Cogito ERGO sum

Specialised pharmaceutical services and drug development company Ergomed (LSE: ERGO) is up a healthy 4% after reporting preliminary full-year results for calendar year 2017 this morning. Its numbers showed impressive 36% growth in net service revenue, driving total revenue growth of 21%.

New business wins rose 29% to £54m, with its contracted backlog of £88m up more than 25% from £70m one year earlier. The £85m market cap minnow also reported positive PeproStat Phase II results. CEO Stephen Stamp hailed “another very strong year” for its pharmacovigilance business as it continues to outperform a fast-growing market. The group aims to become a leading global provider in this field by 2020. 

Ergo to grow

Ergomed is now looking to grow both organically and through strategic acquisitions, having refined its corporate strategy to focus on services businesses. In February, an institutional placing raised £3.9m for further acquisitions and working capital.

My Foolish colleague Peter Stephens alighted on the stock last month, praising its rapid growth potential and lowly forecast PEG ratio of just 0.3 (it now stands at an even lower 0.2). City analysts are optimistic about its prospects for this year, predicting whopping earnings per share (EPS) growth of 172% in 2018, then 31% in 2019. That will shrink its current heady valuation of 44 times earnings to a more amenable 15.8.

This could be the start of something exciting after two consecutive years when EPS fell 28% and 38%. This one could fly, but brace yourself, as small growth pharma firms like this one are inevitably risky.

We were giants

Pharmaceuticals giant AstraZeneca (LSE: AZN) is at the other end of the scale with a market cap of a dizzying £64bn. But its recent share price history has also been choppy as investors grit their teeth and wait to see if chief executive Pascal Soriot’s long-term pipeline refreshment strategy will send profits gushing.

His turnaround strategy still has some way to run and 2018 could prove bumpy, with EPS forecast to drop 18% this calendar year. However, it is looking to accelerate new product launches, and this should help fuel a predicted 13% EPS growth in 2019. Operating margins are also expected to improve, from 18.2% to 22.9%.

Woodford sells

Not everyone is impressed by Astra’s prospects, long-term backer Neil Woodford has recently been selling down his stake. Cynics might suggest this makes now a good time to buy, since everything Woodford touches turns to dust at the moment, but that would be cruel.

I was disappointed to see it trading at a valuation of 20.3 times earnings, and this could also be a key reason for Woodford’s sale. AstraZeneca’s forecast yield of 4.1% is of course tempting, and it remains a great long-term hold for income and capital growth, if you have the patience to stay the course. However, today’s valuation makes it look expensive given current uncertainties, and you may find a better buying opportunity further along the pipe.

The post AstraZeneca and this small growth pharma stock could make you brilliantly rich appeared first on The Twelfth Magpie.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended AstraZeneca. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The pharmaceutical industry continues to offer significant growth potential for the long run. With the world population forecast to continue growing, there could be higher demand for a wide range of treatments. And with the demographics of the world shifting towards an older population, demand for medicines could increase substantially in the long run.

As such, GlaxoSmithKline (LSE: GSK) could prove to be a worthwhile purchase for retirement. However, it’s not the only pharma stock that could be worth buying right now.

Mixed update

Reporting on Monday was specialised pharmaceutical services and drug development company Ergomed (LSE: ERGO). Its share price fell by around 7% following the release of a trading update. The main reason for this seems to have been the fact that its EBITDA (earnings before interest, tax, depreciation and amortisation) is set to miss expectations. It is due to be £0.9m lower than guidance of £6m due to foreign exchange fluctuations and higher-than-expected R&D expenses.

Despite this, the stock appears to be performing well overall. Its service business saw revenue growth of 35% in 2017, while an order backlog of £88m is up on the previous year’s figure of £70m. This suggests that the company continues to have growth potential over the medium term.

In fact, Ergomed is due to deliver a rise in its bottom line of 77% this year, followed by further growth of 54% next year. Despite such rapid growth potential, it trades on a price-to-earnings growth (PEG) ratio of just 0.3. This suggests that it could offer growth at a reasonable price – especially with the long-term growth potential that seems to be on offer within the healthcare industry.

Margin of safety

Clearly, GlaxoSmithKline does not offer the same level of earnings growth potential as Ergomed. However, it does appear to have a solid risk/reward ratio due to the diversity of its pipeline. This could mean that it offers resilient growth potential in the long run, and that its share price performance is less volatile than for many of its sector peers.

In addition, GlaxoSmithKline has strong income prospects. It currently has a dividend yield which is over 6% and that is expected to be covered 1.4 times by profit next year. This suggests that there could be scope for increasing dividends over the long run. This could help investors to not only overcome heightened levels of inflation, but may also mean that it can provide a high level of income into retirement for many investors.

With GlaxoSmithKline trading on a price-to-earnings (P/E) ratio of around 12, it seems to offer excellent value for money. Its low rating relative to the wider sector suggests that it could have a wide margin of safety, while providing the potential for significant share price growth in future years. As such, now could be the perfect time to buy it.

The post GlaxoSmithKline plc isn’t the only pharma stock worth investing in for retirement appeared first on The Twelfth Magpie.

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Peter Stephens owns shares in GlaxoSmithKline. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Ergomed does engage in such research and has an enticing-looking pipeline — but on top of that, it also provides specialised services across the pharmaceutical industry. That turns it into the kind of picks-and-shovels company that I like — whoever makes the big discoveries, Ergomed’s services division should benefit.

Full-year results should be with us at the end of March, and Thursday’s trading update suggests they’ll be very good indeed.

Seriously impressive growth

Total revenue for the year is expected at around £47m, up 21% from 2016’s £39.2m. And crucially, that all-important services revenue should leap by 35% to £39m, from £29.2m. The growth is actually accelerating too, with new service contracts worth £54m won during the year — and that’s 29% up on the previous year.

Add to that an £88m order backlog of contracted future work at the end of the year (up from £70m), and I reckon we’re looking at a company with a glowing future.

And the big beauty is, we don’t have to pay an inflated growth price for the shares. Admittedly we’re looking at a P/E based on 2017 expectations of 31, but very strong EPS growth forecasts would bring that crashing down. The 75% rise predicted for 2018 would drop it to 17.5, with 2019’s 54% hammering it as low as 11.5.

Growth forecasts like that provide super-low PEG ratios of 0.2 for each of the next two years – surely an attractive growth opportunity.

Oil recovery

I took a calculated risk buying shares in Premier Oil (LSE: PMO) in late 2015, banking on an oil price recovery taking the pressure off the firm’s heavy debt burden — and then they slumped further. It’s taken a while, but I’m just about back to break-even, and I see the future for the company as looking more attractive.

Just before Christmas, Premier announced the completion of the sale of its Wytch Farm field to Perenco UK, which raised a welcome $200m to go towards paying down debt.

Then, in late December, we heard news of first oil from the firm’s Catcher field, with the project coming in almost 30% under budget. With an initial expected production rate of around 10,000 barrels per day, chief executive Tony Durrant described the event as “a significant milestone for Premier.“

First cargo sold

And Wednesday’s Catcher update announced the lifting of its first export cargo of approximately 500,000 barrels ahead of schedule — and it’s been sold. There’s another cargo due in late February, and that has also been sold.

Performance so far is said to have been “excellent with high operational uptime,” and gas commissioning is going well.

The other boon is the recovering oil price, with Brent Crude having now broken through the $70 level — it was as low as $55 as recently as November. I’d set a finger-in-the-air estimate of around $75 for the price at which I’d start feeling safer about my Premier investment, and we’re getting close.

But there’s still a lot of risk attached to it, and you might (or might not) be surprised to learn that it’s one of the most shorted stocks in the UK. Bear that in mind if you buy.

The post A small-cap growth stock I’d buy alongside Premier Oil plc in 2018 appeared first on The Twelfth Magpie.

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Alan Oscroft owns shares in Premier Oil. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

At today’s 165p, the share price of Ergomed (LSE: ERGO) has slipped almost 23% since the beginning of the year. But recent acquisitions and a strong pipeline of work look set to boost earnings per share during 2018 with City analysts projecting a rise of more than 150%.

The firm is making good strategic and operational progress that could propel the stock higher over time. Today’s interim results revealed revenue just over 30% higher than a year ago and a 42% lift in the gross profit figure.

Fast-growing services division.

The firm provides specialised services to the pharmaceutical industry and develops new drugs. The services division is growing fast and posted a 53% revenue increase during the first half of the year drawn from clinical research operations in over 40 countries. Meanwhile, the co-development division seeks partnerships with biotech and pharmaceutical companies where Ergomed delivers drug development services in exchange for carried interests in any revenues that the new drugs generate, which could come from sales and milestone payments.

The company signed service contracts worth £23m during the period and has a backlog of signed contracts pushing above £70m, which is almost 17% higher than a year ago. Meanwhile, several drugs in development could go on to generate decent income for the firm. Although for the time being more than 80% of the firm’s revenue appears to come from services rather than from carried interests.

Low debt

I like the firm’s low level of borrowings. The balance sheet in today’s report shows around £7k of debt being off-set by more than £2.4m in cash. But there was a cash outflow of a little over £1.3m in the period up from an outflow of £0.93m last year. Operating profit declined almost 9% due to a rise in administration, research and development costs.

I’m optimistic that the firm will soon find stronger feet when it comes to cash flow and profits and Chief Executive Dr Dan Weng is “confident that Ergomed is well positioned for further growth, both organic and through acquisition.” I reckon, with the forward price-to-earnings (P/E) ratio running a little over 13 for 2018, the firm is one to keep a close eye on.

Bioventix (LSE: BVXP) also updated the market with a trading update at the beginning of September. The firm specialises in the development and commercial supply of high-affinity monoclonal antibodies and earns its revenue by licensing the use of its creations to other firms that use them for clinical diagnostic work.

Low costs

Once again, the news from the company is good with revenues for the financial year to 30 June a little higher than £7m, which is more than 27% higher than the year before. The firm explains that because costs are only rising a little as revenues rise a lot, the directors expect revenues and profits for 2017 to be ahead of what the market was previously expecting — again!

Bioventix has been a dream investment for many over the past three years with the share price rising more than 320% due to ongoing operational progress and a valuation re-rating. Today’s 2,487p share price throws up a forward P/E rating of almost 29 for the year to June 2018, which looks full, but I reckon this stock has more to give.

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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.