Arix Bioscience (ARIX:106p), a biotech venture capital company, has launched a strategic review that could lead to a return of capital to shareholders or even a tax-efficient wind down of the company.
It’s a classic Ben Graham value play, hence why I included the shares, at 110p, in my 2023 Bargain Share Portfolio. Arix’s cash pile backs up 73 per cent of its £137mn market capitalisation, leaving a £140.8mn portfolio of biotech investments in the price for £36mn, or 75 per cent below their carrying values, even though the portfolio is growing. in the first half of 2023, NAV increased from £226mn to £240.8mn (186p a share).
Arix’s assets include a £71.2mn (55p) listed portfolio of mainly Nasdaq-quoted biotech companies, £65.8mn (51p) unlisted portfolio, £2.8mn (2p) of legacy assets, and a £101mn (78p) cash pile. The listed portfolio and cash are worth 25 per cent more than Arix’s market value, de-risking the investment case.
Moreover, the unquoted portfolio includes an 8.8 per cent stake (worth £24.9mn) in Artios, a well-funded company that is developing precision medicines for the treatment of cancer. Artios has entered a research collaboration with Novartis (CH:NOVN) to discover next-generation DNA damage response targets to enhance its radioligand therapies. Its closest comparable, Nasdaq-quoted clinical-stage precision oncology company Repare Therapeutics (US:RPTX), is priced on a 26 per cent higher valuation even though Artios has more advanced programmes. Buy.
A safe nuclear option for profitable growth
- Record order book
- Annual cash profit up 9 per cent to £13.5mn on 10 per cent higher revenue of £109mn
- Net cash (pre-IFRS 16 lease liabilities) of £13.6mn (42p per share)
- Nine times cash profit multiple to enterprise valuation
- Modest 26 per cent premium to book value
Avingtrans (AVG: 425p), a manufacturer of critical engineering components and services, has issued an upbeat pre-close trading update ahead of full-year results on 27 September 2023 and announced a small acquisition, too.
Buoyed by a raft of contract wins across the nuclear industry, the group’s order book is at record levels for this time of year. Nuclear life extension awards include a £3.3mn follow-on order for the Forsmark nuclear power station in Sweden, and a £1.6mn order from a Polish nuclear power station owned by energy group Enea. In addition, the group’s Hayward Tyler business in Vermont has landed a $2.5mn (£1.9mn) contract with KHNP, a company which owns and operates South Korea's 21 nuclear power plants along with 27 hydro-electric power plants.
Interestingly, Avingtrans’ Energy Steel subsidiary in Michigan has received its first order, worth $1mn, from Terrapower, the next generation nuclear power company, backed by billionaire Bill Gates, which is building a demonstrator plant.
A strategic medtech acquisition
Avingtrans is not a one trick pony as it also has exposure to the medical technology sector and next-generation helium-free MRI technologies for orthopaedic imaging systems. One of its investments is in Oxford-based Adaptix (3D x-ray systems for orthopaedic and veterinary applications).
Having taken a minority 18 per cent stake in the company in October 2021, Avingtrans has agreed to pay £3mn to buy-out the other 82 per cent of shareholders to give it a market leading position in novel imaging products. The privately owned company has over 300 patents filed to date and earlier this year submitted a 510(k) pre-market notification with the Federal Drug Authority (FDA) for product approval in the US orthopaedic market.
Modest valuation
Despite the solid revenue and profit growth being delivered, and a record order book supporting prospects for the new financial year, the group is only valued on a nine times cash profit multiple to enterprise valuation. Moreover, if management can offload surplus land at Luton worth around £11mn (34p), the multiple would shrink to 8.2 times cash profit even though the group should be able to deliver profit growth in the new financial year even after factoring in ongoing investment in its medtech business.
This has not been completely lost on investors as the holding has produced a 121 per cent total return (TR) since I included the shares in my 2017 Bargain Shares Portfolio during which time the FTSE Aim All-Share TR index has shed 9.3 per cent of its value. The shares have also proved a safe haven since I reiterated the buy call at the interim results (‘An engineering firm benefiting from the shift to nuclear’, 22 February 2023), rallying 12.5 per cent in an Aim market down 10 per cent.
I expect the outperformance to continue especially as the board has an enviable track record of buying businesses, turning them around and then making disposals at impressive valuation multiples. The modest 26 per cent share price premium to book value fails to recognise this and Singer Capital Markets’ 510p target price, implying a price-to-book value of 1.5 times, is a more reasonable valuation. Buy.
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