Avacta (AVCT) – A cure for the share price
Avacta (AVCT) has achieved nothing of significance in its entire listed history since 2006 (previously, it was called Readybuy, which also achieved nothing). Until now.
Avacta is a biotechnology company, which tries to do many scientific things, none of which I will pretend to understand. What I do know is that last week’s RNS was of high significance, given that it signed an alliance with LG Chem Life Sciences, part of the South Korean multinational corporation LG.
The alliance states that Avacta could potentially receive $180 million in upfront, near-term payments and development milestones. Given the current share price and market cap of 29p and £33 million if only half of these payments were realised it would still be multiples of the current market capitalisation.
The collaboration agreement also states that all of Avacta’s costs of research and development will be covered plus any royalties on future product sales and an additional $130 million in option fees and milestone payments, should LG decide to exercise its options for additional targets.
The company raised £11.6 million before expenses in a share placing at 25p in June. The stock has barely traded above this price since the placing (one of the reasons why I seldom take a placing).
On the morning that news of the collaboration agreement was released, the stock gapped up and then was turbo dumped. It traded a record volume day, well over 3x the previous record volume day.
I believe volumes are significant and this could well be marking the start of a turnaround in the stock price. There is a lot of work to be done still, but this RNS changes the company’s investment case drastically. It’s still not making any profit though, and success resulting from the collaboration agreement has not been confirmed, and so I won’t be investing yet.
We can see that the stock is not trading above its 200 day moving averages, and it looks likely (to me) that the gap back down to 23p will be filled. This would mean the bonanza RNS would be discounted for free into the stock price, but those who believe that the market is efficient should stay in the classroom.
Volumes have remained high since the RNS, which tells me that shares are constantly changing hands from sellers into people who wish for a higher price – more likely to be stickier holders. It is a tough market at the moment and until most of the 25p placees have exited for their 10% (or breakeven), the overhang is likely to put people off.
Is there long term potential in this stock? Possibly. LG Chem seem to be interested. Is this a stock I would want to invest in? Definitely not yet. It’s not profitable, and it doesn’t generate cash. It’s biotech, which is a difficult and risky sector for those like me who haven’t specialised in it.
To trade the stock’s short-term price action, I would look for the gap to fill, or a breakout from the recent 36p area. Until ones of those happen, it’s staying firmly on my watchlist.