Shares digital

Immunodiagnostic Systems (IDH:AIM) – 203.5p, stop loss 163p

SHARES SUMMARY

Growth opportunities are plentiful and it has a strong management team. Profits are ticking up and the recent share price weakness provides a good buying opportunity.

Business:

Maker of diagnostic testing kits, particularly in the field of bone disease, which help to diagnose or monitor diseases.

Vital stats:

Market value: £48.8 million

Historic PE: 18.5

Prospective PE 2008: 16

Prospective PE 2009: 11.9

Sector PE: 14.8

1-month relative strength: -6.3%

1-year relative strength: -8%

Yield: 0.9%

NMS: 500

Spread: 3.4%

Two acquisitions last summer have set the diagnostic testing kits manufacturer up for an exciting 2008.

Last July, the company acquired Nordic Bioscience Diagnostics, a manufacturer of bone and arthritic diagnostic tests, for £17 million, boosting the group’s product range and also heightening its profile as a global supplier of bone and skeletal products. Just over a month later, the group bought Biocode Hycel, a manufacturer of diagnostic test kits and automated instruments, for ?23 million. This acquisition has provided an opportunity to automate Immunodiagnostic Systems’ existing product range as well as widen its product offering. Key to this is the Biocode Hycel 3X3 platform, an automated immunoanalyser, for which Immunodiagnostic Systems had already been developing tests. This analyser provides a highly cost-effective, closed-system instrument that can process 120-180 samples an hour, with the ability to couple machines together to double this throughput.

Analyst Mike Mitchell at house broker Oriel Securities believes the ‘entry into automated diagnostics will be a valuable long-term addition to the business’ and adds that ‘successful delivery of 3X3 has the power to drive significant earnings growth long-term’.

Immunodiagnostic Systems began life in 1977 as a UK distributor of diagnostic products. Since then, the company has expanded its activities to include R&D and now has direct sales and marketing operations in the UK, US, Germany and France, and has an R&D facility in Finland.

Headquartered in Boldon, Tyne & Wear, the group floated on Aim in 2004. Exports make up more than 70% of its global output, with its main markets including the US, Japan, Germany, Austria, Scandinavia and Italy. It is also pushing into markets in Israel, Russia and China.

Last year also saw the strengthening of the company team, with the appointment of Ian Cookson as operations director and Alain Rousseau as engineering director. Cookson previously worked at Axis Shield Diagnostics, while Rousseau has vast experience

in bringing automated instruments to the market.

Regarding competition, the group is focused on niche, targeted products, which many other companies are not looking at. There is still the looming threat of larger firms in stronger financial positions, but Immunodiagnostic Systems says it is looking to work closely with these groups in a bid to turn them into customers for its products rather than direct competitors.

The company is also likely to continue benefiting from a range of underlying industry and market trends in the diagnostics sector. Oriel Securities’ Mike Mitchell explains the powerful growth drivers in the sector include ‘shifts in population demographics (older people requiring increased healthcare services for longer), increased recognition that the use of diagnostics can provide better decision-making in patient treatment, better disease management and patient compliance, potential cost savings through greater efficiency in healthcare provision’. The broker has slapped a 340p price target on the stock and is forecasting taxable profits of £3.5 million for the year-end March 2008 against £2.2 million the year before. This could jump to £5.9 million and £10.9 million in 2009 and 2010, implying EPS growth of of 40%-plus in both years. While the share price took a hit at the start of February, with the outlook being so rosy, now looks a great time to buy at bargain levels.

by: Rachel Robson