Yahoo Finance Questor: This biotech giant is backed by the world’s best fund managers
Remember Abcam? The Cambridge-based biotech was a darling of the Aim market until it decided in late-2022 to abandon London in favour of a listing on the US exchange Nasdaq.
The move – Abcam had made Aim its home since 2005 and was one of its biggest companies – was seen at the time as a blow to the Government’s efforts to champion the UK’s most innovative companies.
It was also an indication that the entire London listings market was in decline with many companies since being bought out by predators and seeking higher valuations overseas.
Abcam now has a new owner. Since late last year, the company has been part of Danaher Corporation, the New York-listed life sciences and diagnostics giant.
Danaher paid $5.7bn (£4.6bn) in cash for Abcam, which makes and sells products, including proteins and reagents, used in medical research. It has added the business to its already extensive array of medical products and services, which range from cell production and new drugs discovery to the instruments used in clinical testing.
In its former guise, Abcam had a devoted following among individual UK shareholders. Danaher has a fanbase of its own too: the world’s best fund managers.
Nine of them hold the stock, and each one is among the top 3pc of the 10,000 equity fund managers tracked by financial publisher Citywire. This smart-money backing has led to Danaher being AAA rated by Citywire Elite Companies, which rates companies based on their popularity with the world’s best-performing fund managers.
While Abcam is not transformational for Danaher – it represents just 2.5pc of overall revenue – top fund manager Neal Kaufman, who holds Danaher shares in the Baron Health Care Fund, says the deal underlines a key attribute: “This acquisition is reflective of Danaher’s thoughtful approach to acquisitions, through which the company has been able to add best-in-class assets in attractive end markets like bioprocessing and proteomics [the study of sets of proteins].”
Management, which has acquired hundreds of businesses since Danaher was created in 1984, is aiming to grow Abcam’s revenues by the high-single-digit percentages over the long term. This is in line with the wider group’s core growth target. It’s an impressive aim for a company of its scale which last year reported revenues just shy of $24bn.
Danaher’s management team is also happy to reshape the group’s portfolio of businesses with disposals.
Last year, for example, it spun off its environmental services arm Veralto to create a separately listed business now worth $24bn. It did the same with its $3.5bn dental operation, Envista, in 2019. In both cases, Danaher’s shareholders benefited, and it would be no surprise to see the company do something similar again.
There is plenty enticing Kaufman and the other leading fund managers backing the company beyond its savvy deals. Among these attractions is Danaher’s wide spread of products, high degree of recurring revenues and those punchy core growth targets already mentioned.
Across the company’s three business lines – of biotechnology, life sciences and diagnostics – around 80pc of revenue is recurring. This provides a striking degree of certainty in a sector where earnings can be volatile.
Danaher’s expertise in areas such as biologics, or medicines made using living cells or organisms, puts it at the cutting edge of new treatments for diseases such as cancer and autoimmune deficiencies. Growth should also benefit from rising demand for rapid diagnostics.
It’s not all plain sailing. Many smaller biotechs have been caught up in a funding crunch for the past two years and the group has lost orders as a result. The good news is that Danaher said earlier this month it had noticed an improvement, though this has yet to translate into an increase in orders.
Revenues also fell last year, and will again this year, as the effects of a Covid-related sales boost fade and customers finish running down excess stock.
Danaher is confident the lull will be short-lived and is sticking with its central growth targets. The wider market also appears optimistic based on the punchy rating attached to the shares of 32 times forecast earnings. That’s a price several of the world’s best professional investors think is worth paying. This column agrees.
Questor says: buy
Ticker: NYSE:DHR
Share price: $253.38
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