02/07/2007
A run-up in Cozart shares in recent days is being interpreted in some quarters as confirmation that a would-be bidder is picking up shares. I have no way of confirming that; but I do believe the medical diagnostics business is up for grabs as it finally begins to make worthwhile money from its drug-testing systems – which
can prove the presence of Class A drugs in saliva or other biological samples.
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At the current 44.5p, Cozart is capitalised at just under £48 million. Yet it has a lead position in the on-site testing for illegal drugs in this country and almost every month brings word of new contracts. Its RapiScan cartridges are a key part of the UK Drug Interventions Programme under which anyone arrested by the police can be tested for drug-taking as soon as they reach a police station. The Scottish Executive agreed a similar, 26-month contract for RapiScan in April. Then, a couple of weeks ago, Cozart won a further, four-year contract from the Home Office for laboratory confirmation testing of oral fluid samples. This is worth an extra £700,000 a year, no mean sum when turnover is still sub-£20 million.
In March, Cozart spread its wings with the £1.1 million acquisition of Nemesis Scientific, which operates in the workplace drug-testing market. This followed a Scandinavian acquisition last July in the same market. In May this year, Cozart announced it had won a three-year, £500,000 contract to provide drug and alcohol testing services to Emirates Airlines. The workplace testing market is expected to grow strongly in coming years.
Cozart moved into profit last year. Its six-month figures to the end of November showed an adjusted profit before tax of £700,000, compared with a loss of £200,000 before, and a move into net cash. This, however, is small beer next to what Cozart hopes to achieve. First, it is working hard at replicating its UK success in Europe. Through a combination of in-house start-ups and acquisitions, Cozart is now in France, Italy, Spain and Sweden and is looking at developing a presence in Germany and the US.
Second, it has a joint development programme with Philips of the Netherlands to produce a handheld device, similar to a breathalyser, to test drivers at the roadside. Only Cozart’s technology can deliver instant results for such a device. Its potential is huge and a significant commercialisation contract has just been signed (Philips now owns nine per cent of Cozart shares).
Whether Cozart’s own shareholders will get to see that potential realised is a question the market is increasingly asking. I suspect Cozart is on the radar of a number of the big boys. But, even if a bid fails to materialise in the near term, the shares have the potential to outperform the market over the next couple of years. One for your SIPP or any other long-term portfolio.
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