Bio tech ‘fits’ well into portfolios seeking growth in a low-growth world markets for life science tools/diagnostics is nearly $US100 billion per annum.
Insync Global Titans Fund has invested in global biotechnology company Thermo Fisher Scientific on an attractive free cash flow yield of 5.7 per cent for 2016.
Ageing populations, the need for better and broader healthcare access globally, more stringent environmental and testing regulations, along with the rising demand for better healthcare and a cleaner environment from emerging markets, support the positive outlook for Thermo Fisher.
Thermo Fisher is the largest player in the global biotechnology product development sector, supplying a complete range of instruments, consumables, and services for research, analysis, discovery and diagnostic.
“We expect free cash flow to grow at high, single digits over the next few years,” said Insync’s Chief Investment Officer, Monik Kotecha.
Insync’s investment in Thermo Fisher is in keeping with its strategy of picking businesses that are riding global megatrends. The latest investment benefits from the continued global demand for tools and technologies that enable scientific advances, and help improve health and the environment.
“Insync’s investment case is supported by the company’s consistency of organic growth, consistency of management execution, consistency of capital deployment, and notably, consistency of shareholder returns,” Mr Kotecha stated.
Thermo Fisher Scientific supplies more than 400,000 customers in about 150 countries with the most diversified portfolio of products. These customers work in pharmaceutical and biotech companies, hospitals, clinical diagnostic labs, universities, research institutions, government agencies, and environmental/industrial firms that use quality and process controls.
Sales should approach $US 17billion in 2016, making it more than twice the size of its closest competitor.
Consumables and service, which support recurrent revenue growth, contribute close to 75 per cent of Thermo Fisher’s sales and provide a high degree of market exposure.
“Consumable sales are more predictable and carry higher gross margins than instruments. We also like the fact that the diversified product portfolio limits reliance on any one product group,” commented Mr Kotecha.
Despite its large size, Thermo Fisher only holds 17-18 per cent market share. However the fragmented state of the market offers opportunities for market share gains or further consolidation. For instance, the markets for life science tools and diagnostics are approaching $US100 billion in size each and are forecast to grow at a low- to mid-digit pace to the end of this decade.
Originally published 5 April 2016