A small-cap pharma still smashing City forecasts

Picking the next big winner in the small-cap pharmaceuticals space is never easy. It's hard enough getting the drug majors right - AstraZenecaslumped 17% late July and Indiviorlost over £1 billion of its value last week – and even seasoned investors struggle here.

Make the call correct, however, and the rewards can be handsome. A case in point is £130 million Bioventix. We drew readers' attention to the stock three years ago, about six months after it joined AIM.

The company, which develops and supplies sheep monoclonal antibodies for use in immunodiagnostics, smashed analyst forecasts at its maiden set of full-year results, growing revenue by a third. House broker finnCap upgrade expectations but, despite surging 15%, Bioventix shares could still be had for as little as 650p.

Fast forward to the present day and they're up another 15% Monday after a trading update once again blew finnCap's estimates out of the water. Investors must now pay around 2,590p for the same shares!

Revenue is on course to reach £7 million, we're told. That's up 27% from the previous year and a significant 11% ahead of finnCap's forecasts. Pre-tax profit is also likely to be ahead of market expectations.

Mark Brewer, analyst at finnCap, said the reason for the stellar results was a combination of sustained second-half performance of its customer antibodies business. The weakness of sterling against the pound also added a 5% benefit, as around 55% of Bioventix's revenue is euro-denominated.

In 2014, the company gushed about prospects for its leading vitamin D antibody, predicting revenue from that would continue to grow through the years. Now, Brewer estimates it could account for 40% of sales.

Brewer upped earnings per share (EPS) estimates to 89.3p, from 78.7p previously and 29% higher than 2016's 69.2p. Year-end cash of £6 million reflects delays in creditor payments.

It had already received good news after Siemens Healthineers said it had introduced one of its tests, which incorporates Bioventix's antibody, into some markets outside the US. After the loss of one royalty stream in August, it came at the perfect time to replace what would otherwise have been lost revenue.

Today, the analyst placed his target price and full-year 2018 forecasts under review "pending a better understanding of product sales breakdown". His previous target had been 1,750p, raised after interims in March.

In 2014, finnCap said Bioventix's forward price/earnings (PE) ratio of 15 times compared favourably to the likes of Consort Medical and GlaxoSmithKline. Now, confirmation of that growth potential is reflected in a valuation more like 28 times.

Full-year results due 17 October should put more meat on the bone.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.