So, one of my resolutions for the blog was to think up flashier titles for my posts… Unfortunately, I’m drawing a blank on this one, so I guess you’ll just have to settle for the steak (aka the idea) without any of the sizzle!Bioqual has three state of the art research facilities focusing on infectious disease, cancer, endocrinology and animal models. In general, they contract with different government arms to and provide them with research services. On almost any basis, the company is incredibly cheap. From fiscal 2007-2010, they earned $1.58m, $1.91m, $2.19m, and $678k in operating income. With a current market cap of $7.44m and EV of $5.1m, the company trades for ~3.2x EV / average 4 year EBIT. The company did swing to a slight operating loss in their most recent quarter (ended August 2010), but it appears this was the result of a one month lag between their old contracts rolling off and some new contracts coming on line.
On a book value basis, the company trades for ~25% discount to its book value of $11.25 per share, and barely trades for more than its net current asset value of $7.36- plus, most of their assets are in the form of either cash or accounts receivable (and with most of the AR coming from state and local governments, you’d hope those ARs are relatively safe).
One additional positive is the company has both an active dividend policy and periodically repurchases shares. They pay a dividend each year of $0.16 per share (good for ~2% yield), and has periodically repurchased (relatively small amounts of) shares as well. While I normally am pretty agnostic on a company’s dividend policy, I’m always worried about these small, completely unheard of, unlisted “dark” companies turning into complete value traps, and having a shareholder return plan helps alleviate those fears.
However, the company is not without risks. First, and most obviously, the company no longer reports to any exchange. In order to get their financials, you need to go directly to their website. These types of stocks are the most volatile, and can be prone to manipulation / fraud. Fortunately, their financials are still audited, and the management team has been in place for over twenty years, which alleviates many of those concerns. On the business side, their revenue is heavily dependent on continued funding for research from the government. With all eyes on deficits at every government level, spending cuts could possibly cut into their program funding. There’s also the risk that they will complete their research program and be unable to find new ones, though (again) the companies history of continuing to find new projects somewhat alleviates this concern.
My take: The stock is cheap, but given the reliance on continued government funding (likely, but risky) combined with a research program I know nothing about, it’s not cheap enough for me. If you can get comfortable with their research program, there is likely a lot of value to be found in this name.
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