Bioquell (BQE:440p), a provider of specialist microbiological control technologies to the international healthcare and life science markets, has produced a mightily impressive set of results for the six months to the end of June 2018.
Revenues rose by 9 per cent to £15.7m, all of which represented organic growth and that’s after taking into account a currency headwind that clipped 4 per cent off the growth rate. Bioquell’s businesses are highly operationally geared, which means an increasing amount of gross profit earned on incremental revenue drops to the bottom line, reflecting a relatively fixed cost base. Moreover, gross margins increased by 2.2 percentage points to 53.6 per cent, highlighting the pricing power behind its hydrogen peroxide vapour (HPV) patented technology, the gold standard for bio-decontamination. The combination of a rising gross margin, healthy turnover growth and operational leverage helped to drive up Bioquell’s pre-tax profit by 41 per cent to £2m.
The company is cash generative, too, which is why net funds have risen from £11.3m to £15m year on year, a sum worth 67p a share. This trend is likely to continue given the impressive cash profitability of the business. To put this into some perspective, half-year pre-tax profits of £2m are stated after deducting depreciation (£645,000), amortisation of intangibles assets (£539,000), share-based payments (£149,000), and a small loss of £79,000 on the sale of a non-core business. Add those items back and cash profits increased from £2.5m to £3.3m, well ahead of the run rate analyst Chris Glasper at brokerage N+1 Singer had embedded in his full-year cash profit target of £5.5m, prompting the fourth upgrade to his forecasts in the past 12 months. He has lifted 2018 EPS estimates by 10 per cent to 12.2p based on Bioquell delivering cash profit of £6m and pre-tax profit of £3.5m on revenue of £31.8m.