Abzena — Focus on integration and growth

Abzena — Focus on integration and growth

Abzena reported solid FY17 results with underlying revenue growth of 41% (to £18.7m). In FY17, Abzena continued to focus on the integration of its service offering across its three sites (US and UK), which has been expanded by its recent placing of £25m gross (issuing 75.8m new shares at 33p). We expect this to enable strong growth and take Abzena to profitability in FY20, which will be a significant milestone for the company. We maintain our valuation at £132m, 62p per share, but note potential upside as it demonstrates growth and as Abzena inside products progress.

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Written by

Abzena

Focus on integration and growth

FY17 results

Pharma & biotech

20 June 2017

Price

41.50p

Market cap

£89m

US$1.27/£

Net cash (£m) at 31 March 2017
(pro forma adjusted for the fund-raise)

28.0

Shares in issue

213.6m

Free float

39%

Code

ABZA

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

21.2

5.1

(7.8)

Rel (local)

22.0

3.7

(26.3)

52-week high/low

56.00p

32.25p

Business description

Abzena is a UK group that offers a range of services and technologies for biopharmaceutical development including immunogenicity tests, protein engineering, bioconjugation, polymer/synthetic chemistry, biomanufacturing and ADC chemistry.

Next events

Further Abzena inside products into the clinic

2017

Roche update SDP051

2017

Phase III andecaliximab (formerly GS-5745) futility analysis in gastric cancer

H217

Analyst

Dr Linda Pomeroy

+44 (0)20 3077 5738

Abzena is a research client of Edison Investment Research Limited

Abzena reported solid FY17 results with underlying revenue growth of 41% (to £18.7m). In FY17, Abzena continued to focus on the integration of its service offering across its three sites (US and UK), which has been expanded by its recent placing of £25m gross (issuing 75.8m new shares at 33p). We expect this to enable strong growth and take Abzena to profitability in FY20, which will be a significant milestone for the company. We maintain our valuation at £132m, 62p per share, but note potential upside as it demonstrates growth and as Abzena inside products progress.

Year
end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/16

9.9

(7.4)

(5.86)

0.0

N/A

N/A

03/17

18.7

(8.3)

(5.82)

0.0

N/A

N/A

03/18e

29.7

(10.1)

(4.53)

0.0

N/A

N/A

03/19e

41.1

(2.6)

(1.04)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Funded to deliver on its growth plans

Abzena recently announced a £25m (£23.9m net) fund-raising through a placing of 75.8m shares at a price of 33p each. The funds will be used to expand its services, capabilities and capacity across its three service areas: biomanufacturing, chemistry and research services. The company has indicated that the investments will be complete and resulting capability and capacity in use in H218, Q118 and late 2017, respectively. Abzena’s target over the next three years is to grow its service business revenue by c.40% (CAGR) and improve gross margins to 50% (from 41% in FY17), which should move it towards profitability in a shorter time frame.

Abzena inside clinical pipeline maturing

The Abzena inside pipeline has grown to 12 products now in the clinic and progressing toward commercialisation, most notably Gilead’s andecaliximab (formerly GS-5745) in gastric cancer, in Phase III. In FY17, Abzena announced a second ThioBridge ADC technology deal and two Composite Human Antibody licence agreements. According to the company, these deals in total have the potential to deliver $554m in licence fees and milestone payments plus royalties on commercial sales of products. Also recently announced was the acquisition of True North Therapeutics and its Abzena inside product TNT009 for up to $825m by Bioverativ. These deals provide validation of Abzena’s technology, which indicates there is potential upside via the Abzena inside pipeline as well as demonstrating the quality of service that can be provided, which should underpin its growth.

Valuation: Maintained at £132m

We maintain our rNPV at £132m, or 62p/share, having recently upgraded it to reflect the increase in forecast service revenues, improved gross margin and higher cash. Having incorporated the reported FY17 results into our model, we maintain our main assumptions at this stage but believe Abzena is well positioned to grow its integrated service offering and, as its Abzena inside products move through the clinic and onto the market, we expect upside to our current estimates.

Financial summary

Exhibit 1: Financial summary

£'000s

2015

2016

2017

2018e

2019e

2020e

Year end 31 March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

 

 

Revenue

 

 

5,667

9,854

18,654

29,667

41,140

55,075

of which: Biology

4,158

5,299

5,719

8,237

9,061

11,132

Manufacturing

594

2,096

5,316

11,789

19,571

27,992

Chemistry

657

2,174

6,961

8,891

10,669

11,942

Total Service revenues

5,409

9,569

17,996

28,917

39,301

51,066

Licenses/milestones/royalties

258

285

658

750

1,839

4,010

Cost of Sales

(2,532)

(5,319)

(10,547)

(17,350)

(20,830)

(25,533)

Gross Profit

3,135

4,535

8,107

12,317

20,310

29,543

R&D expenses

(2,989)

(4,216)

(3,849)

(3,984)

(4,183)

(4,392)

SG&A expenses

(5,634)

(9,047)

(14,611)

(19,492)

(19,784)

(22,950)

EBITDA

 

 

(4,510)

(6,817)

(7,450)

(7,208)

127

5,978

Operating Profit (before GW and except)

 

(4,795)

(7,618)

(8,607)

(10,093)

(2,650)

3,155

Intangible Amortisation

(504)

(588)

(723)

(666)

(607)

(554)

Depreciation

(285)

(801)

(1,157)

(2,885)

(2,777)

(2,822)

Exceptionals

0

(2,542)

0

0

0

0

Other

0

(155)

(412)

(400)

(400)

(400)

Operating Profit

(5,299)

(10,903)

(9,742)

(11,159)

(3,657)

2,201

Other

0

0

0

0

0

0

Net Interest

79

244

277

9

52

27

Profit Before Tax (norm)

 

 

(4,716)

(7,374)

(8,330)

(10,084)

(2,598)

3,182

Profit Before Tax (reported)

 

 

(5,220)

(10,659)

(9,465)

(11,150)

(3,605)

2,228

Tax

498

961

347

431

384

486

Profit After Tax (norm)

(4,218)

(6,413)

(7,983)

(9,653)

(2,214)

3,668

Profit After Tax (reported)

(4,722)

(9,698)

(9,118)

(10,719)

(3,221)

2,714

Average Number of Shares Outstanding (m)

71.6

109.4

137.2

212.9

212.9

212.9

EPS - normalised (p)

 

 

(5.89)

(5.86)

(5.82)

(4.53)

(1.04)

1.72

EPS - reported (p)

 

 

(6.59)

(8.86)

(6.65)

(5.03)

(1.51)

1.27

Dividend per share (p)

0.0

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

10,432

27,347

33,494

40,951

40,575

39,207

Intangible Assets

8,942

23,177

25,882

25,224

24,625

24,080

Tangible Assets

1,490

4,170

7,612

15,727

15,950

15,127

Other

0

0

0

0

0

0

Current Assets

 

 

20,924

22,108

11,267

17,338

14,840

19,269

Stocks

817

1,379

1,876

1,876

1,876

1,876

Debtors

3,161

5,436

4,982

4,982

4,982

4,982

Cash

15,799

13,724

4,135

10,480

7,982

12,411

Other

1,147

1,569

274

0

0

0

Current Liabilities

 

 

(2,354)

(5,850)

(6,319)

(6,319)

(6,319)

(6,319)

Creditors

(2,354)

(5,488)

(6,032)

(6,032)

(6,032)

(6,032)

Short term borrowings

0

0

0

0

0

0

Short term leases

0

0

(169)

(169)

(169)

(169)

Other

0

(362)

(118)

(118)

(118)

(118)

Long Term Liabilities

 

 

(1,153)

(2,549)

(2,508)

(2,455)

(2,402)

(2,349)

Long term borrowings

0

0

0

0

0

0

Long term leases

0

0

(494)

(441)

(388)

(335)

Other long term liabilities

(1,153)

(2,549)

(2,014)

(2,014)

(2,014)

(2,014)

Net Assets

 

 

27,849

41,056

35,934

49,515

46,694

49,808

CASH FLOW

Operating Cash Flow

 

 

(4,938)

(11,330)

(8,100)

(7,429)

(137)

5,739

Net Interest

79

244

277

115

158

133

Tax

(133)

371

1,665

705

384

486

Capex

(1,082)

(2,047)

(3,320)

(11,008)

(3,008)

(2,008)

Acquisitions/disposals

0

(9,357)

0

0

0

0

Financing

19,037

20,013

(89)

23,900

0

0

Dividends

0

0

0

0

0

0

Other

79

31

(22)

62

105

80

Net Cash Flow

13,042

(2,075)

(9,589)

6,345

(2,498)

4,429

Opening net debt/(cash)

 

 

(2,757)

(15,799)

(13,724)

(4,135)

(10,480)

(7,982)

HP finance leases initiated

0

0

0

0

0

0

Other

0

0

0

0

0

0

Closing net debt/(cash)

 

 

(15,799)

(13,724)

(4,135)

(10,480)

(7,982)

(12,411)

Source: Edison Investment Research, Abzena accounts

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

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Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Abzena and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

New York, NY10017

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Abzena and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

New York, NY10017

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

New York, NY10017

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Trifast — Good momentum in fasteners

As already announced, record FY17 profits have exceeded management expectations and growth was delivered with a strong cash performance and a sharp rise in the dividend. We have increased our EPS estimates marginally for 2018 with restrained growth expectations. As Trifast continues to deliver on its strategy, the 10% rating discount to peers should moderate.

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