I believe there are excellent opportunities in small-cap growth stocks today, particularly with multiple interest rate cuts on the horizon. One such opportunity is hVIVO (LSE: HVO), which provided a bullish H1 trading update yesterday (17 July)
In response, the stock rose 5% to 29p, but I reckon it’s set for further gains in the years ahead.
Record revenue growth
AIM-listed hVIVO is a specialist contract research organisation (CRO) and world leader in testing infectious disease products using human challenge clinical trials. These are where healthy volunteers are infected with pathogens to test diseases and potential treatments. This approach can save time and money for its customers (pharmaceutical firms) when conducting trials.
The company recruits volunteers through its own FluCamp platform then runs the trials at its designated quarantine facilities. It also offers standalone laboratory support and clinical consultancy services.
In the six months to the end of June, the firm’s revenue jumped 30.6% year on year to a record £35.6m. Its EBITDA profit margin improved from 19.1% in H1 2023 to approximately 24%. This was driven by enhanced operational efficiencies from running multiple quarantine facilities.
Meanwhile, its cash position increased to £37.1m from £31.3m the year before. The company has no debt.
For the full year, it reaffirmed revenue guidance of £62m (10.7% growth) and said EBITDA margins were anticipated to be at the upper end of market expectations.
We have full visibility over our expected 2024 revenues and continue to deliver on our sustainable growth strategy. The orderbook remains strong in spite of record revenue delivery in H1 2024. The recent Omicron characterisation study contract and the award of our largest field study to date are two key sales highlights for H1 2024. In addition, the current sales pipeline includes several advanced stage opportunities that we expect to convert in the coming months.
Yamin ‘Mo’ Khan, CEO of hVIVO, H1 2024 trading update
Risk and competition
One risk here is that human challenge studies are subject to stringent regulations. Any changes in such requirements or non-compliance could lead to delays, increased costs, or the halting of studies.
Plus, there are other firms around the world that compete with hVIVO in attracting contracts for clinical trials related to infectious diseases and respiratory illnesses. So it isn’t the only show in town.
New state-of-the-art facility
Despite these risks, things look very bright here. The company has just opened the world’s largest human challenge trial unit in London’s Canary Wharf. This will enable hVIVO to broaden its offerings to include new pathogen models and other services.
This new facility is expected to provide the capacity for £100m in revenue by 2028. With an assumed EBITDA margin of 24%, this gives a price-to-EBITDA ratio of around 8.5 for 2028. That’s attractive, assuming everything goes to plan, which isn’t guaranteed but looks increasingly likely.
For this year, the stock is trading on a forward price-to-earnings (P/E) multiple of 21. Again, I think that’s decent value for a fast-growing firm.
Finally, the stock is still 22% lower than a high of 38p reached back in 2021. I wouldn’t be surprised to see this one go on to hit new highs. If I didn’t already own the stock, I’d add it to my portfolio at 29p right now.
