BTG
Market capitalisation £2.38bn
Investors will not need reminding that this has not been the best of years for BTG. The company is trying to build up a stable of world-beating drugs while relying on others that have been around for a while — the best known is CroFab, which treats snakebites.
The main buzz has been around Varithena, a new way of treating varicose veins without surgery, which has been launched in the United States, potentially a huge market. It is fair to say that the company probably overpromised on this and had to haul back market expectations in October.
Doctors like it, but it is proving more difficult than expected to get them to adopt Varithena because, first of all, the relevant American insurers must be persuaded that it is something they should pay for.
BTG is sticking to its forecast of $250 million of annual sales from Varithena in America by the end of 2021, and potentially the same again in other territories. This will, though, require a steeper take-up by doctors henceforth than had originally been thought.
The company has had three pieces of good news over the past few days. On Friday, the US Food and Drug Administration announced approval of Vistogard to treat overdoses of chemotherapy. This is the only such drug on the market, though it is a small one, worth perhaps $25 million to $35 million.
Yesterday, the FDA cleared LC Bead Lumi, a development of the cancer treating beads that BTG is already selling. Those beads could in all be worth $300 million to $400 million in sales by the end of 2021. The third potential money-spinner is PneumRx Coils, a device that treats sufferers from severe emphysema.
BTG said yesterday that clinical trials had gone about as well as they could for this, allowing it to apply for FDA approval by the middle of next year. Again, potential sales globally are $250 million.
These three compounds would lead to BTG becoming the major, if specialist, player in global pharmaceuticals it has long promised to be. They explain the high rating on which the shares trade. Off 1½p at 623½p, they sell on more than 30 times earnings. Given the share price fall over the past year and those potential sales, I would be inclined to tuck them away long term.
My advice Buy long term
Why Despite the delays in getting Varithena to the market, it is one of three products showing huge potential for BTG
Cohort
Revenue £49.7m Dividend 1.9p
I rather doubt that many analysts are students of the Portuguese political scene, so news of a delay to Cohort’s purchase of EID, a maker of electronic and communications equipment there, will have come as a surprise. The election in October led to difficulties with the sale of the state’s 43 per cent stake in EID.
Cohort, which makes sophisticated defence equipment, much of it for the Ministry of Defence, is instead snapping up the remaining 57 per cent of the company held elsewhere to gain management control, and the delay does not seem significant. There is little else to concern investors in the halfway figures, with advances pretty well across the business and contributions from the two recent acquisitions.
Operating profits were up 40 per cent to £3.5 million, well ahead of a 32 per cent rise in revenues, and the order book stands at a healthy £140 million. The recent strategic defence and security review was entirely beneficial, especially as regards higher spending on cybersecurity and naval vessels.
The shares, down 8½p at 401½p, are on an earnings multiple of more than 20 and are up 75 per cent since I tipped them this time last year. Perhaps time for a little profit-taking.
My advice Take profits
Why Shares have risen strongly over past year
RPC Group
Value of GCS purchase €650m
There are a couple of things not to like about the latest acquisition by RPC Group, the packaging specialist’s seventh big deal in four years. One, it is buying Global Closure Systems (GCS), a French maker of bottle tops and closures, for €650 million from private equity. Two, it takes the company into new markets geographically, such as Mexico, Thailand and the Philippines, which is sometimes a danger sign.
On both counts, though, investors should be reassured. The earnings multiple GCS is being bought for — less than seven — is reasonable enough. The management team, who understand those markets, are staying.
Earlier purchases by RPC, such as Promens, which it bought in February for €386 million, have been about cutting costs by rationalising manufacturing. This deal takes the company into new areas of products, and there is little overlap, though the two do compete on a couple of contracts. There is a potential €15 million of savings from extra buying power in plastics and cutting out overheads, though.
RPC is partly paying for the business by a deeply discounted £232.6 million one-for-five rights issue and partly by taking on extra debt. The rights is at 460p; the share price reaction, up 18½p at 782½p, indicates that the market approves. I would approve, too, given RPC’s proven ability to do acquisitions.
I tipped the shares a few weeks ago, and they have risen since, an achievement in these markets. I would still be a buyer, and obviously take up the rights.
My advice Buy
Why RPC has a strong record for successful acquisitions
And finally . . .
Few deals or contracts are truly transformational, but the selection of Learning Technologies Group to provide learning and development services to the UK’s 400,000 civil servants looks as if it could be one. The work, being done in partnership with KPMG, will require some significant investment upfront but will start to yield benefits from the second half of next year. It is the biggest contract the company has won, and the market clearly liked it — the shares on AIM ended up by nearly 10 per cent.
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