Biota
Biota is down to where the price last intersected with value. There’s strong technical support around $2 tying in nicely with the fundies. Biota’s share price just experienced a pandemic spike sending the price twelve months or more into its future. The rumor/fact of Governments selling flu vaccines has been stretched to fear about orders for the 190 million annual Relenza production GSK has committed to. From afar GSK’s Witty appears to be a sharp operator and all the noise and orders found on the net point to Relenza getting a larger slice and some times total allocation of anti-viral orders. GSK have targeted stockpiling and worldwide governments are now more convinced of their need to stockpile anti-virals.
Quick max case: 190 million doses max annual for two years then 60 million for two more =$700M+ before being discounted back. Add Lani and HRV and there is clearly upside potential from current prices. Biota is once again around my 1:3 risk/reward benchmark with multiple probable catalysts over 1H CY2010. $3 seems likely for a 50% return with a shot at a double if Biota get two good quarterly reports from GSK and a deal on LANI. Longer term potential also possible.
This is the first time this falling knife has appeared like it may have hit the floor, buyers on the way down prior to this point should examine why they ignored the trend and how to improve their patience. You need to check the six month chart for the $2 support. I selected the two month chart to see the volume during the decline after the ASX200 spike. Volume increasing can be interpreted as a sign of accumulation and as the decline was on low volume, now appears to be a good time to consider adding to or starting a position. Patient investors who only seek exceptional opportunities should wait and watch. You may miss out as I’m sure you know. Investors who need a starting position to focus their research should look closely.
Disclosure: Long Biota. As with every investment risks exist. Make sure you know them for any investment.
Related posts:
John Hempton at Bronte Capital posted on Biota today. He provided a good summary on Biota in the comments. http://brontecapital.blogspot.com/2010/01/market-and-taxpayer-sensitive-redaction.html?
Well, looks like it is either a case of :
1. Geniuses think alike: OR
2. Fools seldom differ.
I am kinda hoping it breached the $2 mark, and all the technical traders will cause the price to fall to the next resistance level. At that price, picking up Biota is like “crossing the street to pick up the dollar note lying on the pavement” (quote Jim Rogers). Alas, I have to be sure I dont get hit by a speeding truck on my way across.
IMHO, you wont get 190m doses for two years. I worked on 190m plus 120m plus 75m plus 75m, WITHOUT any further pandemics, and without valuing LANI and all other pipeline ventures. I did not write off Relenza totally after the patents expires, and gave it some residual value (20m per year) for another 5 years. These conservative figures still works. The only challenge is to try to stop BTA from consuming too large a portion of the portfolio.
Peter I agree 190M for 2 years is a big stretch, the max case. Your figures look good, a little higher than my mid point. This is a crucial year for Biota, cash flow to manage, deals to close, projects to advance. I hope management shine.
Any expectations for ASW?
I am still trying to locate my notes on ASW. From memory, I recall my analysis covered:
1. A DCF model for cashflow- and despite DCF modelling limits over long term, is still the best methodology for this sort of business;
2. Figures from ASX on total number of listed entities on a month to month basis;
3. Comparative figures from Computershare;
4. Comparison of margins for both companies;
5. Looking at other smaller registries and their technologies;
6. A detailed look at the prospectus docs.
7. An interview with the CEO.
8. The net cash position now, and going forward.
9. The possibility of M & A activity.
I do recall a fair value of somewhere close to 50c, using very conservative assumptions.
25c was the 50% discount entry point about 6 months ago. Things have improved since then. For me, this is a 5 to 10 year stock, holding for yield, rather than capital gains. But unfortunately, I never pulled the trigger, so instead of being on the grand stand, I am now in the spectator’s area.
Sorry for another post, this one on Biota. Peter Lynch’s dream company is the one whose business is so good it can be run by an idiot, because one day, it would be run by an idiot. I have no expectations of any sunshine from management in my analysis. I did make the assumption that they will not make asinine blunders. I am still wondering whether that assumption is valid. Help?
Peter, thanks for your checklist, I’m sure many people will find it useful. I haven’t seen any asinine blunders yet, except the whole GSK deal, which predated many board members, the Chairman and my investment. It was the lawsuit and settlement that provided my great entry point. I’m hoping for better from the current team, we’ll know more when the 2010 full year results are in.
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