Cello (AIM: CLL) is a recent GCI recommendation which simply looks too cheap given the quality of business and growth prospects. That value seems to have been recognised by institutions who supported a recent oversubscribed placing at 97p to raise £15 million. This funded the acquisition of Defined Health, a US based biotech consultancy, and provides headroom to move swiftly on the pipeline of further deals.
Building a US footprint
Cello’s healthcare business is just over half the group’s profits and employs 450 consultants with scientific or industry backgrounds. They advise most of the world’s leading pharma companies on product strategy and provide them with technical support. The Defined Health purchase will strengthen Cello’s footprint in the key US market where it has already established a biotech advisory team in Boston, as well as having offices in San Francisco, New York and Philadelphia.
Increasing software content
The digital marketing arm also has a blue chip client base and has restructured to improve its profitability and delivery. A major area of focus has been the development of software tools, primarily Pular, to analyse social media. This is another source of ‘hidden value’ within the company as Pulsar moves from an investment phase into profitability. Selling software tools is also a more scalable and operationally geared activity than traditional consulting.
Still too cheap
The equity raise will be dilutive until the surplus funds are put to work in further acquisitions. However Cello operates in a consolidating space and has a backlog of potential deals to address. Management had been waiting to get clarity on a lengthy VAT dispute before moving forward and this has now been resolved. The shares have moved up 15 per cent after the placing but still trade on a modest p/e of 13.5 times, with the prospect of more enhancing deals to be done.