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Hi Rivaldo, good post, and this is being borne out in the wider macro data too e.g. https://tradingeconomics.com/china/composite-pmi
54.2 is a strong reading and surprising the bounce back is so strong so quickly. But positive for VLG
Samarkand (SMK), VLG's distribution partner in China, issued an RNS update this morning on e-commerce which bodes well for VLG too:
Https://www.investegate.co.uk/samarkand-group-plc--smk-/eqs/market-update/20230220070010ECUOK/
“During the pandemic Chinese households accumulated savings which had resulted in a 42% increase in family bank balances since the start of 2020. This increase amounts to USUSD 4.8 trillion, a sum which is larger than the Gross Domestic Product of the United Kingdom.eCommerce Acceleration
This area of the business, where we operate as the China market development partner for prestigious international brands, has been the most impacted by the disruption in China. With COVID restrictions being removed, the mid-term outlook has strongly improved for this part of the business. Most of our existing partner brands are planning for strong China growth in the coming year and we have added several new premium beauty brands to our platform”.
And hopefully now a push up to the late '21 chart point of 60p+.
Looking good - potentially lots more to come given the low P/E.
Someone's gradually building a nice stake here - numerous 2560 share buys over the last week.
Going to take some time to get a decent size, but clearly not wishing to push price above 43p
Agreed. Bought at 22p and sold (stupidly) at 30p. Now back on board for the long term at 43.5p. Annoyed I sold but needed funds for a special situation trade! Hopefully nice and steady for 2023. Good management here IMO
Excellent post Agricore, cheers.
N+1 Singer have retained their 72p target price and 4.1p forecast adjusted EPS for 2023, whereas Cenkos forecast 6.02p adjusted diluted EPS for 2023.
The two forecasts are always some way apart for some reason, presumably because of differing treatments for amortisation.
Whatever the case, VLG now looks very good value on either measure!
My own reading of the numbers today together with both Singers/Cenkos' analysis and Jerry's interview on Vocks (sic) Markets today is that there's a continued pessimism to their 2023 estimates. (Albeit they both admit as such, sitting behind that lovely phrase "risk to the update").
1. Jerry reveals an optimism to China, and that Samarkand are making progress whereas in 2022 everything was in lockdown. There is still disruption in his words but immunity is growing. Remember, the Dentyl Cardiff Uni Kills Covid research is still highly relevant to the Chinese consumer. And this is a consumer who'll gladly consume Sharks for their fins, Rhinos for their horns, and Tigers for their bones...... they love a good hokey remedy story.
2. Using the 45%/55% split (of revenue and EBITDA - which has held true for a couple of years with VLG) I get their H2 as being £44m-£18.9m = £25.1m revenue for H2 2022. And adj. EBITDA £5.4m. They achieved 17% proforma growth in 2022 so while growth was higher due to restocking, and lower because of the focus of integrating the new businesses, I see 8% proforma growth in FY2023 ***WHEN THEY ARE 100% FOCUSED ON ORGANIC GROWTH*** as too pessimistic. Let's assume they only achieve what they achieved in FY2022 when they weren't focused on organic growth. 17%. So I arrive at £25.1m/55% = £45.6m x 117% = £53.4m or £2.9m ahead of the brokers. I arrive at £9.2m adj PAT, or 7p EPS.
That's 15% ahead of the brokers but in my defence I predicted the 2022 outturn better than they did if we compare my prediction to theirs. :)
3. Exceptionals. It's not to say there can't be exceptionals in 2023 but apart from some obsolete stock 3 years back I think exceptions have been integration costs. There are no plans for further acquisitions ergo no exceptions. This translates to a 25%-50% profit lift if you look at the FY2021 or FY2022 years.
4. Product Development Centre. The impact of the product development centre is not really considered in the broker forecasts. We've seen past examples of their capability with a hybrid Dentyl/Ultradex combo, but also rebranding, product innovation such as sparkly bits in your Dentyl... not my cup of tea to have Unicorn sparkly blue mouthwash.... but the kids love it. It's worth reading their "Full Service Offering" page to better understand this aspect to VLG: https://www.venture-life.com/development-manufacturing/
5. Order book 115% ahead. It's difficult to discern how much of this is restocking versus growth. But a more than doubling of order book year on year (£18.9 H1 2022 invoiced x 215%/45%x100) would equate to a £90.3m FY2023 revenue... much much more than my £53.4m estimate above!) does suggest that even a 17% proforma growth may be too conservative. Or should I be saying "there's risk to the upside"! Ha ha. There's an analyst inside every one of us.
GLA
I see the market makers have marked up by 10% to get the market noticing
Almost all trading updates are so glowing that you need to look hard at why they are saying what they say and what numbers they are not disclosing.
Sales growth actually moderated a little in H2 (H1 36% up), working capital on the balance sheet likely to be higher hence the net debt and cash collection comments…
Hope they do have some pricing power and are not being bullied by their distributors……their cash receipts need to exceed replacement costs of the next batch in this inflationary environment otherwise their cash will turn to debt….as it appears it might be..
Overall they must be happy with 17% sales growth and an increase in gross margin…..cheap at these levels…..I suspect the market will wait for the accounts before making a large move.
And with a conservative PE ratio this may re-rate over the next 6 months
Very positive trading update, and encouraging as to the outlook:
- VLG are being rather modest in respect of revenues being "slightly" ahead of expectations. The £44m outturn is rather nicely ahead of Cenkos's £41.3m and Singer's £40.8m...
- EBITDA will be "at least" in line, so likely slightly ahead of forecasts
- the order book is a whopping 114% ahead of last year, and trading this year has been positive
- there's "strong post year end cash collection"
Looking good:
https://uk.advfn.com/stock-market/london/venture-life-VLG/share-news/Venture-Life-Group-PLC-Trading-Statement/90094119
Expecting a trading update any day now which should make good reading and will hopefully move us upwards.
Up 2p today at 39.5p and at new seven month highs.
I doubt they will pay down debt, as they would likely prefer to spend the cash on additional business(es). However they can look forward to a re-rating if and it is a big IF they can deliver against these targets…….maybe there is a way back to 90p? At which point a lot of existing holders may take a break even opportunity to sell.
Here's the rest of the IC Buy tip (as posted elsewhere by SEV22):
"The agreements extend the group’s global reach and highlight the efforts management is making to maximise the value of its brands. This is important after shareholders suffered an annus horribilis in 2021 when profits reversed, a distribution agreement in China failed to deliver (leading to the appointment of a new partner), customers delayed orders and reduced inventory, and input cost pressures accentuated the hit to profits.
Although the group made progress last year – December’s trading update reiterated guidance that points to annual cash profit rising a third to £8.7mn on 25 per cent higher revenue of £41.3mn – investors have been taking a cautious stance given past disappointments.
Investment risk skewed to the upside
However, with 2021 complementary acquisitions performing well – BBI Healthcare, a market-leading women's health and diabetes/energy management company, and oncology support product company Helsinn – and three highly profitable ear-nose-throat brands (Earol, EarolSwim and Sterinase) acquired for £13mn at the tail end of 2022, then analysts at Cenkos Securities pushed through upgrades last month that suggest the group could deliver cash profit of £11.6mn on revenue of £50.4mn this year. On this basis, expect a third higher adjusted earnings per share (EPS) of 6p, implying the shares are rated on a modest price/earnings (PE) ratio of six.
Furthermore, estimated net debt (including leases) of £15.8mn could be paid down to £9.8mn by the end of 2023, thus transferring more of the economic value in the entity from debt to equity holders. These assumptions assume that Venture hits its revenue and profit targets which are based on a maintained gross margin of 42 per cent.
Rated on five times 2023 cash profit estimates to enterprise valuation, less than half the rating of peers, the investment risk remains skewed to the upside. So, having advised bottom fishing, at 28p, when I covered the half-year results (‘Nothing ventured, nothing gained’, 22 September 2022), I feel the shares, at 36p, are worth buying ahead of what should be a reassuringly positive pre-close trading update in late January or early February. Buy."
Thanks Rivaldo…..
My simplified view of their business model is acquire rights to product through acquisition, continue developing them (product and brand), push distributors to take a wider range of product to increase volume and value of sales.
The manufacturing operations are in-house, typically they have excess capacity and that does not seem to change when they make acquisitions so their efficiency should improve through increase sales volumes and consolidation (none reported so far).
When the numbers are reported I expect to see top line growth in sales and margin improvements from more efficient operations and sales / marketing costs…..and central costs including financing under tight control…..
I think that is what they are promising shareholders…and ‘new VLG’ (which is what I call the businesses acquired using the funds raised a couple of years ago) seems to be delivering this, although the market value of the company would suggest otherwise….
.
Key risks:
Overpaying for acquisitions. (Includes unrealistic expectations for stretching the brand / products)
Existing brands becoming tired and losing value.
Rogue distributors who cant pay.
Management competence to oversee an increasingly complex business and to run it efficiently.
I wonder what the Directors intend to do in the medium to longer term….will they continue this approach with the aim of growing incrementally larger, will they attempt larger deals increasing the M&A risk or do they have an exit plan to sell to a larger player?
Here's the intro that's free to read:
Https://www.investorschronicle.co.uk/ideas/2023/01/11/investors-are-being-too-cautious-with-this-self-care-stock/
"Investors are being too cautious with this self-care stock
A developer, manufacturer and distributor of products for the self-care markets is on a recovery mission
January 11, 2023
By Simon Thompson
€1.35mn licensing deal for mouth ulcer products in Europe
Long-term distribution agreements signed in Canada, Vietnam and Brazil for Gelclair
£13mn acquisition of HL Healthcare brands for 7.6 times cash profit
Aim-traded Venture Life (VLG:36p), a developer, manufacturer and distributor of products for the self-care markets, is well placed to deliver a step change in profits this year, buoyed by complementary brand acquisitions and new licensing and distribution agreements.
In a trading update, management highlighted a raft of new long-term contracts including a 24-month licensing agreement in the EU with an existing customer for its mouth ulcer products; two new distribution agreements for Gelclair (oral mucositis) in Canada and Vietnam, following a similar deal announced with Blau Farmaceutica in Brazil; and a distribution agreement for Pomi-T (management of prostate-specific antigen (PSA) levels) in Peru."
The Private Punter (aka the poster "hastings") has just bought back into VLG and written an excellent new article:
Https://martinflitton1.wixsite.com/privatepunter/post/vlg-looking-healthier
I've tried to reconcile the two forecasts for this year of 6.02p EPS from Cenkos and 4.1p EPS from Singer, but unfortunately Research Tree only has the front page of Singer's note so it's impossible.
Either way, VLG looks very good value at 36p on those numbers.
Great to see products developed internally being adopted and licensed successfully, and then of course being manufactured by VLG's Italian facility too.
Cenkos have an update note out this morning.
They forecast 4.53p adjusted diluted EPS for the year just ended, rising to 6.02p EPS this year. Which puts VLG on a P/E of just 5.98 at 36p.
VLG have of course already confirmed they're confident in meeting expectations for 2022.
Interesting decision to license the new mouth ulcer product to a distributor rather than to invest in developing an internal brand……surely not much of a stretch to extend mouthwashes to treating ulcers…..or to distribute under VLG brands…..suppose it could just be a market position issue and this product will be sold by VLG in other markets under a VLG brand.
Other contracts show global development and increasing product reach…..lets hope they keep a close eye on these distributors and can collect the cash from these markets.
About the new year market rally……VLG missing out and going backwards rapidly…..
Looking forward to a positive business update at the end of January containing 2022 sales data…and ‘new VLG” performing strongly…..
with the NHS in such disarray and bad news everyday about treatment delays self care should be on the up? (Yes - many of VLGs sales are overseas but home market sales should be outperforming)
Jatw, I can see where you're going with that thought. I agree there's likely zero end user brand synergy but that wasn't my point. We agree on administrative synergy so let's explore the other 2.
1. Let's imagine Dentyl has 12 reps covering the UK. Let's imagine HL Healthcare had 12 reps covering the UK. Both selling into their own accounts. VLG acquires HL. VLG makes 6 HL reps redundant and the other 6 start selling Dentyl as well as Earol. The 12 Dentyl folks start selling Earol as well as Dentyl.
Result? Synergy.
2. Production Synergy. I have 2 VLG factories running at 60% capacity making products like Dentyl. They start making Earol. The fixed costs are say £1m a year. Because Earol is now 25% of my production the fixed cost attributed to Dentyl etc dropped by £250k.
Result? Synergy.
I don't factually know these exact values of synergy so the examples are an oversimplication and educated guesses but hopefully my point about 3 types of synergy is now clearer.
GLA
Agricore - I think we can meet in the middle, yes there are administrative synergies and no doubt they will sell as a group to wholesale distributors……but I see little end user cross selling because of the specific nature of the products and there is no common brand to be able to draw customers to other products….
they are likely to continue marketing existing brand names as they do have a value in market (or the goodwill will need to be written off quicker).
Hoping for a brighter outlook in 2023.
Jatw, I disagree wth your comment "an eclectic group of products with limited direct synergy"
These are the synergies VLG are achieving:
> Synergy of administration - usual duplication of accounting, systems and administration can be eliminated
> Synergy of production - spare capacity in Sweden and Italy mean products can be manufactured thereby reducing fixed cost absorption and what was previously outsourced production.
> Synergy of distribution - sales opportunities to new customers, cross sell to existing customers of each product, potentially better terms with distributors
Synergy is why Singers forecasts an increase of FY2023 PBT of £1.4m (from £5.2m to £6.6m) compared to September 2022's forecast. VLG have previously achieved synergies in their other acquisitions so it's reasonable to believe they will with HL too.
For me the other telling statistic is the increase to operational cash flow growing on a forecast £6.7m in FY2022 to £12.3m to FY2023. Good cashflow in a defensive share, what's not to love?
Even with the recent share price rises this remains on an EV/EBITDA of 4x compared to its peers at 10x-20x. Leaving aside comparisons of better order book growth and the cash generative attractions of VLG, relative to its peers, it remains undervalued by about 2 and a half times.
Last year's business update and trading update came 10th Jan and 31st Jan. I'm expecting we'll see a spike upwards when we see the FY2022 update.
GLA