BBI HOLDINGS (BBI)

Previous Stock Tip

These companies are all previous recommendations from the Red Hot Portfolio that I have subsequently recommended and then sold from the portfolio at a later date. By no means are these companies intended to be buy recommendations for you to go out and invest money towards their shares. For the opportunity to start making serious money from the recommendations I am making now, just start your no obligation trial!

BBI HOLDINGS (BBI): Takeover Nets Us a 76% Profit - Medical diagnostics specialist  - Jan 2008

RHPS Recommendation – SELL

Inverness has made a takeover bid for the entire company. In a proposal agreed by BBI’s directors it is offering either 185p in cash or else shares in Inverness to the value of 195p. Although the share offer is worth more, it comes in the form of shares in a US company whose shares are not traded on the London Stock Exchange. I cannot see anything stopping this deal going head, so our alternatives now are to (a) accept the share offer and take shares in Inverness; (b) accept the 185p cash offer in which case we will not receive the money for several weeks, or (c) sell in the market at the current bid price of 185p. The latter seems the most sensible, so SELL

BBI HOLDINGS (BBI): FDA Approvals - Oct 2007

RHPS Recommendation – BUY UP TO 160P.

Two of BBI’s diagnostic tests can now be sold in the USA after approval from the FDA. The first of these is the ‘Platelet PGD test’ that can detect bacterial contamination of blood – a risk in blood transfusions. The second test is for genital herpes, a disease that affects over 60m adults in the USA. Now they can be immediately tested in the doctor’s office. BBI has reported ‘significant growth in the first five months of the financial year’.

BBI HOLDINGS (BBI): Going for growth - Jul 2007

RHPS Recommendation – HOLD

Annual results, to be announced on 30 July, will meet market expectations and BBI looks forward to “sustained growth for the business in the coming years”.

BBI HOLDINGS (BBI): On the Acquisition Trail - Apr 2007

RHPS Recommendation – HOLD

BBI has bought Point of Care diagnostic products from Agenix Ltd, and the quoted company Theratase for £24m. These deals will give BBI extra products to sell and additional manufacturing capacity. In a joint venture with Carclo plc it is to acquire up to 50% of Platform Diagnostics, which has expertise in the development of Point of Care diagnostics. HOLD

BBI HOLDINGS (BBI):  Earnings rising rapidly - Dec 2006

RHPS Recommendation – HOLD

BBI’s interim results showed turnover increasing by 57% to £4.43m and the pre-tax profit rising by 104% to £0.607m. BBI recorded 28% sales growth from gold reagents, and a 65% sales increase from GlucoGel. Broker Teather & Greenwood is now forecasting earnings per share of 6.5p in the year to March 2007, rising to 13.2p in 2007/8. The shares are closing in on my 160p target. HOLD

BBI HOLDINGS (BBI): Fresh financial commitment from IMI - Nov 2006

RHPS Recommendation – HOLD

BBI has secured a financing commitment from Inverness Medical Innovations Inc (“IMI”) which has agreed to subscribe up to £7.5m in the form of an unsecured convertible loan. As you may remember, BBI already has a relationship with IMI, which has given BBI access to its range of patents that cover “lateral flow” diagnostic tests. IMI already owns options in BBI which, on exercise, could give it a 20% stake in the company. Conversion of this new unsecured convertible loan into equity could, in theory, take IMI’s stake to more like 40%. So this move is not only an endorsement for BBI’s business, but gives IMI a platform for an eventual takeover bid. HOLD

BBI HOLDINGS (BBI): Confident of Hitting Earnings Targets - Aug 2006

RHPS Recommendation – HOLD

Following good interim results, BBI’s managing director, Julian Baines, expressed confidence in the company’s ability to hit forecast earnings per share of 6.5p this year, and 13.2p next. As the only company licensed to use the “lateral flow” process patented by IMI, BBI expects to fill the additional manufacturing capacity brought by the acquisition of Alchemy. It also expects to manufacture a growing number of tests to detect bacterial contaminants in blood, for Verax. BBI is acquiring a company that makes specialised molecular Quality Control Reagents, and another that produces SensoCard, a talking glucose reader designed for visually impaired diabetic patients.

BBI HOLDINGS (BBI): This clever medical lab is growing its earnings by nearly 50% a year - May 2006

RHPS Recommendation – BUY

How do you spot a wining growth share from amongst the 1,471 shares now trading on London’s AIM market? One trick is to watch for when a company issues new shares – and demand is so strong, it could have sold many more.

This tips you off that City investors are very keen. Their unsatisfied demand should create strong support for the share price in future. And this is just what happened to Cardiff-based BBI holdings last month.

BBI placed 3.2m shares in April when it bought a rival firm from Dundee called Alchemy Laboratories. This deal has many great benefits for BBI, my third Red Hot recommendation this month. But before I come to that, a short biology lesson…

Here comes the science…

Any foreign material that enters our bodies and then binds itself to a receptor molecule made by lymphocytes is called an antigen. Antigens include molecules found on invading micro-organisms such as viruses, bacteria and fungi.

When our immune system encounters these dangerous invaders, it produces antibodies. These antibodies are highly specific to the particular antigen. They bind on to the enemy antigen, and mark it for destruction.

Medical tests known as “immunoassay” tests make use of this process to identify antigens in our system. How? A specific antibody is placed within a test strip. Then a sample of blood, for instance, is brought into contact with the test strip. If the blood contains the antigen your doctor is looking for, then the specific antibodies will cling to these antigens.  And as the substance seeps along the strip it will come into contact with a test line. This will change colour is the particular antigen is present.

This is the way a pregnancy test kit works, but the process has much wider implications. In order for the test line to change colour the antibody must be attached to a “signal particle”. Signal particles that are made of gold have advantages in terms of accuracy and sensitivity. Here’s where BBI comes in/

BBI has a particular skill, described to me by managing director Julian Baines as its “Coca-Cola recipe”, for producing gold particles that are a uniform, round shape and are also consistent in quality. Both these are absolutely essential if medical tests are to be reliable. And now, due to its excellent stability and sensitivity – and thanks to BBI’s ability to produce it in consistent quantity – gold is increasingly becoming the signal particle of choice for rapid tests.

Another crucial factor in this story is that rapid diagnostic tests are taking over form the traditional method. Julian Baines described the old-fashioned process I’m sure you know: “You see your doctor. He takes a sample and sends it away to a laboratory for testing. Ten days later, by which time you have made a full recovery, he tells you what had been the matter with you.”

You can guess what huge demand exists for tests that can be conducted in the surgery or at the patient’s bedside. These could detect infectious diseases such as hepatitis B, malaria, tuberculosis or the flu. But the potential goes way beyond medicine.

Immunoassay tests can also detect contaminants in water or salmonella or E-coli in food. They can be used to detect drug abuse or, in the military field, to detect germ warfare or the presence of explosives.

The market is huge. In the medical arena alone, the “point of care” segment for In Vitro Diagnostic (IVD) tests is worth $23bn per year. Immunoassay tests account for about $6-7bn of that, with North America currently worth 40% of the market.

Three routes into the lucrative US health market…

BBI was founded back in 1986 by Dr John Chandler. He wanted to sell gold “conjugates” – the name for gold signal particles after they have been coated with specific antibodies. Today BBI supplies 250 different antibody conjugates. Originally it supplied to the research laboratories of hospitals and universities, before it turned to the IVD market in 2001. Today it has three main activities.

The first of BBI’s businesses make the gold conjugate particles that manufacturers such as Beckton Dickinson require for their own diagnostic test kits. The second is a bespoke contract development service; BBI is working on development projects for new, rapid point-of-care tests for big pharmaceutical giants such as Avitar and Merck, and these deals can subsequently lead to manufacturing contracts. Last, but not least, BBI actually produces the kits, placing the conjugate onto the pads or strips, and enclosing this within preformed plastic housing.

Last year 42% of BBI’s sales were made in North America, and another 37% elsewhere overseas. This is a good indication of its global standing in this highly specialist industry. It has few competitors – and none of them, it believes, can produce gold particles of similar quality.

This pre-eminence is recognised by BBI’s relationship with an American company called Inverness Medical Innovations. IMI has patents that cover “lateral flow” – the process by which the sample flows along the test strip. This US firm has been vigorously protecting its patents, but last June it signed a licence agreement that gave BBI broad access to a patent family covering lateral flow technology.

BBI is thought to be the only company to have such a wide ranging agreement. This favoured position has helped it to secure a £1m two-year deal to manufacture tests for the presence of bacterial contaminants in blood supplies on behalf of Verax Biomedical. These tests could eliminate one of the greatest risks in blood transfusions and with 17 million people receiving 60 million units of blood annually in the US, Europe and Asia, this unique test could be mandated by the US authorities at the FDA and become standard practice.

In return for access to its patents, IMI was granted a five-year option to acquire 5.3 million shares in BBI at £1 – a premium to the share price at the time. Today there are 22.4m shares in issue. Exercising those options, which seems certain to happen at some stage, would give IMI an 18% stake in BBI. It could provide the platform for a takeover bid.

…and 4 great reasons for last month’s British takeover

Of more immediate concern though is BBI’s acquisition of Alchemy Laboratories, which was announced last month. Last year Alchemy made a profit of £0.54m on turnover of £1.26m, 70% of which came form the manufacture of rapid result, non-invasive, diagnostic tests. BBI is paying a maximum of £3.1m in cash and shares, net of Alchemy’s cash balance of £1.4m. The deal brings several advantages to BBI.

First of all Alchemy has the ability to produce test strips automatically, by spraying gold onto a membrane strip – a process that BBI carries out manually. Secondly, it takes out one of BBI’s competitors. Thirdly, it gives it the additional manufacturing capacity that it needs to satisfy growing demand. And finally, it satisfies the requirements of both the Ministry of Defence and the American FDA for dual site manufacture.

From a financial perspective the Alchemy deal has also boosted BBI’s earnings per share. As the table below shows, broker Rowan Dartington is now forecasting earnings per share of 6.1p for the year to March 2007. Previously it had forecast just 5.3p. So no wonder the City is excited by this deal!

And although BBI raised a net £2.7m through last month’s new share issue, strictly speaking it did not really need the money. This is a clue that BBI has another acquisition target in its sights.

RHPS Verdict: The demand for rapid point-of-care tests will not only grow as the Western world ages. The preference for gold as the signal particle, plus BBI’s high standing in the industry and the benefits of the Alchemy deal, mean that earnings are growing at nearly 50% per year. This is a very high quality yet little-known growth stock with a very exciting future. BUY

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The figures refer to the past and past performance is not a reliable indicator of future results. The past recommendation highlighted here is a small company share.By their nature, such investments can be relatively illiquid and, as a result, hard to trade. This makes such shares more risky than other investments. Please seek independent financial advice if necessary. These figures do not include the bid-offer spread, unless otherwise stated. Since the service began on 01/12/98 running through to 31/07/07, the average overall performance of the shares recommended is up 19.91%.All gains exclude dividend payments and dealing costs, unless otherwise stated. Profits from share dealing are a form of income and subject to taxation. Levels and bases of, and reliefs from, taxation are subject to change, and depend on individual circumstances. Full portfolio available on request. Fleet Street Publications Ltd is authorised and regulated by the Financial Services Authority. FSA No. 115234.

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