Checking in With BICO Group Stock
One benefit of investing in technology companies with conviction is that you don’t need to be checking stock prices every five minutes (though as humans, most of us will anyway). Investing in quality companies means you can often ignore them for years barring any major events that take place which merit vetting. We find that checking in with each of our holdings about once a year is a sufficient cadence. Today, we’re going to check in with a company we last wrote about just over a year ago in a piece titled “Taking a Second Look at 3D Bioprinting Stock CELLINK.”
From CELLINK to BICO Group
The first obvious change is that the company has been renamed from CELLINK to BICO GROUP (BICO.ST). That’s likely an attempt at making the company name reflect a broader focus as CELLINK is now referred to as “a BICO company.” Yes, it’s kind of annoying that they choose to capitalize both names, but we’re willing to look past that if revenue growth is there – and indeed it is. For 2021, BICO delivered organic growth of 44% compared to 2020. Below you can see revenue growth across quarters (because the company is growing so fast, that level of granularity is needed).
In looking through their year-end reporting collateral, we’re reminded why investing in foreign stocks takes extra energy. Not only do you need to do currency conversions on the fly, but you also need to deal with funky growth metrics with associated terminology that’s unfamiliar to most investors. For example, BICO uses rolling sales numbers which isn’t a common method of reporting revenues over time.
We can see above that consumables are becoming an increasing percentage of total revenues over time which is great. High-margin consumables are always a big cash cow down the road, and with 25,000 instruments in the field, they’ll become an increasingly important part of BICO’s business.
Monitoring the firm’s growth across segments will soon become easier. Starting this year BICO plans to report on three business segments – Bioprinting, Biosciences, and Bioautomation – and they’ll continue acquiring smaller bolt-on businesses to come under the BICO Group umbrella. There’s also talk of a focus on profitability, something that’s welcomed in today’s volatile markets where the availability of cheap funding could be on its way out. So far, BICO Group has taken on debt (about $143 million on the books right now) to fund a flurry of acquisitions in 2021:
|Qinstruments||Germany||Leader in advanced sample preparation for life sciences research||67|
|Biosera||USA||Leading provider of software for automated workflows||160|
|Ginolis||Finland||Automated production of diagnostic tests using advanced robots.||69|
|Visikol||USA||Offers services in 3D cell culture, 3D tissue imaging, multiplex imaging & digital pathology||15|
|MatTek||USA||In vitro-based innovative human|
tissue models, cell isolation and cell culture.
|Nanoscribe||Germany|| Develops high-precision 3D|
printers based on 2PP technology
|Discover Echo||USA||Patented and rotating hybrid microscopes||102|
|Advanced BioMatrix||USA||3D research applications such as bioinks within|
collagen, extracellular matrix proteins, etc.
These nine companies were acquired for total consideration of $553 million and contributed around $57 million to 2021 revenues (about 41% of $139 total revenues). Additional funding for these acquisitions came from issuing shares in the amount of $374 million. Acquiring companies this aggressively comes with some risks around not being able to sufficiently vet them, or not being able to integrate operations. BICO Group addresses these concerns by mentioning their focus on only acquiring profitable firms and significantly strengthening their finance function so that financials can be aggregated quickly. They also provide an “organic growth” metric which ensures that growth is happening even without acquiring other companies.
While BICO Group was busy acquiring other companies, they were also battling with one in the court system. An event that took place during 2021 which made news headlines was the spat between another 3D printing company, Organovo (ONVO), and BICO Group.
BICO Group and Organovo
Regular readers will know we’ve had nothing nice to say about Organovo (ONVO) over the years. It’s a $33 million microcap that can’t manage to find its way in the world since it crawled out from the over-the-counter exchange. When revenue growth trends from something to nothing over time, it’s no surprise that the share price will follow. Over the past five years, shares of Organovo have lost 94% of their value.
Fortunately for Organovo, they may have a small lifeline from a recent legal outcome following a series of lawsuits that were taking place involving BICO Group. Considering the products concerned are expected to account for approximately 1-2 percent of BICO Group’s estimated revenues in 2022, it should largely be considered immaterial for BICO shareholders. What’s important is that both BICO and Organovo have released each other from all previous claims, demands, liabilities, etc. and the former is now licensing patents from the latter. Battling in the courts over a trivial amount of revenue at stake isn’t a prudent use of resources, so it’s good to see this has now been concluded.
BICO Group’s Falling Stock Price
Investors will understandably panic when the share price of a company plummets for no obvious reason. Given the state of tech stocks these days, it’s no surprise that BICO Group has fallen about 70% over the past six months.
The outstanding question is whether or not we deploy additional capital to increase our position in BICO Group given our focus on investing in larger companies as a priority. (With a market cap of $1.3 billion today, BICO Group would be considered very small.) We’re presently sitting at 46% below our cost basis, so that’s the discount we’re getting on shares of this quality growth company. When revenue growth rises while a share price falls, it means our simple valuation ratio plummets.
- Market cap / annualized revenues
1,290 / (57 * 4) = 6
We can recall a point in time when shares were trading at a simple valuation ratio above 40, so the present valuation seems like a bargain, though we’re in no way trying to call a bottom here.
With $105 million in cash at year-end and plans to keep acquiring in 2022, another capital raise doesn’t seem out of the question. Should that happen, BICO Group won’t be able to take advantage of the premium-priced shares as they did in the past. While we usually focus solely on growth, it’s good to hear the firm is thinking about profitability sooner rather than later. If we decide to add some shares of BICO Group, Nanalyze Premium subscribers will be the first to know.
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