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Revision History For: TECHNE (Tech): "selling picks to gold miners"

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TECHNE (TECH) (21 USD; H/L 21,5/12,5)

Techne, the worldwide leading supplier of cytokines and related products to the medical research and diagnostic market, has an outstanding track record of being highly profitable, growing EPS in excess of 25% as far as you can track back (over10 years), is debt-free and is in its strongest position ever to fully participate in the fast-growing market of cytokines in medical research and diagnostic. Due to the recent acquisition of its most important competitor, the Genzyme biotechnology division, Techne's market share increased from about 40% to 50%. Most of its remaining competitors are either very small companies, or are small divisions of bigger companies, (such as Beckmann-Coulter). Technes management (which owns about 12% of the outstanding shares) is very modest, "no-nonsense", and is always keeping an eye on a clean balance sheet (debtfree, siginficant cash on hand).

Cytokines are intracellular messengers involved in a infinite variety of disease mechanisms. The importance of cytokines in the pathogenesis of immune diseases, infections, cancer, and other diseases has been increasingly recognized, and research focusing on cytokines is exploding, a trend which is bound to become even more pronounced in the years to come. Techne is increasingly selling its products not only to (government-) hospitals, but more so to private and public traded pharmaceutical and biotechnology companies. Techne has been steadily increasing its margins, with gross margins being well over 50 %. Margin expansion has been possible due to a shifting of the sales mix towards higher-margin products, due to higher production-volume, and due to reduced royality payments to Amgen (from which it bought the Amgen cytokine division in the early 1990's). The addition of Genzyme's cytokine division allows not only to gain market share and offer a bigger variety of products, but also to add about 4000 customers, most of which had not been Techne-customer before, and many of which now buy a wider array of products than before, because of the much richer offering of the combined Techne/Genzyme cytokine-products. The Genzyme acquisition is dilutive to FY 1999 earnings, because of amortization of goodwill and inventory, and FY'99 EPS were supposed to be somewhat below those of FY 1989 (0,77USD/share). However FY 99 started very strong (EPS (before extraordinary items) surging over 60%; EPS (after extraordinary items) 5% over 98's EPS). Techne therefore continues to exceed consensus estimates and its own expectations. At first glance Techne might appear to be fairly valued at 21 USD. However, despite its excellent fundamentals and track record and promising future, this company is still little known, a fact which should change in due time. Historically, Techne traded at a P/E between 21-40. Looking into FY2000-earnings, which will not be distorted by the Genzyme acquisition, we can expect EPS of about 1 USD/share. Applying a multiple of 30, which is conservative, relative to its peer group, yields a price of at least 30USD for the next 12-18 months. COMMENTS, PLEASE?!