half of 2024.
One headwind is that there have recently been industry-wide delays in getting UK clinical trial approvals. However, the firm is fully contracted for 2023 and still expects to achieve full-year revenue of £53m. And it is guiding for an EBITDA margin in the mid-to-high teens.
Why I’d buy the shares today
The stock is trading on a forward-looking price-to-earnings (P/E) multiple of 20, which I don’t find extortionate for a rapidly-growing firm. Management expects to announce more contracts, particularly with Asian biopharmas, and that long-term growth is sustainable.
As for the company’s maiden dividend? Well, that was a payment of 0.45p per share, on 9 June. It cost the firm £3m.
Now, I should note that was a special dividend, so there’s no guarantee another will ever happen. But the company continues to grow profitably and had a cash position of £31.3m at the end of June. So there could be more dividends to follow in future.
The company’s market cap is £117m, with the shares at 17p. Given the firm’s strong progress, I’m considering topping up my holding.
