Friday, January 14, 2011

Vectura and SQS Give Positive Updates

It's always nice to start the day with a couple of very good updates from your holdings. In this case it SQS Software's trading statement and a seemingly innocuous presentation from Vectura which actually, I believe, contains some potentially very good news.

Vectura VR315 US Licensing Deal?

Last year, after Novartis' Sandoz decided to hand over US deployment for VR315 (believed to be generic Advair) the share price immediately slumped over 20%  In addition, analysts called into question the commercial potential of VR315 in the US and, the possibility that it had been dumped in regulatory concerns. Whilst Novartis (Sandoz) continued to work with Vectura in VR315 for Europe, this update to the States effectively led to the market writing off VR315 in the US.

All of which, lead me to be optimistic over the statements made yesterday in a Vectura presentation at the 29th JP Morgan Healthcare Conference in San Francisco. You will find them at around 10:30 in the broadcast. I have replicated them here...
315 is not just a European asset, it's an asset that is going to be of value in both the rest of the World and US territories. We are currently negotiating and a late stage negotiations for  rest of the world with several players, with several players, and in the United States we have a great deal of interest and our advanced stage discussions, and deep into due diligence with a lead company, a lead company with whom, we feel very confident we can take this product forward

So it seems that a US deal is close! I hadn't heard anything about this -in such candour-before and think that we are headed higher when/if a deal gets done.

SQS Software Systems AG Trading Update

A very strong update. Adjusted profit before taxes is expected to be broadly in line with consensus. This is ok, however consider that
  • there is a deferral of E500k of budgeted high margin software sales into 2011
  • revenues for 2010 are expected to be ahead, due to winning Managed Services contracts
This means that the 2011 revenue and profit forecasts will probably need to be upgraded by analysts due to the E500k deferral of sales. Moreover, the managed services contracts won in 2010 tend to be low margin at the outset. This means that in 2010 they have seen a slight shift of high margin work (software sales) in to 2011 and taken on some initially lower margin work, yet they have hit consensus profit estimates.

I suspect this means that margins are caeteris parabus ahead of estimates. The managed services contracts give greater visibility and long term earnings and I would expect a re-rating after this statement.

I hold both these stocks.

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