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These two small high-growth stocks are just getting started

The last time I covered small-cap Oncimmune Holdings (LSE: ONC), I concluded that 2017 was set to be a transformational year for the firm, which produces early detection kits for cancers, as it booked its first orders and progressed towards critical milestones.

The firm’s interim results for the period to November 30, which were published today, confirmed that it is indeed making progress. During the period under review, Oncimmune signed multiple agreements for the testing and distribution of its EarlyCDT liquid biopsy platform technology, including a landmark agreement with Chinese company Genostics Limited. 

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Substantial investment 

Genostics has decided to invest £10m in the firm, of which £7m has already been paid, and the two parties have agreed on a royalty framework for the license, distribution and manufacturing of all products relating to the EarlyCDT platform within China. Royalty payments of 8% to 12.5% have been agreed, with minimum royalties over the first six years post-market entry of £15.7m, and £5m per year after that. 

As well as this landmark deal, the biotech company has minimum payment guarantees of £7.9m over the next five years in Asia Pacific for its EarlyCDT-Lung kit and £2m of payment guarantees within Europe for the same product. 

For the financial period under review, total revenues generated were a tiny £0.1m. However, considering the deals above, Oncimmune should see a substantial increase in sales. And following the agreement with Genostics, the group is also well funded, which should support further development of its products. 

Having said all of the above, I should caution that this is still an early stage business, and while it looks as if it has enormous potential, there’s still plenty that could go wrong. With this being the case, I’m positive on the outlook for the firm and will continue to monitor it as it grows, but the shares are only suitable for the most risk-tolerant investors. 

Refining the business

Another small-cap that might be more suitable for low-risk investors is Ebiquity (LSE: EBQ)

Ebiquity is in the business of marketing, specifically, monitoring the performance of advertising campaigns. To streamline its business, today the company announced that it was selling its Advertising Intelligence division, to concentrate on the higher-margin Media Value Measurement and Marketing Performance Optimization businesses. This sale will generate £26m in cash proceeds for the group allowing it to materially reduce net debt from 2.1 to 1.0 times EBITDA. Following this disposal, the group will be a “more focused and less complex business with the potential to achieve a faster rate of growth and better returns in a market where budgets are shifting towards analytics and technology.

Despite this shift, shares in the business trade at a relatively low earnings multiple of 10.5. City analysts are expecting the group’s earnings per share to grow from 8.2p in 2016, to 9.4p by 2018 as revenue expands by 15%. So the market isn’t avoiding the business because of a lack of growth. If anything, it looks as if the market is missing out on an exciting opportunity. The new, re-focused Ebiquity seems to me to be an exciting growth investment for risk-averse investors.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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