AZTA - Brasada Capital - Azenta Life Sciences: No Ordinary Company

• Azenta's core markets are expected to grow 15%-20% per annum for the next five years.
• When looking at visibility of earnings approximately 75% of AZTA’s revenue is recurring with a customer base intent on storing for up to 25 years.
• This should lead to the conclusion this is no ordinary company, and should be afforded a higher valuation.

The following segment was excerpted from this fund letter .

Azenta Life Sciences ( AZTA )

Life Science Tools is a sector that we have always favored as it is recession resistant, and it has long term growth driven by innovation at biopharma companies. Many of the companies in the sector sell unique, mission critical products, have a high percentage of recurring revenues, and limited competition. Historically we have had success with Illumina ( ILMN ) and Danaher ( DHR ).

Azenta is a new name for us. The company provides biological sample storage management solutions and genomics services to biopharma firms as well as large clinic academic systems and academic researchers. Biological samples are important sources of information to develop new therapies as well as more complex Cell and Gene Therapies as well as individualized treatments. The acceleration of research and development towards Cell and Gene Therapies and mRNA vaccines requires large scale cold storage, which is Azenta’s specialty.

Today there are 9 FDA approved Cell and Gene Therapies and over 1,000 clinical trials. Azenta also offers genomic sequencing through its Genewiz subsidiary. This is a service that they can cross sell to existing sample storage management customers.

Their core markets are expected to grow 15%-20% per annum for the next five years. Given Azenta’s leading market position in automated sample storage, we expect them to take share from competitors and their customers, who are increasingly outsourcing non-core operations.

A key feature of the business is the biorepository sample storage division, which underpins their unique recurring revenue model. Approximately 60% of the 70m samples under their care are expected to be stored for up to 25 years. When looking at visibility of earnings approximately 75% of AZTA’s revenue is recurring with a customer base intent on storing for up to 25 years. This should lead to the conclusion this is no ordinary company, and should be afforded a higher valuation.

Under CEO, Dr. Steve Schwartz, Azenta has a management team that has proven they can execute and allocate capital for well over a decade. Earlier this year the company sold its semiconductor division for $2.6 Billion after taxes (their market cap is only $5 Billion). They now have a war chest for M&A and capex. We expect the company to build out their sample storage business globally, make tuck in acquisitions, and possibly a larger service acquisition like Genewiz that they can cross sell to existing customers.

At present, the company is trading at ~10x EV/FY’24 EBITDA with guidance of 20% revenue growth for the next few years. Given the conservativeness of management and the highly recurring nature of the business we expect the company to perform to their expectations irrespective of the current US business cycle.

Recent weakness in genomics services in 2Q due to China’s (~10% of AZTA revenue) onerous COVID lockdowns represent a unique opportunity for long term holders as the company has only stumbled a few times in the past ten years by no fault of their own.

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

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