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Abcam aims to diversify

RESULTS: A backdrop of budget cuts spells bad news for Abcam, which provides proteins for medical research - leaving the shares looking precariously rated
September 6, 2012

Abcam, which provides proteins for medical research, has been diversifying after adding a more specialist range of proteins through this year's $170m (£107m) acquisition of Epitomics. It's also in the process of bulking up its existing product catalogue by 25.5 per cent to 92,456 molecules. Yet, despite that strategic progress, the group remains heavily exposed to under-pressure government spending through public sector research budgets - leaving the shares looking too demandingly rated.

IC TIP: Sell at 411p

After adjusting for the Epitomics deal and currency movements, organic revenues grew 11.5 per cent year on year - down from 16.8 per cent growth last year. Abcam's second half was also slower than the first in some markets - particularly in the US, where sales are linked to the annual budget for the National Institutes of Health (NIH). The NIH's budget grew just 1 per cent this year, although that offers some comfort given earlier plans for $1.6bn of cuts - the Americas was actually Abcam's slowest growing region, with turnover there 9.7 per cent higher at £40.4m. By contrast, Japan surprised on the upside and sales, boosted by post-earthquake stimulus-related spending, increased 17.1 per cent to £11.1m.

Peel Hunt forecasts pre-tax profits for 2013 of £45.9m, giving EPS of 16.9p (£39m and 15.6p for 2012).

ABCAM (ABC)

ORD PRICE:411pMARKET VALUE:£815m
TOUCH:410-412p12-MONTH HIGH:434pLOW: 317p
DIVIDEND YIELD:1.5%PE RATIO:30
NET ASSET VALUE:75p*NET CASH:£17.5m

Year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
200836.68.003.401.10
200956.816.37.002.42
201071.125.810.74.01
201183.332.113.25.25
201297.834.713.76.05
% change+17+8+4+15

Ex-div: 31 Oct

Payment: 23 Nov

*Includes intangible assets of £116m, or 59p a share