OMH a free speech thread unmoderated by bangers

Here's the full BUY tip.


The recent announcement by molecular diagnostics testing company Osmetech (OMH) regarding the sale of its Critical Care division to IDEXX has led to a surprising 11.5% fall in its share price to a current mid-price of 25p.

In all fairness the shares experienced an excellent run prior to the disposal, with a gain of almost 80% from its lows back in September.

The company revealed it had sold the Critical Care Division for $44.9 million (£22.9 million), a 15-fold increase from its original purchase price back in 2003. The company also said the cash balance at the end of November was £7.98 million.

Should Osmetech obtain shareholder approval at its extraordinary general meeting on 9 January, then before any cash burn, the company should be sitting on more than £30 million in liquid reserves. And with a market capitalisation of £50 million, the enterprise value is just £20 million.

The company will now specialise solely in molecular diagnostics which it promotes as the fastest growing sector of the global diagnostics market.

Osmetech intends to use the sale proceeds to develop and commercialise its existing product pipeline, secure licensing agreements and explore acquisition targets in the molecular diagnostics field. It may even consider entering non-healthcare markets to leverage its intellectual property.

It is interesting to note that since the disposal, UBS increased its holding in Osmetech by 785,000 shares to 12.35% of the company. And the last trade reported on 18 December was for 785,000 shares at 30.5p, a trade I suspect that belongs to UBS. On that basis it appears that the smart money is prepared to pay top dollar for the stock.

Although a comparison with fellow diagnostic company Proteome Sciences (PRM) is a bit tenuous, the difference in sheer valuations is startling. As of its last set of results in September, Proteome had just £900,000 cash with a £2 million loan facility.

The company is capitalised at £80 million suggesting an enterprise value of £79 million, barring non-cash assets. Osmetech’s is just £20 million come mid January. Given the company’s prospects and its relative low valuation, long positions should be considered at market with a stop-loss based on a close below 21p.