I have not written on Abcam (ABC) but given the nature of its last appearance ("Abcam fat cats and useless 1%-er Non Execs") many will think just desserts about an 11% share price fall (as I write). There are few matters around the finance and corporate space I like less than seeing excessive, unjustified pay. I always like to think I justified any salaries I picked up whilst supping full-time at the institutional investment well (and given when I left a company, typically I was replaced by two or more people that may have been the case) but I certainly have seen - and still do see - evidence of gratuitous, excessive pay. At least on this issue Abcam got outed – and the oxygen of publicity is ultimately your best weapon save a responsible and respectful board of directors remunerating truly on achievement and proper value-add. Moving on, Abcam thematically is a pretty fascinating company...
It makes, sources and sells a range of 'highly validated biological binders and assays to help study the important targets in critical biological pathways'. Yes, that is almost gobbledygook...but stick with it as with half of its revenue/products internally generated out of the 110,000 it offers there does seem to be some proper intellectual capital as reflected by the 23% share of the primary antibodies market. And I like the observation that: 'we continue to focus our efforts on providing academic researchers and research and development teams worldwide with the latest tools and technologies to support their research, diagnostic and drug discovery objectives'. Yes, I know I am in danger of losing you again. So we will skip past all the awards it has won and note that recent growth has been double-digit in nature and particularly strong in China/Asia ('Abcam continues to gain market share in the global research market particularly from recombinant antibodies, immunoassays, and expansion in China') and ask the bleeding obvious question of why the shares now down so much?
Well the headlines look good with an observation of 'total revenue growth of 10.8%... Organic investment plans on track' but there is a little hint of something different with the observation of 'expect FY19 constant currency revenue growth to be broadly in line with first half'. Ah...the old 'broadly in line' shuffle! And then lower down the statement, margins and EPS were hit by planned investment which includes not only higher R&D but also a new Oracle ERP system and a new unified HQ in Cambridge (never a cheap place to build). Additionally its business in Japan seems a bit softer, although not disastrously. In short, what we have here is a classic long-term versus the short-term trade. It may be 'confident that the long-term investments we are making will enable us to sustain our low double-digit growth trajectory with attractive margins. We have a strong balance sheet which enables us to move swiftly to capitalise on further opportunities, including acquisitions and partnerships' but in today's world of uncertainty, investors will only take so much on trust.
After all even after the share price hit, investors are still paying over x20 EV/ebit for a company generating a 2%+ free cash flow yield (and paying about half of it out as a dividend). Hardly a classic value play. Sub 1200p (where we are now) is historically technically interesting and I would say 1100p and 1000p could be levels for longer-term traders but at a x2 PEG you do need a market environment where investors will be prepared to pay up. So keep an eye on this intellectually clever company...even if it is just to check it has learnt how not to hack off executive pay watchers.
Filed under: Abcam, Bearcast, WH Ireland, Interserve, Tesla, Trakm8, ShareProphets readers tips
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