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10 May 2019
By Maynard Paton
For this SharePad search I re-used the screen I employed to pinpoint Victrex.
The filter focuses on two ratios favoured by ‘quality’ investors — operating margin and return on equity (ROE).
This time I selected Abcam, a £2.6 billion AIM company that develops and sells antibodies.
Abcam boasted a super 30% operating margin and a robust 20% ROE.
Read my full Abcam article for SharePad.
Maynard Paton
Hi Maynard,
Thanks for your analysis. I attended 2 AGMS (2015 & 2016) and thought this company had a wonderful ‘moat’. However, I got on board at the tail end of a glorious period for investors. Now the picture is very different.
Your point about numbers of lab staff maybe telling in this regard. The essence of this business is publication of data about their antibodies and identifying the antibodies that might be becoming topical (hot even) for the research community. I suspect that there has been a failure of proper investment in this area.
Your analysis is somewhat lenient towards the Board. I sold the shares in 2017 when it became apparent that the overspend on IT was becoming egregious. When pushed very hard, the outgoing FO said to me in 2015 that it would cost about 10m, well I think that’s how much it should have cost. At the AGM in 2016 the board still hadn’t costed that potential IT spend, and that rang alarm bells with me (Hirzel appeared to have been given an open cheque book). As you say, 57m is an astonishing amount to spend on IT, the Board are lucky that they had:
1) such a cash generative business to milk and finance this and their excessive salaries.
2) such understanding investors.
Hirzel must have thought that all his Christmases had arrived at once when he got his, now, 1.8m pa job. However, as you say, the current AGM voting record may show that investors are wising up to this shower.
Shareholders also had a narrow escape with the Horizon Discovery bid, and as you say it signals Abcam’s intention to spend sizeable amounts to underpin a growth-by-acquisition strategy, in my view, a new low for the company.
Warren Buffett talks about the ‘Management Imperative’. Mr Hirzel is ‘Management Imperative’ writ large, he would rather chase after the latest big thing i.e. Gene Editing (where there aren’t any profitable companies and oodles of competition) rather than hunker down and do the less exciting bit, i.e. run the business.
Underneath it all, this is still a great business but I won’t be investing until the Board has been replaced.
Thanks Roger, especially the AGM insights. Very useful.
I have to tone things down with the SharePad articles when it comes to thoughts on boardrooms. Agree with everything you have written — great business, despite the management.
Maynard