I was bullish about Spire Healthcare (LSE: SPI) when I examined the company last year, but since then the share price has fallen by 30% to 221p.
That was largely due to a profit warning in September, released along with first-half results. The results themselves weren’t bad, but early revenue growth at the independent hospital group had been driven by NHS referrals, and those were slowing.
There’s a drop in EPS of 23% expected for the year just ended in December 2017, with results due on 2 March. January’s pre-close update confirmed previous guidance, and told us to expect revenue between £929m and £932m, with underlying EBITDA in the range of £149m to £151m.
Net debt stood at around £465m at 31 December, which is a little over three times the mid-point EBITDA estimate. I generally prefer that multiple to come in at around 2.5 times or less, but for a company that’s still a small fish in a big pond with potentially plenty of room to grow, I’m not too disturbed.
Growth opportunities
Spire only floated in 2014, and I expect new growth companies to go through early periods of volatility before their genuine potential settles down. And I’m encouraged by current forecasts.
Though pared back a little from earlier predictions, mooted EPS growth of 7% for 2018 and 11% for next year would drop the P/E to around 12. The modest dividend (currently set to yield 1.6%) is very well covered, and should soon ramp up.
Despite the recent fall, I see Spire Healthcare as having attractive long-term prospects.
Gene Therapy
I was a bit more fortunate in my upbeat stance on Oxford Biomedica (LSE: OXB) last March, and the share price has doubled since I gave it the nod. Priced at 11.5p as I write, the shares don’t yet command anything in the way of P/E valuations as there’s been no profit yet.
The 2017 year is expected to have brought in a pre-tax loss of around £11.6m, but that looks set to change with only a £6m loss forecast for 2018 and a tiny profit by 2019.
The “leading gene and cell therapy group” is in a very exciting area of medical research which is really only in its infancy. It’s risky trying to guess which companies will come to dominate the field, but there are so many potential treatments out there that there must be scope for many competitors
Important deal
Thursday’s news boosted Oxford Biomedica’s prospects, with the firm announcing “a major new collaboration & licence agreement with Bioverativ Inc. for the development and manufacturing of lentiviral vectors to treat haemophilia.“
Bioverativ will gain access to Oxford’s LentiVector and manufacturing technologies, in a deal which is worth a $5m upfront payment coupled with “various milestone payments, potentially worth in excess of $100m” and royalties. I wonder if those Oxford Biomedica forecasts will be upgraded now?
I see Oxford Biomedica as a ‘picks and shovels’ operator in the gene and cell therapy business, offering technology that can be used for a variety of genetic therapies. Whichever treatments are eventually successful, companies which offer the development platforms should do well.
The market response has been a 7.5% share price rise (at the time of writing), but the full potential of this latest development might not have been fully understood. Oxford Biomedica looks a strong long-term buy to me.