Asterand "could see 157% upside" on growing demand for tissue samples in R&D

US human tissue supplier Asterand is trading at a discount to both its intrinsic fair value and to its peer group, according to Daniel Stewart & Co analyst Vadim Alexandre. He claims that changes in the way the drug industry conducts R&D will benefit human tissue suppliers and, as the leader in the field, Asterand is uniquely positioned to benefit.

Despite significant cost-cutting efforts, the company saw its share price almost halve after its merger with UK biotechnology firm Pharmagene at the start of 2006. Then, last year (Marketletter May 28, 2007), its shares recovered after it was approached with a takeover deal by a consortium representing a minority of its issued capital.The preliminary offer of 7.75 per share was considered too low and rejected.

In the past year, shares in the firm, which were trading at 7 pence on May 30, reached a high of 7.50 pence and a low of 4.25 pence. "On the basis of a DCF valuation (12% discount rate, 2% terminal growth), we estimate that the company should be valued at 18 pence per share. This target price is further supported by our peer group analysis; the average 09 P/E multiple of Asterand's peers is 20x, which, when applied to Asterand, corroborates our target price," Mr Alexandre wrote in a note to investors.