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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
Magmanus
This is a much better entry price than the 90p fund raise exercise about 18m ago.
Those funds have been deployed on acquisitions that account for most of the current mcap.
The previous business was based on buying unwanted underinvested brands which have proved tougher to reinvigorate…..so the new strategy appears to be to buy small but growing businesses and plug them into VLG distribution to accelerate their development….potentially a winning strategy, but also an eclectic group of products with limited direct synergy…..decent businesses in themselves, management has to demonstrate it can add value…..the brokers seem to think they can from here…..
Doing dd on this one
looks good so far
https://www.**********.co.uk/articles/venture-life-continues-to-go-from-strength-to-strength-f0d266d
Great interview:
1. Synergies of HL acquisition
2. Supply chains easing
3. China has stock - online doing better than online
Continued:
"Dec’23 EPS upgraded by 22% - with EBITDA margin strengthening to 23%
In the first full year (Dec’23), the acquisition is highly accretive. We have upgraded EBITDA by 20% (EBITDA margin +270bps to 23%) and EPS by 22%. We now expect 86% EPS growth next year on 23% revenue growth. Underlying forecasts for the base business are unchanged within this but, as noted above, we believe risk potentially lies to the upside. We have increased our Y/E ND forecast to £12m reflecting the cost of the acquisition as well as a slightly higher year end w/c position, which is due to the strength of the order book being carried forward into FY23 – good underpinning for next year’s forecasts. ND is expected to reduce to £9m next year, equating to 1x leverage which is comfortable.
Valuation offers substantial scope for outperformance
The shares trade on 12x P/E to Dec’22, now falling to 6.5x next year post-acquisition. This equates to 3.6x EV/EBITDA to Dec’23, potentially falling to 2-3x in Dec’24. The FCF yield next year is c18% after adjusting for the deferred HL acquisition consideration. These metrics do not adequately capture the strong EBITDA margin and growth profile, which the HL acquisition has enhanced. After increasing the target multiple by 0.5x to 8.5x, our target price increases 10% to 72p, offering a TSR of 170% while still leaving potential for further re-rating given peers typically trade on 10-20x. Buy."
Nice positive turnaround this morning.
Singer Capital Markets have now raised their target price to 72p and say Buy.
There's always a strange differential between Cenkos and Singer's adjusted EPS forecasts, despite their forecasts for next year's revenues, adj. EBITDA and EV/EBITDA figures being almost exactly the same.
Cenkos forecast adjusted (fully diluted) EPS of 6.02p EPS next year, whereas Singer go for 4.1p EPS. Unfortunately I don't have the back-up for Singer's forecast so can't get an explanation.
Anyway, here's Singer's summary:
"Positive trading since the last update means VLG remains well on track to deliver expectations for the full year, and we continue to see potential risk to the upside given a strong order book.
The £13m acquisition of HL, a specialist in ear-nose-throat products, is complementary to the existing portfolio and highly accretive. We have upgraded Dec’23 EPS by 22%. Our target price increases 10% to 72p on the back of this, providing a compelling 170% TSR from current levels.
Trading update – risk potentially remains to the upside
Alongside today’s acquisition, VLG has issued a brief trading update. The board remains confident that the group is on track to deliver revenue and adjusted EBITDA in line with market expectations. Given the strength of the order book we continue to believe that the risk potentially lies to the upside.
It has also announced new 5-year distribution agreements for Gelclair in LATAM and Vietnam and for Balance Activ in Ireland, which provide support for outer year forecasts. We therefore make no changes to our existing profit forecasts for the base business.
Accretive acquisition – entry into ear-nose-throat niche
VLG has announced the acquisition of HL Healthcare (HL), a UK based, founder-owned, business with specialist products in the ear-nose-throat (ENT) market. HL owns 3 approved and registered ENT products, which specialise in unblocking and protecting ears and noses, and are sold directly to wholesalers and retailers in the UK and to licensing partners internationally. The business has an excellent growth track record, is highly profitable (EBITDA margin c37%) and offers significant opportunity for future growth and synergy by leveraging VLG’s manufacturing/distribution channels.
The £13m consideration equates to <7x EV/EBITDA (year1) reducing to <5x post synergies (year 3)."
Like a share like this, not a lot of commentary and what we have is sensible.... let it slowly creep up over time rather than the old pump it to the heavens etc.
On many more quiet blue days....
Great analysis Rivaldo - I agree with everything you wrote except for the peer analysis. Healthcare Peers are generally on a 10x to 20x EV/EBITDA not a 12-14x (Source: Singers)
Interestingly, (based on NTM 2023 forecasts) a 10X would equate to a VLG share price of 85p and 20X would be VLG at £1.70. Singers see an 8.5X (72p) target meanwhile.
While I was delighted with the update, the disappointment for me today was the lack of commentary in the RNS around China/Samarkand relationship. One has to assume that the containers of Dentyl etc are still sitting in containers in Shanghai, like forlorn Arks of the Covenant, while covid zero rages on in China.... apparently.
And the rebuild of VLG continues with another growing business…..
The legacy run off brands are hard to regenerate, the three recent acquisitions are a promising way forward.
Good strong finish to the day….hopefully a bit more of it tomorrow. I would obviously say after buying in today ;)
Nice commentary from Paul Hill:
https://www.linkedin.com/posts/paul-hill-a5994116_vlg-vlg-vlg-activity-7004004124488785920-Tods/?utm_source=share&utm_medium=member_desktop
Extract:
"One silver lining for investors of the painful 'Bear Market', is that premium, rapidly expanding & importantly profitable companies are now going cheap.
Indeed after successfully integrating its 2021 BBI & Helsinnm acquisitions, today ‘Buy & Build’ OTC products group Venture Life Group plc snapped up HL Healthcare Ltd for £13m on a cash/debt free basis.
Representing a trailing 7.6x EV/EBITDA multiple for a high quality asset growing at 14.8% pa (2018-22), that delivered EBITDA of £1.7m (37% margins) on sales of £4.5m for the y/r Mar’22. The deal is to be funded via £8m up-front cash, £2m loan-notes and £3m of contingent consideration.
Strategically too, the transaction is not only immediately earnings accretive, further beefs up #VLG’s mushrooming stable of healthcare brands (est 65% revenues) and enhances profitability / cashflow. But also offers considerable potential upside (eg synergies), as HL’s products are distributed across a much wider international foot-print, & maybe even ultimately manufactured in-house (vs 3rd party production currently) given the group’s spare capacity.
Elsewhere, HL appears to be a low-risk acquisition too, since its based in the UK with the founder set to assist post completion. Plus, its 3 flagship Ear-Nose-Throat brands (see chart) are already well established names with loyal customers and robust recurring revenues.
But that’s not all. #VLG is also trading in line with FY22 expectations, after signing new long term distribution agreements for Gelclair in Brazil & Vietnam, and Balance Activ in Ireland.
As such, Singer Capital Markets have upgraded their Target Price from 65p to 72/share, and are now forecasting FY22 sales and EBIT to come in £40.8m & £4.5m respectively - climbing to £50.4m and 7.9m in FY23. Likewise, net debt is expected to rise to £12.2m as at Dec’22 reflecting the M&A. Yet decline thereafter to £9.2m 12 months later, thus putting the Dec’23 gearing at a comfortable 0.8x.
Lastly wrt valuation, I would rate the shares on a 12x-14x 2023 EV/EBIT multiple, or between 65p-77p. All in all, a cracking deal and reassuring trading update that further highlights Venture Life Group plc's attractions vs its 31p stock price."
Director buys soon …
Strong buy …. Hold for 65p x2 bagger
Seem to be delivering…. Would be nice to see a re rate
Excellent stuff!
- confirmation that trading is in line
- new distribution agreements for Brazil, Vietnam and Ireland. The Brazil agreement is with the "number one pharmaceutical company in the non-retail market in Brazil", so could be huge
- an excellent-looking acquisition from VLG's own resources - so no dilution. £10m plus £3m based on performance brings in £1.4m historic PAT with further growth since then, which is pretty good value
Trading update coming on Monday Tuesday or Weds next week - confirmed to me by Daniel Wells. Should see this back above recent C suite buys at 35p next week and then back to 60 pence plus next year
A T/U would be nice. BoD been quiet since interims.
Good to see a 25% uplift over the past 3 trading days.
This is one of my largest holdings, having chased it down over 16 months, so have buys ranging from 23.5p to 67p, so a long way to go in my case... but this recent change in direction looks decisive and certainly v welcome.
Fine as far as it goes but there are so many undervalued shares about at the moment. Lacking a compulsive buy imperative but certainly a decent hold for the medium term
What are our thoughts on the investor presentation?
V 0 x markets replaces the asterisks