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£5.2mn contract with global biotech company in Asia Pacific
11 contract wins since start of 2022 worth £70.6mn
95 per cent of 2023 revenue estimates already contracted

This could be a pivotal year for hVIVO (HVO:14p), a rapidly growing specialist contract research organisation (CRO) in testing infectious and respiratory disease vaccines and antivirals using human challenge clinical trials, providing early clinical development services for a broad and longstanding client base of biopharma companies.

Building on decades of experience, hVIVO is currently the only CRO focused on challenge studies, providing expertise and capabilities in challenge agent manufacture, a unique portfolio of established human challenge models to test a broad range of infectious and respiratory disease products, and specialist drug development and clinical consultancy services through its Venn Life Sciences subsidiary.

hVIVO’s portfolio of human challenge study models for infectious and respiratory diseases include a recently established Covid-19 model, and several new models, such as one focused on malaria, to address the dramatic growth of the global infectious disease market. The group runs challenge studies in London from its Whitechapel quarantine clinic, its state-of-the-art Queen Mary BioEnterprises clinic with its highly specialised on-site virology and immunology laboratory, and its newly opened clinic in Plumbers Row.

Trusted partner

As a trusted partner to the global biopharma industry, growth is being mainly driven by hVIVO’s market-leading competitive position as well as increasing demand for human challenge services in what is a rapidly expanding infectious and respiratory clinical trials market. To date, the group has completed more than 60 human challenge studies, inoculating more than 3,500 volunteers, and boasts four of the world’s top 10 biopharma giants as active clients. Contract momentum is building strongly, the latest win being a £5.2mn contract with a major client in Asia Pacific, the eleventh award and the eighth challenge study contract win since the start of 2022. In aggregate, these 11 contracts have a combined total disclosed value of £70.6mn, up from £48.3mn reported in 2021, giving a further boost to the record £80mn backlog of contracts that hVIVO reported in early September.

Furthermore, around 95 per cent of FinnCap’s current-year revenue estimate of £54mn is already covered by contracts, thus massively de-risking analysts’ estimates which point to both pre-tax profits and earnings per share (EPS) rising by more than a third to £5mn and 0.7p, respectively. It also means there is potential for earnings upgrades if the ongoing momentum is maintained, as seems likely. However, the shares are attractively priced even without upgrades.

Stripping out last year’s estimated closing net cash pile of £18.8mn (2.8p a share), the shares are priced on cash-adjusted price/earnings (PE) ratios of 16 (2023) and 14 (2024), hardly exacting for a business that is expected to deliver 60 per cent cumulative EPS growth over the 2022-24 forecast period. Moreover, that cash pile is expected to build to £22.8mn (2023) and then £26.9mn (2024) as highlighted by projected free cash flow yields of 4.7 per cent (2023) and 6.5 per cent (2024). On this basis, the cash-adjusted PE ratios drop to 15 and 12.5, respectively.

Attracting investors’ attention

The strong earnings visibility, impressive contract momentum, operational leverage and rock-solid balance sheet are starting to attract investors’ attention, hence why hVIVO’s share price has risen 50 per cent since I initiated coverage (Alpha Research: ‘Ride the boom in vaccine research’, 17 November 2022). A chart break-out above the November high (14.5p) looks a real possibility, and would be a bullish signal worth following, opening the door to a run up to my conservative looking target price of 19p, well below those of Liberum Capital (21.6p) and FinnCap (44p). Buy.

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