This week’s discovery comes in the form of pharmaceuticals and biotechnology firm, Vectura Group [VEC]. Having merged with Skyepharma in 2016, the business is engaged in the research, development and commercialization of therapeutic respiratory products and drug delivery systems for the treatment of airways-related diseases.
As you’ll know from some of my other growth stock suggestions, this isn’t the first pharmaceutical business that I have identified. The reasons behind my fondness for the sector are twofold – the world’s growing and ageing population and it’s subsequent reliance on medicine.
Now, Vectura popped up on my stock screener a few week’s ago but its performance has been pretty unspectacular over the period so I have held off writing about it. You’ll note that investors haven’t warmed to the Skyepharma merger since June – with prices showing a decline over the year. However, recent share price gains have been positive over both 3 and 1 month periods and with it approaching what appears to be a key level at 150p, I thought I’d share my thoughts.
Should the stock rise above this most recent high – last seen at the end of 2016, it could push towards its broker forecast target of between 200p and 250p. Needless to say, the six brokers currently offering their forecast on the stock all indicate a ‘Strong Buy’. While this shouldn’t be taken as an outright recommendation on its own, it is a positive view on the business.
Newsflow over the last three months has been very encouraging while director share purchases in September of last year at a price of around 140p per share indicate a general feeling of positivity amongst the board.
The key ratio’s however, remain the big indicators for me. With broker estimates currently suggesting that the business will realise significant profitability in 2018 (Consensus – £82.4m at the time of writing – up from a loss of £1.35m in 2017), the P/E Ratio is expected to drop to around 12.2 and the PEG Ratio (Price / Earning to Growth ratio) to 0.20. Both indicators suggesting the current share price is cheap when compared with future earnings.
Bear in mind though that the business has a high level of gearing when compared with its peers – but it’s cash reserves suggest is it well placed to cover repayments comfortably (Quick Ratio: 4.50, Interest Cover: 8.40).
A substantial proportion of revenue is derived from licencing and royalties. With 30% of that revenue coming from the US and a further 50% from Europe (Excluding UK) the business is unlikely to be significantly impacted by the recent devaluation of the Pound.
So, there’s my case for Vectura Group. What do you think? Do you agree? Feel free to post your thoughts here or on our Growth Stocks discussion forum.
Here’s a list of Growth Stocks previously featured
* I would like to pass on my thanks to JD Financial Publishing for providing access to the Company REFS research tool