Last Wednesday I got the opportunity to meet the leaders of dozens of exciting small companies at the Growth Company Investor show in London. I left the Barbican centre heartened by these innovative companies that are succeeding in markets all over the globe. There were stories about takeovers and deals brewing, booming exports to China, product innovation and sales growth.
But the company that made the biggest impression on me was Bioventix (PLUS Markets: BVXP). This tiny business pays a very attractive dividend, generates a lot of cash and is not rated by the stock market. Forget what a company actually does when you find these characteristics, there is the potential to make money.
In my opinion, Bioventix is just the sort of business that we need more of in this country. It is based on real brain power, it sells to big overseas customers and it is in an industry that is sure to grow over time, whatever happens.
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The idiot's guide to antibodies
Chief executive Peter Harrison patiently gave me an idiot's guide to his complex business. Bioventix makes antibodies. Antibodies are proteins that are produced naturally by the body in order to fight foreign entities known as antigens. Antibodies find these antigens, and then cling on to them. Like a Yale key, antibodies are very individual one antibody will bind to one antigen only.
So the method of detecting whether you have antigens in your body is to take a blood sample, and then expose it to antibodies. If there are antigens in the blood, they will cling to the antibodies and thus can be identified. These antibodies can be made in the laboratory and are typically derived from mice.
Bioventix calls itself the The sheep monoclonal antibody company', and believes that better antibodies can be derived from sheep. The ability of sheep monoclonal antibodies to remain bound to their target is, Bioventix claims, 100 times superior than for mouse antibodies. They are also able to recognise targets that mouse antibodies cannot recognise, and are more effective where the targets are very scarce.
Revenues triple, with more to come
I'm certainly not qualified to pass judgement on these claims but thankfully the market is deciding for us. Bioventix sells its antibodies to hospitals. Every time a test is run that uses one of Bioventix's antibodies, it gets a small sum. Although this may be only a few pennies, it means a healthy profit margin for Bioventix. Once these tests are established, they're used indefinitely, giving the company an enduring cash flow.
Bioventix has tripled its revenue in the last four years and moved from a loss into a profit by adding to its stock of antibodies. Furthermore, it closed its latest financial year to June with cash of £1.53m, up from £1.35m 12 months earlier. This allowed it to pay a generous dividend of 11p.
At today's share price of 192p, that offers a handsome gross yield of 6.4%. The company is valued at £9.6m. The shares are traded on PLUS markets and admittedly suffer from a high bid/offer spread of 10p. The share register is also tightly controlled by the major holders. However, Harrison assured me that these major holders have undertaken to make shares available to any private shareholder who wants to get involved.
Bioventix has some real expertise and a good track record, and it should have a bright future. So far it is selling only four antibodies, but it has created eight more that could be on the market within three years. Add these to its existing revenue streams and profits should rise over time, which makes today's stock market valuation look even more attractive.
Based at Farnham in Surrey, Bioventix is an excellent example of the sort of opportunity that is too small to interest City fund managers with millions of pounds to invest.
But for a private investor with a few hundred pounds to invest, a willingness to take a long term view, and an appetite for a nice dividend, Bioventix makes a tempting target. I'll be watching its progress with great interest.
This article is taken from Tom Bulford's free twice-weekly small-cap investment email The Penny Sleuth. Sign up to The Penny Sleuth here.
Information in Penny Sleuth is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment decisions. Penny Sleuth is an unregulated product published by MoneyWeek Ltd.
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