Bioventix AGM, Babcock Attack and FCA Measures on CFDs

On Thursday (6/12/2018) I attended the Annual General Meeting of Bioventix Plc (BVXP) at Farnham Castle. There were about a dozen ordinary shareholders present. Bioventix develop antibodies for use in blood tests. Their Annual Report contains a very good explanation of the business.

This AIM company had revenue of £7.9 million last year and post-tax profits of £5.6 million. They did that with only 15 staff. Total director pay was £362,000 even though CEO Peter Harrison’s pay went up by 54% – but no shareholders even mentioned that. With consistent growth, good dividends and high return on capital, there’s not much to complain about here.

There is a copy of the last presentation the company gave to investors here: https://www.bioventix.com/investors/overview/ which gives you more information on the company.

I won’t cover the meeting in detail but there were a few points worth mentioning:

Peter explained that the Vitamin D antibody market is “plateauing”, i.e. unlikely to show the same growth as historically. The key product for future revenue growth is their new Troponin test for which there are high hopes, but take-off seems sluggish. This is a marker for heart attacks and is used to check when someone turns up in A&E with chest pains whether they are having a heart attack or some other problem, the former being much more serious of course and needing rapid treatment. The new Troponin test is faster and more accurate which helps speedy and more accurate diagnosis. However adoption of it to replace the older test is slow. This seems to be because hospitals are slow to change their “protocols”. There is also some competition but it is not clear how the company’s product stands against that in terms of sales. It would seem more education and promotion of the new product is required but Bioventix is reliant on the blood-testing machine partner (Siemens) to promote it and it seems there is little financial advantage in doing so to them – the new product is no more expensive than the old. That you might think makes it easy for customers to convert to the new, but also provides little motivation for the supplier to promote. However, NICE and others are promoting the new tests. That’s a summary of what Peter explained to the shareholders with my deductions.

It would certainly be of advantage to patients if the new test was adopted. Might have saved me hanging around in A&E for most of the night a few years back just awaiting confirmation I had not had a heart attack.

There are other antibodies in the R&D pipeline although it can take 5 years from R&D commencement to product sales, even if the product is adopted. All R&D is written off in the year incurred though.

There were questions on cash and special dividends which the company sometimes pays. The business is highly cash-generative but they like to keep about £5 million in cash on the balance sheet and no debt so that they can take up any acquisition or IP opportunities.

On Friday (7/12/2018), there was an interesting article in the Financial Times on the attack on Babcock International (BAB) by Boatman Capital Research – a typical type of attack by an anonymous blogger probably combined with shorting. The article quoted an investor as saying “Boatman made some valid points…..but there were whopping inaccuracies which seemed calculated to drive the share price down”. For example, the article mentioned claims about overruns on a contract to build a dry dock at Devonport – there is no such contract.

Babcock has been trying to find out who Boatman Capital are, but with no success at all. The organisation or its owners cannot be located, and their web site is anonymised. So Babcock cannot even sue the authors. They may well be located overseas in any case which would make it even more difficult. Babcock share price has been falling as a result and is down 20% since the Boatman report was published. See the FT report here: https://www.ft.com/content/c2780d6e-f942-11e8-af46-2022a0b02a6c

Comment (I do not hold Babcock shares): The Boatman report seems to be the usual mixture of a few probable facts, mixed with errors and innuendo as one sees in such shorting attacks. There have been a few examples where such reports did provide very important information but because of the approach the writers of such reports take it is very difficult to deduce whether the content is all true, partially true, or totally erroneous and misguided. The shorter does not care because they can do the damage regardless and turn a profit.

The basic problem is that with the internet it is easy to propagate “fake news” and get it circulated so rapidly that the company cannot respond fast enough, and regulators likewise – the latter typically take months or years to do anything, even if they have a channel they can use. We really need new legislation to stop this kind of market abuse which can just as easily involve going long on a stock as going short. Contracts for Difference (CFDs) are one way to take an interest in a share price without owning the underlying stock and hence are ideal for such market manipulations.

Which brings me on to the next topic. The Financial Conduct Authority (FCA) has announced proposals to restrict the sales of CFDs and Binary Options to retail investors. Most retail investors in CFDs lose money – see my previous comments here on this subject: https://roliscon.blog/2018/01/14/want-to-get-rich-quickly/ . The latest FCA proposals are covered here: https://www.fca.org.uk/news/press-releases/fca-proposes-permanent-measures-retail-cfds-and-binary-options

You will note it contains protections to ensure clients cannot lose all their money and positions will be closed out earlier. But leverage can still be up to 30 to 1. The new rules might substantially reduce losses incurred by retail investors, the FCA believes.

But it still looks like a half-baked compromise to me. If the FCA really wants to protect retail investors from their own foolishness, then an outright ban would surely be wiser. At best most CFD purchasers are speculating, not investing, and I cannot see why the FCA should be permitting what is essentially gambling on stock prices. It creates a dubious culture, and the promotion of these products is based on them being a quick way to riches when in reality it’s usually a quick way to become poorer.

You only have to look at the accounts of publicly listed CFD providers to see who is making the money – it’s the providers not the clients. Those companies seem to be mainly saying the new rules won’t have much impact on them. That is shame when they should do and shows how the FCA’s solution is a poor, half-baked compromise.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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