The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
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Good on you.
So many PIs look at high share prices and buy in, while kicking themselves for not buying at the lows, but when faced with the opportunity to buy low they don't take it because it's unpopular.
In other news: 90% of PIs lose money on the stock market.
Today's research, much appreciated.
Transition to a more lucrative customer seams to be the 'go' here.
At recent highs of 2.70, I was wishing that I'd have bght more on the previous lows, although I haven't sold any, I'm taking this sell off opportunity to increase.
ATB to us long term investors.
Hi Elsol
Thank you for supplying the BB with the information from the Broker update, it is very much appreciated.
ATB
AJP
I've just also noticed another new sales category in the Broker forecast detail - its called mysteriously "Other" and sales commence this year at $0.25m then 3x upwards in 25F, then doubles again in 26F. So something is quite close and presumably the Broker has been quite prudent at this point with the forecast est. since its a new line item. It will come from the company is my view (subtle messaging to Broker on upside).
Sorry typo Broker target 19% down not 12% .
Some more key information and thoughts to take home from the Brokers note based on further review:
1. Interestingly ITX ARE still going forward with a new production plant - that's strange isn't it given a large loss in production volumes in 2024! The capex projections for 2024/25/26 are in total c.$4m which compares to $0.8m in the prior 3 years. 500% increase in capex with a fairly low capital intensive business. Big growth plans are ahead (based on strong pipeline and smiling John on recent interviews) and as I said before in my plant capacity note - there is a near term capacity constraint (scarcity issue) and the timing of freeing plant capacity is absolutely pivotal to ITX confidently assuring new customer orders and diversification wins with the transition to higher volume diversified products (e.g. superabsorbants/paints/leather etc)
2. We could not lock in the plant for the whole of FY 2024 to a business customer that was delivering, say, 20% Gross margin - less than the average for FY22/23 for the business as a whole of c.29%. In the case of this 20% GM it is unlikely given SG&A and tax we would bearly scrape, say, a PAT 2-3% at best => low margin busy fool volume.
3. After spending the c $3m on a new plant we are still left with $c2m cash in BS in 2026 when we are op. cashflow positive.
4. Broker note made a point that the "customer" - assumed as "Dr Greg - Dear Sensitive Home" from another poster detective (which seems probable based on their web site comment around plant science and linkage to multi carbon based chemical backbone). Broker mentioned said merchandiser was trying year on year to push back the ITX commercial terms to the point of unreasonableness - The outfit seems to be quite egotisticially driven from their web site and I believe they have cut there nose off to spite their face by terminating their customer offers in favour of "detergent concentrates that use less plastic"
"You may have noticed all their products are displayed as SOLD OUT. This is because they
are making an exciting transition from diluted spray and detergents to concentrates." Good luck Greg when you lose 100% of your existing branded product lines very few businesses actually survive in the long run especially with a 6-8 month supply issue before the next launch of different products => massive loss of confidence in company
4. Price target from Conaccord Genuity is -12% down 400p - 325p - Our share price is more adverse down at this point. I still think investors don't really understand that we have significant sunk cost investments within 'In process R&D ' that is about to start selling and has reached almost launch readiness (shoes/paints/super a's). These assets have no revenues or profits but must have a material value. My guess is that its at least GBP25m (if someone wanted to step into our shoes so the speak). So the Broker -12% reflects these R&D assets and counteracts/dilutes the short SP term reaction in my view.
The
I've worked in the industrial chemical sector for 35 years in both technical and commercial roles, in large multi-nationals and in small start-ups. One thing I've learnt is that you cannot charge a premium simply because your product is 'green'. Unless there is strong regulatory pressure to phase out an existing chemical, all you can really hope is that your green credentials make for a more compelling sales pitch. Yesterday's news is just further evidence that price and performance will always be the prime considerations. We operate in a low margin, volumes business and there's nothing wrong with that.
Unfortunately, ITX haven't just lost 30% of revenues with an important customer, we have lost an entire market in which we are clearly not price competitive. Believe me, all customers in this market will have exactly the same price expectations. JS has probably known this for quite a while, the inflated revenue numbers looked good on paper but were unsustainable. It finally it became time to lance the boil. I wonder how many other revenue streams are unsustainable?
Don't get me wrong, I'm not suggesting anything underhand. This is a growing company, trying to find it's niche. You need to chase the business, try to make it work, stick with it. At some point you need to accept you cannot compete in all sectors of the market. Take the hit and move on. These setbacks are necessary to mature and to realise that no matter how 'green' you may profess to be, ultimately you need to compete on price.
What worries me is that the detergent market was the one area where we were told we could compete. It would be nice to know the specifics around who the customer was and the exact application but I understand that the company are under no obligation to provide this level of detail. Clearly the company believe that the European market is different and the investment in European manufacturing capacity may not be a sign of growth but one of necessity. If so, it feels like we're starting all over again; wiser? yes! and with a decent cash pile behind us; but still a massive reset that takes us back to where we were two or three years ago.
Canaccord confirmed the loss of ITX’s single largest customer. They “accounted for around half 2023 revenue”.
2024E revenue forecast reduced from $9.5m to $6.2m
“We expect gross margin for Itaconix to be higher with other customers. However, the absolute lower revenue means a significant cut to EBITDA expectations for this year and next year”.
EBITDA 2024E reduced down from (0.8) to (1.6)
2025E reduced down from 0.2 to (0.6)
2026E 0.5
All figures US$m.
Canaccord state that they are essentially pushing numbers out one year to the right (which is what I calculated myself yesterday). Therefore 2026 is now forecast to be the first positive year.
Price target downgraded from 400p to 325p
Some positive points to cling on to:
Canaccord remain Buyers
Itaconix will remain in a substantial cash positive position throughout the forecast period thanks to the 2023 fundraise.
One to consider?
https://sensitivehome.com
Interesting headline home page?
We have had tie in here for many years, is this the costomer?
https://itaconix.com
Capital Markets Day presentation
24minutes 25 seconds in
ATB
AJP
Agree with Chilting that we need time to really see the pros/cons of this. We all have views but can't know for sure as we don't have all the facts or a crystal ball.
I remain sceptical for now (although staying quite heavily invested).
The point about this being an ITX driven decision is only based on comms from ITX, there are two sides to a negotiation and the customer clearly thinks there may be better alternatives (whether cost or quality or whatever criteria).
My concern when I looked at this company in the past was that their margins were too low to make good profits and their costs would face inflationary pressures. This is now being addressed with the same financial year out turn but better margins.
I agree. It's definitely bad news in the short term, and so the SP has reacted.
But it's clear itx stopped the deal, not the other way round. That's very significant.
I guess we just have to trust that it was a correct long term business decision, and such up the temporary SP position. John doesn't come across as a hot head, so on balance I think this will prove to be in the long term interest of the business.
Well you never know what your getting here , but i like to think it's a case of John stuck to his guns and was confident that in the long term or maybe even in the sort term he would increase itaconix presence in other areas, and dishwasher tablets would not eventually be the main money maker . Imo dyor
Yesterdays RNS was required because the loss of the contract to supply adversely affected the company and the SP.
But, nobody can actually say if yesterdays news was a positive or negative - it all depends what happens now.
If 2024 turns out to be a step backwards - lower revenue and gross profit - then its clearly a negative.
But, if new more lucrative supply contracts are signed in the short term Itaconix will have massive spare capacity to fulfil these new contracts - this its clearly a positive.
This could even be a planned move by John for diversification away from reliance on low margin dishwasher products.
Excellent balanced post BR
Yesterday’s RNS felt like a rushed effort to get the bad news out before it leaked out. Given these negotiations must have been ongoing for some time it surprises me that the company couldn’t come out with a better statement.
“If I were CEO” I would have also said, based on our modelling our gross margin will increase from 30% to XX%.
That would have made yesterday’s bad news much more palatable.
Let’s hope that the upcoming RNS gives us this level of detail and assurance. We need clear business projections not words. Until then the share price will just drift.
When much younger, I worked in a highly profitable business that went from low volume /high margin to chase increased revenue through lower margins. It ceased trading after 2 years.
Yes, this news is worrying, and a disaster for the share price, but it sounds as if the deal was terminated from Itaconix's side.
If John Shaw was only concerned with the share price, he could have signed a new deal, kept the revenue numbers up, wouldn't have to deal with the fallout, and he could have kept looking for higher margin deals with new customers elsewhere.
(This post is for long-term investors. If you're a short-term trader then tough luck, you got screwed)
So why would the CEO terminate a deal with a customer which represents 33% of the company's revenue?
We only have supposition at this point, and your views will be coloured to a significant extent by how much the share price has fallen (which is likely all driven by PI sentiment), but I think tend to believe John when he talks about taking a short-term hit for greater growth later on.
It might delay breakeven/profit projections by a year, but if it means that ITX will generate greater margins in 12 months' time then it will be worth it.
If ITX are to grow as we all hope, they will be constrained by production capacity, and it will require more money to extend capacity. By losing a significant lower margin customer, that frees up capacity for higher margins, thus increasing profitability and delaying the need to invest capital into production facilities.
What it comes down to is whether you trust John and the board to be acting in the company's best interests. Ignore the short-term hit to the share price (again, based purely on PI sentiment), and consider whether this was a smart decision for the longer-term running of the company.
One more thought: if the share price hadn't dropped, how would that change your perception of the RNS? Given that the share price drop is all PIs selling, the drop becomes a self-fulfilling prophecy.
Hi
Canaccord Genuity has published a new research note on:
Itaconix plc.
Does anyone have access and can advise of the content?
ATB
AJP
What JS hasn’t explained in yesterday’s interview is what this ‘lost’ customer does now. Do they go back to non-ecofriendly detergent tablets, or is there an alternative out there, which ITX is unaware of.
JS needs to calm down the market.
Thanks Nick - glad I’m not the only with major concerns about today’s news. The share price is currently holding up around £2 in the hope that the upcoming trading update delivers some good news but the numbers won’t change in 3 weeks time so we will then drift down for several more months.
Surfie - “Ramptastic” - brilliant word I like it. Yes I have always been very positive about Itaconix because it all sounds great in theory doesn’t it?! But reality has been one sucker punch after another. Every single time we think the worst is behind us we get hit by more bad news. Sorry I’ve lost my faith in the company but I do hope it succeeds.
I agree with Smart, I'm in Itaconix for the long term and think they have great potential. But anyone who thinks this is positive is - in my opinion - basing that view more on emotion than facts. Losing the biggest customer and 30% of revenues is a major step backwards. Drop in share price seems pretty reasonable unfortunately, could get worse before it gets better given it undermines growth plans and the perceived stickiness of revenues. Let's hope other products and revenue streams work out but there's no guarantee of that. I'll remain invested but definitely not the long-term "banker" I once thought it was.
Bought back in today as that crazy bid-ask spread tightened up. Would be one of the larger trades of the day, but I don't see it on the ITX Share Trades page here. I guess it'll show up as a late report, er, later. 212.5p
The prices are definitely much better (more liquidity) once the US wakes up, some of the market makers must be US based I reckon.
Turnover is vanity, profit is sanity!
WOW... Smart, I always thought of you as Mr. Ramptastic. Your current posting is worrying.
The proactive investors youtube video was comforting. It sounded like it was John who terminated the co-dependent relationship and did so from a position of strength. ".[We know what] the value of our ingredient is" "Major opportunities developed in N.AMerica detergent market" "..but also developed a significant dependent on each other". Any speculation who the client was? Nouryon? If it was a supplier into detergent brands perhap those brands come to us now?