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It's an illiquid stock so could just be one seller.
I have another theory on why share price up so little: there were actually EPS downgrades even though this is based on literally a maths mistake plus poor guiding by the company. So if you aren't deep in the detail, Supreme is still showing negative (EPS) forecast momentum which is a turn-off for many investors.
The poor guiding is that
A) the brokers have been slow-played on EBITDA growth for Mar24 - see my arguments here and on another bulletin board. So EBITDA forecasts for 2024 only raised by a few hundred thousand when they should be up far more, millions, in my view.
B) brokers haven't cut interest cost forecasts despite big fall in debt, near- elimination of old amortisation of facility costs, and I believe the removal of the interest cost that they used to pay on a receivable financing facility now that all facilities merged into one. I think there's half a million quid upgrades to come from this by 2024 or latest 2025.
Plus:
C) brokers have been guided to raise Amortisation (and less so Depreciation) costs for Mar23 and Mar24, which is fair enough. But bizarrely both brokers are not adding back intangible amortisation to calculate Adjusted PBT even though Supreme has done this in 2021, 2022 and 1H23 reporting. This is in my view a literal mistake, not a matter of brokers thinking Supreme's exceptionalisation rules are not fair. Berenberg analyst is new so a forgivable mistake. This is a £1.2m error (0.8p or c. 8% of EPS) for 2023 on my estimates, 1.4m (0.9p of EPS, again about 8%) next year.
Listen to the 2 interviews from Sandy (Vox Markets yesterday, Directors Talk this morning) and he's dripping with confidence about 2024 and basically says "but in case something bad happens we don't want the market to get too excited'" Mgmt is sorry for the earnings downgrades from the Whey and Lighting surprises in the last year-and-a-bit so wants to make sure they don't disappoint us again. Fill your boots before the wider market wakes up.
This is a very good note thanks for showing the detail. Per my other post, I think mgmt has sandbagged you like they did after the Q3 trading statement - you'll be upgrading during the year!
Massive revenue beat, decent EBITDA beat, strong cash beats today yet the 2 brokers only upgrading next year by 2-3%. This is stone cold wrong, the company must be slow-playing the brokers to keep forecasts easy to beat. Even on new consensus EPS of around 10.5p, Supreme trades on only 10x earnings but it's now back to strong growth and should be in the mid-teens it traded at before Whey then Lighting problems. This is a debt-free, high-return-on-capital, owner-managed, entrepreneurial, decent-margin, strongly-growing, M&A-wizard company. I think consensus is nearly 20% too low so I see the stock as nearly a double.
1. Supreme just did >£85m revenue in H2. I'm not aware of much seasonality, so double it to 'annualise' the recent run-rate. That's £170m. Brokers are at £159 and £162m. Nothing in either broker note to explain why the biz should be shrinking sequentially when they've just posted c. 30% revenue growth in Q3 and c. 15% revenue growth in Q4. NB also that lighting is at trough in FY23 (including in the half just reported), and is guided to recover in 2024. My model says revenue will be £172m in FY24 and even this has little sequential growth in vaping, which would be upside. So +10m at say 30% gross margin = +£3m to PBT (consensus c. £16.1m).
2. EBITDA didn't grow as well as revenue did in H2, and this seems to have been mainly a Q4 thing. We can't yet see whether it's a gross profit thing or a central cost thing. There are clearly temporary factors suppressing margin: a) still Whey as Supreme hedged, whey now fallen; b) double running costs as they move to new warehouse and potentially as they transfer acquisitions' activity to Manchester c) operational deleverage from the collapse in Lighting. And some permanent, e.g. mix shift to lower-margin Disposables within Vape category. While brokers do have margin recovery (EBITDA level) in FY2024, by around 1%age point, I don't think that's enough to 'normalise' the short-term factors out.
3. Brokers have raised D&A costs. But much of this jump is amortising intangibles from the Liberty Flights acquisition, and most companies rightly 'exceptionalise' this kind of amortisation. If the new warehouse means higher D&A costs even after they've consolidated into it (there are currently double costs), then that's fair enough.
4. Brokers still show 3.4m net debt for end March 2023 though company just said it was zero ish net debt. Paying down c. £12m debt (£4m from the French sale) this half is amazing, as there was huge revenue growth which should have needed working capital build. NB there's still a few £m to flow out of deferred consideration for their recent acquisitions. It shows how cash-generative Supreme is.
5. Brokers still have interest costs in 2024 and 2025, but the co is now no net debt and highly cash generative, and their debt's a revolver so freely payable down (i.e. it's not that they are paying high rates on term debt and getting low rates
I'm struggling to model/value Pharos properly. How much capex do you think they need in each of Vietnam and Egypt to maintain current/guided levels of production ( put another way, to actually extract their reserves not to add more reserves). Company seems to have been near silent on this, there are scraps in the old Auctus note but they are dated. Anyone care to share thoughts with me?
Balanced - I think you are right to say it was not actual Sulforadex that was tested. I think I found Fahey's study after a lot of digging (search for brocosulf.com and 'molecular_nutrition' and 'Fahey'). Fahey's lab made their own version using broccoli to get the sulf (so not using the synthetic), and encapsulating it in alpha-CD. The subjects took it (200 micromoles so only 35 mg) dissolved/suspended in water, not in a pill which is what Evgen delivers. 6 of 10 "complained of mild stomach upset". The good news is that the encapsulated sulf. got into the blood just as well as did pure sulf. or Prostaphane. The worse, but I think irrelevant, news, is that it doesn't work on the skin (I guess the digestion is needed to get rid of the alpha-CD covering). SORRY ALL FOR RAISING WHAT SEEMS TO HAVE BEEN A NON-ISSUE.
Thank you MM for relaying from Timbo. So we may have an even more stable formulation on the way; but it's a shame that ours is both R- and S- sulf. given some evidence that R- is better.
MM, I am aware Evgen *says* it has the only clinical-grade sulf. But Prostaphane is the R- form, well-tolerated, has trials in prostate cancer, etc. I don't know what would make it not clinical grade. It's a bit less stable than ours. I'm still concerned that we don't have an IP lock on the fundamental compound - sulforaphane.
I greatly appreciate the help, good luck holders, I think I will be joining you.
Thanks all
MM: (thanks by the way for being the source of all wisdom on the board!) I am new to the LSE boards, having never posted on it. I joined to get information on this topic. I am not short. I think the company is ridiculously cheap, *so long as Sulforadex does what non-encapsulated bio-based sulforaphane does*. If I get comfortable with that, I'll buy shares.
Balanced - thank you for correcting my mis-transcription of 'type' and 'kind'. It is *possible* Fahey tested a non-Evgen version. But is anyone aware of a non-Evgen synthetic sulforaphane from England? It seems not. And if you listen again to the segment I think the natural interpretation is that he tested the stabilised version of the synthetic sulf., and it's a big stretch to assume that is not Evgen's.
Can anyone shed light on whether Evgen's synthetic and natural sulforaphanes are literally identical? S-sulf. versus R-Sulf., or a mix. There is evidence that the natural (R) version is more effective: google "The natural chemopreventive phytochemical R-sulforaphane is a far more potent inducer of the carcinogen-detoxifying enzyme systems in rat liver and lung than the S-isomer". Evgen's patents seem to suggest they can make either, but I am not confident in interpreting those, and I don’t know which formulation they are actually testing.
ontarget: Fahey does have a financial interest, but in the immediately preceding minute or two he sang the praises of Prostaphane and some glucoraphinine+myrosinase supplements. So I can't put his comment down to that. I interpreted his comment as being a *specific* problem with the English synthetic sulforaphane... which is probably ours.
Re. dosage etc - you could be right, thanks for the thought. We don't know what doses he tested.
If we do have a problem, but other sulforaphanes don't, it 'must' be either because ours is non-identical to the natural form (I think it's a mirror image "enantiomer" of it, not exactly the same - anyone know if this is right?) or it's to do with our encapsulation in the normally-well-tolerated alpha-cyclodextrin.
search 'foundmyfitness' and 'Jed Fahey' for the podcast video link... newbie link posting schoolboy error!
This November 2020 podcast interview https://www.foundmyfitness.com/episodes/jed-fahey-q-a with Jed Fahey, who is one of the leading lights in sulforaphane research, included the following statement at 1hr 29 mins: "there is a company in England has … a non-natural sulforaphane they stabilised, we have done some experiments with that kind of sulforaphane and found some adverse side effects so I certainly would not recommend that". I assume he is referring to Sulforadex, as I doubt and hope there is no English competing product.
Has anyone heard anything about this? Any views?