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Irrespective of how satisfied I’m of the funding case for a specific progress inventory, I’d by no means put 100% of my money in only one share. Diversification is a vital pillar of my investing technique, because it protects my portfolio towards the opportunity of a devastating company-specific occasion.
However what if I have been restricted to purchasing a single UK progress inventory? With so many selections out there for buyers, it’s exhausting to decide on one firm above all others. I used to be curious to see if ChatGPT had a spectacular suggestion I might need missed.
Genetics for progress
The AI chatbot began with boilerplate wording cautioning towards going all-in on one progress inventory, describing it as “extraordinarily dangerous“. I agree. But it surely performed together with my loopy concept, choosing Oxford Biomedica (LSE:OXB) because the stand-out share to contemplate.
I have to admit, I’d solely come throughout this FTSE 250 gene and cell remedy enterprise earlier than in passing in the course of the pandemic. Again in 2020, the agency signed a outstanding manufacturing settlement with AstraZeneca to supply Covid-19 vaccines. Naturally, ChatGPT’s reply inspired me to look deeper.
The corporate, which now trades as OXB, began life as a spin-out from the College of Oxford in 1995. At present, it’s a pure contract improvement and manufacturing organisation (CDMO).
This implies OXB’s boffins deal with complicated lab work and large-scale manufacturing so its prospects don’t need to. The agency serves main pharma corporations, equivalent to Novartis and Bristol Myers Squibb, by manufacturing viral vectors and gene remedy parts.
Threat and reward
The biotech sector suffered in a post-pandemic world, and OXB was no exception. Its share value continues to be down practically 40% over 5 years. However this yr has been extra promising with the shares rising from 420p in January to over 600p at this time.
Latest outcomes present a constructive trajectory. Within the first half of FY25, income surged 44% to £73.2m, and the group’s order e book skyrocketed 166% to £149m.
It’s nonetheless a loss-making firm, which brings dangers for buyers contemplating the £728m valuation rests on the agency’s future potential. Nonetheless, pre-tax losses have narrowed to £26m from £35.7m, so the path of journey appears to be like good.
Increasing manufacturing capability is a serious precedence for OXB. These ambitions got an enormous increase from a profitable £60m fundraising earlier this yr. In October, the corporate used a few of these funds to accumulate a commercial-scale, FDA-approved viral vector manufacturing website in North Carolina, which is predicted to be totally operational in early 2026.
The funding alternative in OXB shares must be weighed towards a price-to-sales (P/S) ratio above 4 and a price-to-book (P/B) ratio above 22. Whereas progress shares within the biotech sector typically have greater valuation multiples, I believe these figures go away little room for error. Any scientific trial setbacks or the lack of a key buyer may ship the share value tumbling.
My view
ChatGPT’s progress inventory champion was an attention-grabbing alternative, nevertheless it wouldn’t be my primary decide. In any occasion, I already put money into AstraZeneca, so I gained’t be shopping for OXB shares at this time. Diversification issues and I don’t need an excessive amount of biotech publicity in my portfolio. However I’ll preserve an in depth eye on this firm to see if it might realise its potential.
