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All sounds very good. Great to see the slide deck available first thing.

Great also to see a coherent strategy laid out on slide 16, including "Commercialise the pre|CISIONTM platform" and "Initiate first Coris/Affimer® product development".

All starting to come together.

Bought a few more as it does seem very cheap. If they move towards 2.5 x's dividend cover then DPS could be nearer 4p for FY25.

An EV:EBITDA of 3.1 says it all really - the UK markets are kind of broken for micro caps, but value will out eventually.

Agreed, the Chairman's comment seemed a bit odd - they'd clearly flagged the OEM sales as one-off so i kind of assumed that meant, well, one-off! Surprised anyone had anything in their forecasts for sales to that customer.

Main thing for me will be to see what second half free cash flow looks like. Been hard to interpret due to advance payments for orders which then reversed, plus inventory build.

As long as organic growth is positive and free cash flow roughly tracks profits then buy and build works well, and in fact compounds over time with higher profits and cash flow leading to larger acquisitions and higher profits and so on.

*remaining shareholders to sell

It is an interesting question Fardistant, and as you say it's both a question of could and would HCI block a takeover deal.

Clearly at the right price they wouldn't. No idea what that price might be, but if they have been selling their shares every quarter then perhaps they are not all that sticky a holder? To use a hypothetical (note the word hypothetical everyone) offer of £3 then they could convert at £1.18 and sell at £3. Given the bond was issued at a 5% discount then each share effectively costs them £1.12 so they are making a profit of nearly 200%. Enough? Who knows?

Could they block an offer? I would say not, but they could have some major influence. I'm not sure we know all their rights with respect to a change of control, but they could convert at any time and then vote their shares alongside everyone else.

That would give them 40m shares out of an enlarged share capital of around 315m, or 12.7%. Not enough to block someone getting control and in fact the number decreases each quarter if they are indeed selling.

That said, big pharma would probably want to get to say 90% acceptances if that is the level needed to be able to be able to force remaining sellers to sell. HCI clearly have leverage in that scenario.

What i'm not clear on is if it would be possible to get control of Avacta with e.g. 50% or even better 75% of the shares and then redeem the bond. That wouldn't suit HCI but neither would converting to shares and ending up a minority shareholder.

My gut feel is that a buyer would want management onside and all major shareholders and potential shareholders onside, but i don't know that HCI are necessarily the kingmaker in all this.

That's correct - the quarterly payment is a mixture of interest and capital.

I suspect that long before five years is up that we will get taken over. At that point HCI will convert their remaining balance into shares at the conversion price of £1.18 and then effectively sell them immediately to the buyer of the company for what we all hope will be a massive profit. That's why for someone buying the company it is more accurate to view the company as having around 300m shares in issue.

Safebreaker,

Details of the CB are at the bottom of the RNS of 18 October 2022:

Coupon:

6.50 per cent. per annum, payable quarterly in arrear, in cash or Ordinary Shares at the option of the Company

Amortisation:

5.00 per cent. of the Convertible Bond Aggregate Principal Amount each quarter payable quarterly, in cash at 100% of the nominal amount or new Ordinary Shares at the option of the Company

The bond is therefore repaid over 5 years unless HCI decide to convert the balance outstanding into shares earlier than that.

Note also the conversion price has the standard reset clause if the average SP is below 118p for a period of time.

Hope that helps.

Not sure it's FUD to ask why affimers haven't escaped from academia and into the wild. A company like bioventix sells around 15-20 grams of antibodies a year into the diagnostics space and have a market cap of £200m. Therapeutics is a bit harder since you have to prove that affimers are safe, but the dx market is massive. I think it is simply a question of nobody wanting to go first. Perhaps M&A will help in due course.

Agreed. In fact it would be strange if overheads hadn't increased given they bought Launch - so they are simply consolidating their overheads for the first time (the increase in SG&A is mainly in diagnostics). Given that Launch is profitable and in fact contributed more than i expected in the short period since acqn, then this is clearly not a problem.

The main takeaway is that Avacta have enough cash to be masters of their own destiny. All good.

Yes, cash burn was around £18m (including lease payments). Better than i expected, and gives them plenty of runway.

Agreed, they do seem very cheap. Free cash flow was £1.3m on an EV of £5m (26% FCF yield). Cash flow was flattered a bit by the increase in deferred income, but that seems likely to continue if they keep growing, and tax received will flip to tax paid at some stage, but 26%!. Anyway, bought a few chunks of 2,500. Be interesting to see where they pitch the first dividend.

I'm with SB on this. Price is what you pay, value is what you get. The two are related, but not the same.

I can't see any M&A team presenting to their Board and saying - i think we should pay £20 per share, oh and btw the current price is £1.30. There needs to be upward progress on the SP to achieve full value here.

I do think a bidding war would be very likely if/when an offer emerges, as Avacta have some unique assets. That could result in a significant premium eventually. A Nasdaq listing would help get us closer to fair value, as the US simply has vastly deeper pools of capital, but suspect we won't be given enough time to achieve that listing.

A licence deal is probably the likeliest near term catalyst to get the SP motoring as it would spell out the value for potential investors - don't play too hard to get Al! (Anecdotally, i have heard that he is a difficult man to negotiate with - that is good, but only up to a point, and i say that as a Yorkshireman myself).

Yes, it's more assays than individual covid LFT's that Launch sell. The upside for Avacta is fairly limited as 50% of the gross margin from covid tests sold post acqn goes to the seller.

"Total consideration for Launch Diagnostics includes an initial consideration of £24 million in cash payable upon completion of the Acquisition and an additional consideration of 50% of the gross margin on sales exceeding £2 million per annum of Launch Diagnostics' COVID-19 related products for 3 years capped at £13 million (in aggregate)"

Launch will be included in the group numbers from the date of acqn, which was 14th November from memory. So a relatively small contribution of around 7 weeks in the Avacta numbers for FY22 and there will be acqn expenses to write off, so i wouldn't expect very much this time around.

It would be helpful if they give us a steer on the underlying run-rate excluding Covid revenues. I'm thinking around £1.5m to £2m operating profit maybe? As long as it's ticking along then that's fine; as i've said before, it's a 2024 opportunity realistically - not that i expect Avacta to be independent by then.

Those are my thoughts also, Thornogson; the acqn of Launch will make more sense when they bolt on further acqns. That will be 2024 i would guess, since they are currently concentrating quite rightly on Precision and also do not really have the firepower for further acquisitions until they sign some licensing deals for Precision assets.

Affimer progress is slow (i believe) because there are relatively few people using them and few, if any, products being sold which would then drive further commercial adoption. It's a classic chicken and egg situation. Scientists are a fairly conservative bunch and for someone with vast experience of working with antibodies it would take a big push for them to start learning all about Affimers.

Either Avacta develop their own Affimer products and push them through Launch for the world to see why they should be using Affimers not antibodies, or Avacta buy a business that (perhaps counterintuitively) uses antibodies currently and uses that to develop equivalent Affimer products. Once more people get comfortable with working with Affimers and more products are developed then a virtuous circle can develop. I think it will need acquisitions though to speed up that process.

I'm pleased with the recent management appointments, not sure they merit an RNS tbh and i'm sure Al has better things to do. It would be nice if he treated us as part-owners of the business, however, because that is exactly what we are (using our own cash not options, LTIPs etc etc).

We'll just have to agree to disagree, bein. Recruitment doesn't seem to have been an issue so far. If that is the reason for the delay (and i accept it may be) then all the patients that have been approached to participate must have refused or been unable to take part. So that is quite of lot of unconnected events that all have to have taken place for recruitment to be the cause. And that is the very opposite of Occam's razor!

Thanks for posting, gmcc. It's the sort of email a CEO might send after a long, hard week and shows that Al shares our frustration with the SP. The most likely cause for delay i would think is waiting for the FDA stuff. A short delay now may speed up the overall process of getting AVA6000 to market.

The DE5 RNS will arrive when it arrives. We may then get some further RNS's after AACR - there will be certainly be many discussions there i am sure, but the deals will not be inked until some time afterwards so hopefully we will not see the usual nonsense ramping on here and false deadlines.

ATB

It's not a manufacturer. It's a box shifter.

Don't think any of us understand the logic for the Launch purchase. Maybe just because it was available?

Pre-Covid, it was making maybe £1m, or perhaps £1.5m excluding the owner's salary, so not that cheap.

It's basically a "box-shifter" with some strong relationships with various health services. If we had any affimer based diagnostic tests to sell it would be useful for that, but we don't as yet....

https://www.abstractsonline.com/pp8/#!/10828/session/378

AVA3996