Turkey of the week: racily-priced health player

published 24 December 2008

This is slightly unusual territory for me because healthcare is one of my preferred sectors going into 2009, due to its high barriers to entry, predictable earnings and attractive valuations. So why am I bearish on Axis-Shield, a provider of test kits for diagnosing patients with diabetes and cholesterol? Well, in a nutshell, the share price simply looks too racy for my more value-based appetite.

Axis-Shield (LSE:ASD), rated as a BUY by Piper Jaffray

The global market for diagnostics testing is worth $35bn a year and is expanding at around a 7% clip, with the main protagonists being Siemens, Roche and Abbot Laboratories. Irrespective of the recession, the industry's growth rate is expected to continue, since this type of science helps detect the early symptoms for many critical illnesses. This not only improves survival rates but also decreases treatment costs, an important factor as hospitals shift more resources from reactive to preventative medicine. What's more, the bulk of Axis' revenues come from selling test cartridges for the machines that are installed in doctor's surgeries, hence providing good visibility of future income.

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Meanwhile its new flagship diabetes system Afinion is also creating a stir with physicians. The company expects to have an installed base of around 4,000 systems by the end of the year. Afinion is faster than the comparable technology from Siemens, which has 20,000 machines in use. Another differentiator is that Axis's hardware can conduct multiple tests, including those for reactive proteins important when deciding whether antibiotics should be prescribed.

Paul gained a degree in electrical engineering and went on to qualify as a chartered management accountant. He has extensive corporate finance and investment experience and is a member of the Securities Institute.

Over the past 16 years Paul has held top-level financial management and M&A roles for blue-chip companies such as O2, GKN and Unilever. He is now director of his own capital investment and consultancy firm, PMH Capital Limited.

Paul is an expert at analysing companies in new, fast-growing markets, and is an extremely shrewd stock-picker.