Bionomics Ltd (ASX:BNO) popped 12 per cent on Thursday 17th November after Bell Potter published a bullish speculative buy recommendation.

Bionomics closed the day at $0.42 up from $0.375. Speculative investors are no doubt hoping for a repeat of the spectacular 42% three day jump in Bionomics share price that occurred back in April, when Bell Potter initiated coverage. That jump from $0.50 to $0.72 was followed by an incredibly volatile 3.5 months. The volatility finally  gave way to the slow downward spiral of the last 3.5 months.

The Bell Potter report spans 38 pages, though we suspect most investors didn’t look any further than this overly optimistic valuation.

We value Bionomics on a probability-weighted DCF basis at $1.41 base case and $2.51 optimistic case. Our $1.50 price target sits at the low point of this range.

We made similar calculations on the back of an envelope and can now unreliably inform the entire Australian biotech industry is around 70-80% undervalued.

The most important sentence in the entire overly optimistic recommendation is the very final one. Sadly few investors ever read that or realise what it means.

Bell Potter Limited, its employees, consultants and its associates within the meaning of Chapter 7 of the Corporations Law may receive commissions, underwriting and management fees from transactions involving securities referred to in this document (which its representatives may directly share) and may from time to time hold interests in the securities referred to in this document.

On past form we would be surprised if Bell Potter did not receive  commissions, underwriting or fees for what can be best described as marketing. As the following three year chart shows the only thing making rapid progress at Bionomics is its losses.

We’d suggest there might be safer ways to make a buck than a highly speculative investment in Bionomics. Buyer beware.

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Article authorised by Bruce Jackson. No contributors to this article owned shares in any companies mentioned. The Motley Fool has a de-risked disclosure policy.


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