Abcam has been a key constituent in the portfolio since its inception (01.01.2015), and has been a strong performer throughout the portfolio’s history. The stock has produced returns since inception of 125.8% and is a holding which we continue to anticipate further growth from over the long term.

Company Profile

Abcam is a global leader in the supply of life sciences tools, providing the research and clinical communities with tools and support. The company offers a wide range of products including primary and secondary antibodies, biochemicals, proteins, peptides, lysates and immunoassays. It operates on a global scale with operations in the UK, US, China, and Japan. The company focuses on using its tools to help drive forward advancements in new treatments for diseases and health improvements.

Competitive Advantage

As a market leading innovator with leading antibodies and products, Abcam prides itself on the high quality of its products and delivery services. In recent years, the company has grown above the market and increased its market share on a global scale. We believe that Abcam has a competitive advantage in the market which stems from its clear growth strategy, strong current product line and future pipeline as well as an overall focus on its people. The company continues to invest in future products alongside current operations to promote sustainable growth over the long term.

Quality of Earnings

Abcam reported its preliminary results for the year ended 30th June within the quarter on the 11th September. Over the year, the company performed in line with expectations, increasing total revenue by 26.5% and increasing like-for-like gross profit margin by 69.2%. Management continued to reinvest in the business, strengthening the balance sheet while also continuing to maintain a high level of innovation and R&D for the future product pipeline.

A closer look at the company’s financials reveals a strong financial position which has improved over the year as well as strong cash generation and high earnings per share of 20.74 pence. Over the quarter, the stock produced a return of 4.8% which is not among the highest of constituent performances over the quarter; however it does support our view of the stock as being a consistent performer over the long term. We like this stock due to its strong financial health, established management team and demonstrated consistency of financial results over the long term view.

Growth Potential

Abcam’s strategy focuses mainly on producing long term sustainable growth, which complements our investment philosophy as well as our clients’ long term goals. This year, the company produced double digit catalogue revenue growth as well as increasing underlying operational capabilities. The company pursues a strategy of organic growth alongside growth through acquisitions and partnerships which has worked well in recent years. According to the management, the company continues to look for opportunities for inorganic growth going forward.

Over the past year, Abcam has gained market share in all product categories and territories, driving the need to increase the size of its global headquarters. In the last year, the company commissioned the construction of its new global HQ in Cambridge for operation in 2019. It is clear that while the company has been returning profits to investors through increasing dividends, it also has a strong focus on investing in its long term future.

Key Risks

  • A reduction in research funding:
    A reduction in funding due to fiscal contraction in one of Abcam’s key operational regions could reduce demand for its products. This is a key risk as uncertainty remains in European markets following Brexit and also in US markets following the election of President Trump. This risk is mitigated to an extent by the global nature of Abcam’s operations, as any changes are likely to be country specific. A reduction in demand would result in a change in strategy within that region, and expansion in another. Additionally, revenues tend to come from multiple sources rather than one government source.
  • Foreign Exchange risk:
    Abcam as a group reports its results in Sterling, whereas its operating and manufacturing companies trade in local currency. Main exposures are against the US Dollar, Euro, Japanese Yen and Chinese Renminbi. Given the increased volatility in foreign exchange markets as a result of key political events, this is an important risk facing the company. To mitigate this risk, Abcam currently uses derivatives to hedge overall currency risk.

Overview

Overall, Abcam continues to fit our AIM investment criteria in terms of financial stability, returns potential and quality of business model. The stock continues to perform well, and we expect the company to benefit from its global exposure given the longer term global market outlook for small cap companies. It is our view that given the recent financial data coming from Abcam, we see further growth on the horizon over the long term, and continue to view the stock positively within the AIM portfolio.

 

 

The information contained in this document is provided for information purposes only and must not be communicated to any other person. It does not constitute a research recommendation or investment advice and must not be treated as a recommendation or an offer or solicitation for investment. Investors should form their own view in relation to the above mentioned investment. If you’re unsure of the suitability of any investment please contact us for advice. AIM investments can be illiquid in nature and carry a higher degree of risk than other securities and are not, therefore suitable for some investors. Past performance is not a reliable indicator of future results and forecasts are not a reliable indicator of future performance. The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your initial investment. Where an investment involves exposure to a foreign currency, changes in rates of exchange may cause the value of the investment, and the income from it, to go up or down.

Raymond James Investment Services Ltd is a member of the London Stock Exchange and is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales No. 3779657. Registered Office: Broadwalk House, 5 Appold Street, London EC2A 2AG.