"Numis: Horizon trading at discount despite strong growth
Gene-editing company Horizon Discovery (HZD) is trading at a significant discount to peers despite matching their growth, says Numis.
Analyst Paul Cuddon retained his buy recommendation and target price of 300p on the shares, which fell 8.2% to 212p yesterday.
The company expects to report 51% sales growth for full-year 2017 to £36.4 million, driven by higher margin diagnostic and biomanufacturing products and the acquisition of Dharmacon.
Having delivered savings throughout the year, Horizon achieved profitability in the fourth quarter and with the integration of Dharmacon ongoing is well placed heading into 2018 where the outlook for growth remains strong, he said.
The shares trade on 5x enterprise value/2018 sales, which is a significant discount to the wider tools peer group at 7x, delivering similar underlying growth and gross margins."
Horizon to acquire Dharmacon
By StockMarketWire | Wed, 19th July 2017 - 07:38
Horizon Discovery Group has agreed to acquire Dharmacon from General Electric Company for a total consideration of $85 million (£65 million), subject to a working capital adjustment at completion.
Horizon said that upon completion, which was conditional on the approval of the placing by Horizon shareholders and anti-trust clearance in the US, General Electric Company would receive $50 million in cash and a subsidiary of General Electric Company would be issued with $35 million in new ordinary shares in Horizon to be valued at the placing price of 205 pence, equating to 13,064,868 new ordinary shares (representing 8.8% of the enlarged share capital of Horizon).
The company also announces that it would raise £76.4 million, net of expenses, through the issue of 39,024,390 new ordinary shares at 205p apiece.
"Biologic era benefits Horizon Discovery, says Numis
Gene-editing company Horizon Discovery (HZDH) has improved efficiency and is driving its product line, believes Numis Securities.
Analyst Paul Cuddon retained his buy recommendation and target price of 260p on the stock, commenting: Biologic drugs have taken over from small chemical modules as the best-selling drugs worldwide, and now underpin the pipelines of the vast majority of pharmaceutical and biotech companies.
These drugs are primarily manufactured in Chinese hamster ovary cells and Horizon has used its gene-editing expertise to modify this gold standard cell line to improve the efficiency of production and provide more flexible licensing terms for drug developers, he added.
This agreement further highlights an additional driver of the products business that underpins our growth expectations in the years ahead, and further reflects Horizons ability to leverage its gene-editing technology into markets beyond research and companion diagnostics, Cuddon said.
"An announcement this morning sees Horizon expand the application of its bioproduction cell line platform with new partnerships with the Centre for Process Innovation (CPI, UK) and the National Institute for Bioprocessing Research and Training (NIBRT, Ireland). This continues the strategic-style news flow from Horizon where partnering and collaboration agreements are established, not for the headline numbers, but for their potential to build revenue streams over the long term."
Update from Panmure, out this morning on Research Tree
Following Horizon's announcement on 12th of May of a deal with an NGS Company, we are now given the name of the Company - QIAGEN N.V. a US$5bn NASDAQ and Frankfurt listed global leading NGS platform enterprise. Importantly, the deal demonstrates the impact Horizon's Reference Standards are having in supporting the rapidly growing NGS market. Further, future joint collaborations are expected as work continues to unlock the full clinical and research potential of both technologies. In addition, QIAGEN's GeneRead QIAact Actionable Insights Tumor Panel is the first in a family of multiplex panels for the GeneReader NGS System targeting the most prevalent types of cancer research, including breast, ovarian, colorectal, lung and melanoma. The accuracy, consistency and reliability of this Panel was validated through extensive testing compared with the control data derived from Horizon's Reference Standards, proving its performance. Yesterday's announcement validates further the quality of the Horizon Discovery's services on offer. We believe there is more opportunities for Horizon Discovery in this space. beaufort's note on researchtree
Read Panmure Gordon & Co's note on HORIZON DISCOVERY GROUP PLC (HZD), out this morning, by visiting https://www.research-tree.com/company/GB00BK8FL363
"Horizon Discovery has announced it has signed two OEM agreements with a market leading next generation sequencing platform company covering its reference standards products. No financial terms are disclosed. We see todays announcement as expanding the nature of the commercial agreements Horizon is able to secure on the back of its Reference Standards products and..."
Read Panmure Gordon & Co's note on HORIZON DISCOVERY GROUP, out this morning, by visiting https://www.research-tree.com/company/GB00BK8FL363
"Todays prelims follow the mid-January trading update and, therefore, sales performance of £20.2m (PGe £20.1m) comes as no surprise. The group reports an adjusted (before net exceptional items benefit of £0.4m) pre-tax loss of £10.9m vs our estimate PGe adj loss £10.0m. After the net impact of exceptionals, finance costs and tax benefit the reported loss per share of 11.2p comes in line with our 11.4p loss estimate. Theres minimal additional information on outlook/current trading within todays statement, so well be looking for more information at this mornings analyst meeting...."
"Cambridge, UK - 18th January 2016: Horizon Discovery Group plc (LSE: HZD) ("Horizon" or the "Group"), the international life science tools business today announces a trading update ahead of its full year results for the twelve months ended 31 December 2015. The Group intends to announce its preliminary full year 2015 results on 26 April 2016.
The Group reports a second consecutive year of on-target performance since its IPO, with full year 2015 revenues expected to be at least 2% ahead of the £19.8 million market consensus, representing growth of at least 69% (year ended 31 December 2014: £11.9 million). In addition, the Group is eligible to receive future R&D milestones of up to £208 million plus future product royalties, an increase of 32% over the prior year (year ended 31 December 2014: £158m).
Revenue growth is reflective of strong product and service sales to large pharmaceutical and diagnostic development companies as well as an increasing number of academic customers purchasing from a product inventory that increased from 2,750 to 23,000 in the year..........
Year-end cash is expected to be reported at £25.1 million (year ended 31 December 2014: £18.5 million)."
It seems there are other proteins other than Cas9 that can do the same job only better. Implications: i) There are going to be many gene editing proteins out there, so companies such as Horizon won't have to pay so much for licences, ii) the winner of the race to cash in on gene editing services will not just be limited to those with the most money who can afford the licenses, it will be about who is best at marketing and who can enable their customers to get their gene editing done in the most efficient way.
The new technology should fit with Horizon's current approach of offering a portfolio of gene editing technologies. Having Fang Zheng (who found the new gene editing protein) on the advisory board must also help. On the marketing side, they are up against some big players like Origene and ThermoFisher. They will have less to invest in pushing Cripsr but also should be able to have more laser-like focus on it than their larger rivals.
Yes I agree it is very hard to value this company and you can, indeed, expect more dilution. I like the agreement with Abcam just announced but I prefer Abcam as an investment because its business is less speculative, easier to value and it throws out cash rather than consuming it. I would advise taking no notice of what Mr. Woodford invests in. His training was in economics and he has worked in insurance and as a fund manager with great success in selecting equity income investments. I am sure he must have done a crash course in biotech but, speaking as an investor with 25 years experience of the UK and US biotech industry, I find it hard to work out how he has developed the expertise to invest in this sector which, believe me, is fundamentally different from equity income investing. I assume he must be outsourcing the due diligence on his biotech investments and I have a feeling that he is adpopting a "scatter gun" approach as I can see no rhyme or reason with the companies he is choosing, some of which are look excellent to me and some appear to be no-hopers.
Thank you for your thought provoking post. Here are two thoughts it has provoked:
i) This is currently a cash-hungry, acquisitive and loss-making (but fast-growth) business which is likely going to wish to raise more money in order to aggressively pursue its strategy. So we can expect further dilution.
ii) On the other hand, if Woodford thinks it is worth a punt at 190 shouldn't we also?
For me the key to the business is whether they can become the go-to company for the CRISPR technology. Other good businesses like Origene have CRISPR licenses but HZD have the links into pharma - probably they are after different segments. I think HZD will succeed and I am very tempted to get in at this level.
However, I do find it very hard to value this business.
"Horizon Discovery Group Plc (HZD.L) Announced, in its trading update for the six months ended 30 June 2015, that the revenues stood at £8.6 million, 112% growth from the previous year (six months to 30 June 2014: £4.1 million). The group receivables for future R&D stood at £158 million plus future product royalties (six months to 30 June 2014: £120 million). In the product segment, revenue was approximately £3.0 million during the period, representing strong period on period growth and continues to represent an increasing proportion of total group revenues. Significant expansion in the cell line and diagnostic reagent product inventory to around 16,500 products (six months to 30 June 2014: around 2,750) driven by internal product development and the integration of the cell line inventory acquired through the acquisition of Haplogen Genomics GmbH in the period. The company expanded sales channel for cell line products in the rapidly growing genomics research market via an agreement signed with Thermo Fisher Scientific that provides global reach and supply into academic laboratories. The company expanded sales channel for diagnostic reagent products through Original Equipment Manufacturing (OEM) partnerships with ArcherDX, CareDx and Transgenomic. It launched its first commercially available engineered mammalian cell line for use in manufacturing of therapeutic antibodies. The product has generated significant early revenues and is anticipated to be a further driver of growth going forward. Services business performance was in line with expectations, delivering revenue of approximately £5.4 million, representing significant growth on the previous year, based in part on the successful integration of acquisitions within its core business. It launched new genetic screening services, including on the companys CRISPR-Cas9 sgRNA technology platform, that has generated several contracts and is expected to be a significant driver of future growth."
"Woodford sees gains on the Horizon
Citywire AA-rated equity manager Neil Woodford, the most respected UK investor of his generation, has snapped up more than 10% of biotech business Horizon Discovery (HZDN) via a share issue.
Woodford has taken up an 11% stake in the business worth £19.1 million at a share price of 181.5p. Horizon listed at 180p in March last year.
Now 10 years old, Horizon Discovery is a second-tier play on the recent biotech boom, providing genetic sequencing and profiling services to other business involved in primary research.
The company was ranked as the fastest growing UK biotech business by Deloitte in 2013. Broker Peel Hunt this month reiterated its buy recommendation on the business with a 270p price target while Panmure Gordon last month also confirmed its buy rating on a target of 270p.
The share issue, which was also supported by Woodfords former employer Invesco Perpetual, raised £20 million in order to fund further growth."
The placing approved by the AGM based on my arithmetic dilutes the share price by around 14% but there has been little or no movement. Also, it seems that the joint Woodford / Invesco team have taken up their share and supported the placing at 190p. Anyone any thoughts on why the share price has not moved significantly, and whether we can expect it to dip gradually by that 14% in the next few weeks, when others cotton on to what is happening?
On the basis of my calculations I have to grade it a sell until things realistically settle down.
Important message from the Financial Conduct Authority:
Posting inside information that is not public knowledge, or information that is false or misleading, may constitute market abuse.
This could lead to an unlimited fine and up to seven years in prison.
If you have any information, concerns or queries about market abuse, click here.
The content of the messages posted represents the opinions of the author, and does not represent the opinions of Interactive Investor Trading Limited or its affiliates and has not been approved or issued by Interactive Investor Trading Limited.
You should be aware that the other participants of the above discussion group are strangers to you and may make statements which may be misleading, deceptive or wrong.
Please remember that the value of investments or income from them may go down as well as up and that the past performance of an investment is not a guide to its performance in the future.
The discussion boards on this site are intended to be an information sharing forum and is not intended to address your particular requirements.
Whilst information provided on them can help with your investment research you need to consider carefully whether you should make (or refraining from making) investment or other decisions based on what you see without doing further research on investments you are interested in.
Participating in this forum cannot be a substitute for obtaining advice from an appropriate expert independent adviser who takes into account your circumstances and specific investment needs in selected investments that are appropriate for you.