With the search for truly safe sectors in a market ravaged by COVID 19, small and micro-cap specialists Amati Global Investors holds a company that is not just safe but potentially an alpha generating machine. The only problem is that the virus is interrupting the supply line of the product driving the growth potential.
Last week, Byotrol, an AIM-listed chemicals company signed a license and product agreement with its larger peer Tristel, which may aid the former company bolster the manufacturing of its COVID busting hand sanitiser Invirtu.
The key difference to Invirtu and conventional alcohol-based sanitisers is that, according to Amati founder Dr Paul Jourdan (pictured), when alcohol-based products dry their sanitising effects dissipate. Invirtu keeps working for six hours after application. However, it’s the company’s business model that was one of the draws for Dr Jourdan.
“Byotrol is a conventional chemicals company but has a special way of formulating its products that makes them compliant with the latest EU and US regulations which are different,” he told Fundeye.
Given that the US has the highest number of COVID cases which is continuing to grow, Byotrol is testing Invirtu on the virus specifically to ensure that its long-lasting effects work on it. Dr Jourdan doesn’t think the virus is ‘particularly difficult to kill’ and once the company gets the results, it will market the product, promoting its enduring effects.
However, currently there is some reluctance to promote it simply because the company doesn’t have enough of it. Dr Jourdan said that the company’s shipment of 30,000 bottles of Invirtu to Boots sold out in one day.
“It’s quite a complex formula and if any one chemical is not available they can’t make any more of it. Initially their problem was over the packaging which they couldn’t get enough of because China was shut down. Now some of the chemicals aren’t available so they can’t make as much as they’d like,” he said.
Given the supply constraints, Byotrol is favouring customers they consider to potentially be long-term, in the hope that demand will persist long after the crisis is over.
Given the prevalence of environmental, social and governance (ESG) investing, one admirable quality of Byotrol is that it hasn’t put the price of the product up. Dr Jourdan said that while morality issues are an ESG consideration, “people are quite woolly as to what they are”.
Tristel, a larger more mature company that made the deal with Byotrol, will handle the manufacturing of the product once testing is finished. This is not the only benefit of the agreement though. Dr Jourdan said he thinks the deal will be ‘very powerful’ as it will combine Tristel’s patent on a technology that allows chlorine dioxide, a very powerful disinfectant which combines an acid with chlorite and is considered by far the safest. “Tristel is the only company that can deliver it in this form to hospitals,” said Dr Jourdan.
Healthcare in general
Considered a defensive sector as a whole, Dr Jourdan disagrees. “Healthcare is not universally a safe sector. This pandemic is rewriting all the rules regarding what is defensive. The reason it’s not helping all healthcare providers is that it’s being crowded out by the COVID 19 crisis. Routine hospital appointments and procedures are all on hold. So if you’re supply into certain sectors of healthcare, this is actually quite bad news.”
It should not be bad news for holders of Amati AIM VCT though, the company issued over half a million new shares yesterday suggesting a confidence in a time when the market certainly isn’t.
However, in terms of money coming into the fund, Dr Jourdan is refreshingly frank. He said there is money coming into the VCT, although not as much as would be expected this time of year but given the market conditions this is not particularly surprising. However, once results confirm the products use in both the US and Europe for COVID related cases, it could boost each companies share price.
Finally, Amati has also taken a position in AIM-listed respiratory drug discovery and development company Synairgen. This company announced on 18 March its plans to initiate trials for a drug to treat COVID victims. If this proves successful, then Amati will well and truly be in the money.