Ferret's Stock to Watch: VISUAL SYSTEMS LTD 09:42, Monday, 2 October 2006
MEDICAL TECHNOLOGY COMPANY IN BOX SEAT WITH THREE BIDDERS
Sydney - Monday - October 2: (RWE Aust Business News) *****************************************************
OVERVIEW ********
Shareholders in the medical technologies company Visual Systems Ltd (ASX:VSL) must be delighted that three US raiders have come knocking on the door in the last two months.
The share price has more than doubled in the period as the bidding frenzy exploded last week in the market.
More than 42 million shares changed hands over the five trading days out of a capital of 185 million shares.
At the present market price of $3.16 and with three bidders in the wings it looks hard to go wrong, especially with Visual Systems's earnings potential steadily improving.
On Friday Cytyc Corporation of the US acquired 25 million shares, or 13.5 per cent, in Vision Systems and has indicated it intends to increase its offer from $2.35 to as high as $3.25.
It seemed to put a spoke in the wheel of the first bidder, Ventana Medical Systems, which has offered $2.18 a share, valuing the company around $450 million.
But Ventana has indicated it is making another offer.
Since then yet another suitor has seemingly emerged.
In response to a confidential, preliminary and incomplete proposal, VSL has allowed Danaher Corporation, a NYSE-listed industrial company with a market capitalisation of about $US20 billion, to undertake certain due diligence investigations in relation to a possible competing bid for VSL.
Those due diligence investigations are still to be completed, and VSL says that at this time there is no certainty that Danaher will publicly announce an intention to make a competing bid.
Late in the 2006 financial year, VSL subsidiary Vision BioSystems completed the acquisition of the business and assets of ImmunoVision Technology Inc (IVT), based in the US.
The IVT product range is the critical component of the reagents that are tied to the Bond-maX visualisation system and is at the heart of the value-creating strategy of recurring, high margin reagent sales driven by instrument placements.
Securing the IVT intellectual property means that the last important area of intellectual property surrounding the Bond-maX system and recurring revenue model is now under VSL control.
Net operating cashflow for the year was positive at $17.4 million and this, combined with the receipt of the net proceeds of the sale of Vision Fire & Security, net of the acquisition cost of ImmunoVision Technologies, left a cash balance of almost $239 million at year end.
The 40c per share capital return paid on August 4 reduced the available cash balance to about $167 million.
Subject to international business conditions and currencies remaining stable, the company expects the strong growth delivered by Vision BioSystems in the international cancer detection market to continue as the momentum being created by instrument placements generates both capital sales and recurring reagent sales.
The sales and marketing infrastructure established during the 2006 year, supported by further increases in sales and marketing resources during 2007 should continue to drive strong sales growth in the VBS business.
The IVT acquisition completed late in the 2006 year will also add significant earnings to the VBS business.
Invetech is also going into the 2007 year with expectations of a much-improved performance given the strong order book established in the last quarter of 2006 and the results that were delivered in the last few months of the 2006 year.
Sales to companies in the international healthcare market covering both instrument development and manufacturing process automation make up a significant component of the Invetech workload and the pipeline of potential projects that are being tracked by Invetech is also cause for optimism about the 2007 year.
SHARE PRICE MOVEMENTS *********************
Shares of Vision Systems rose 10c to $3.16 on Friday. Rolling high for the year has been $3.16 and low $1.10. Dividend is 1.56c to yield 0.49pc. EPS is 103c while p/e ratio is 3.07. The company has 184.7 million shares on issue with a market cap of $583.7 million
In a letter to shareholders, the chairman and managing director said the rapid growth in sales in the Vision BioSystems cancer detection business around the world was a very exciting development.
This was due to the recurring revenue business model driven by reagent sales tied to Bond-maX instrument placements gained real traction.
Along with the rapidly increasing revenue line, the investment in sales and marketing was also increased by 87 per cent to $17.8 million.
This was a deliberate strategy to capitalise on the current competitive environment where there are only two fully automated instrument/reagent offerings in the market, including Bond-maX.
It is also worth noting that despite the increase in sales and marketing spend, Vision BioSystems moved into bottom-line profit for the year, exceeding management's targets for the second half.
The combined sales, marketing and administration costs in Vision BioSystems are in line with industry benchmarks, despite the significant increase over the 2005 year.
BACKGROUND **********
Vision Systems develops, creates and delivers high-value, technology-rich products and services primarily to international healthcare markets.
The company operates two core business segments:
* Vision BioSystems manufactures and markets automated instruments; and
* biochemical reagents for biopsy-based detection of cancer and infectious diseases in pathology laboratories around the world.
Invetech, the core product development engine of the group, is a world-scale, cost-competitive provider of research and development services for both internal and external clients with its largest customer base being in the international healthcare sector.
Vision Systems was formed in 1984 to acquire the ADPRO automatic surveillance business.
It listed on the Australian Stock Exchange in 1985 and subsequently acquired two other businesses in contract research and development and video processing technology.
In mid-1993 the company acquired Invetech in a reverse takeover transaction that saw Invetech's management, led by Vision's current managing director Jim Fox, assume the company's key management roles.
Invetech remains Australia's largest private sector technology consulting business.
In the 1990s, Vision Systems also developed and manufactured a range of pathology laboratory instruments on an OEM (original equipment manufacturer) basis through its subsidiary, Australian Biomedical Corporation Ltd (ABCL, the precursor to the Vision BioSystems business unit), that were marketed worldwide by Leica and Abbott Laboratories.
This arrangement was terminated in 2000 and a new strategy under the Vision BioSystems banner was implemented, involving branded instruments and high-value reagents aimed at the cancer detection market.
In June 2002, a significant investment was made with the acquisition of Novocastra Laboratories Ltd augmenting the company's capabilities in biomedical instruments with a world-class biochemical reagent manufacturing capability.
ENDS
VSL Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
