Techne (TECH)

Techne is a small cap stock that very few have ever heard of but it’s a wonderful business. They sell purified proteins and other biotech material for research labs both academic and biotech/pharmaceutical based. This is completely a consumable business so there is no expensive equipment to sell and therefore no capital budget concerns.

Given the importance of quality materials in multi-million dollar studies, quality is more important than price in this business. The other wonderful part of this business is that once Techne develops a product – and they have over 10,000 products – they can keep selling it for years to come. The business has high operating leverage – meaning high fixed costs so that incremental revenues do not require proportionate increases in costs. That’s how you get high 50’s operating margins. They have little need for capital expenditures either so the free cash flow is strong and their management of capital is exceptional – that leads to high returns on assets despite not using any debt.

The business grows in the 8-12% range consistently – even during the bubble burst of 2000-2002 when pharma stopped spending on most life sciences equipment, they still spent more each year with Techne. The one drawback is the valuation – its not cheap but you get quality for your money. This is one of my plays on the growth in biotech or the growth in genomics – DNA type stuff. Its also a consistent grower for me – a lower beta name that serves as a port in the storm when the market is falling.

They reported this week and the numbers were strong -- revenues up 12% and EPS up 18%. strong cash flow too. stock popped a few dollars on the news. check out the website --
http://www.techne-corp.com -- not very flashy but functional. The management team is focused, disciplined and outstanding.

I view this one similar to GGG -- its a wonderful business that over the long term can make you wealthy but over shorter time frames might not move much.