Abcam ready to reap benefits of investment drive

Abcam (ABC), one of the jewels in the crown of London’s Alternative Investment Market, is preparing to quit the exchange to seek greater opportunity on the Nasdaq. The company – which is just over halfway through a five-year investment cycle – is no doubt seeking exposure to US biotech investors willing to support it as it grows. Whether these investors show up as hoped depends significantly on the Cambridge-based firm’s near-term financial position. 

Most signs in Abcam’s interim results point to the likelihood of revenue growth and margin expansion. The company said its gross margins improved by 420 basis points to a reported 74.1 per cent in the first six months of this year, during which time it also added 1,800 new products to its catalogue. These (higher margin) in-house products now represent just over two thirds of total sales. 

Abcam is not a pharmaceutical company that depends on the revenue of R&D-intensive medicines. Rather, it develops antibodies that are used by scientists in various forms of research and drug discovery. Though it doesn’t have to invest in the costly process of pharmaceutical development, it has spent the last few years investing to position itself for growth in the antibody market. This partly explains why its pre-tax profit fell in the first half of the current financial year. 

The acquisition of fellow antibody provider BioVision last year has also left Abcam with a modest net debt position of just under £10mn. However, analysts at Numis say investment is  “key to developing and launching cutting edge research tools that enable its customers to perform more cutting edge science”. FactSet consensus puts the company’s adjusted forward PE ratio at 34.7x for the 2023 financial year, down from an estimated 46.6x this year, although the stock is still priced for growth. Buy.

Last IC view: Buy, 1,234p, 11 August 2021