RE: Tom's latest update31 Oct 2017 11:50
Now remember that this is the ARM model so there is no increase in fixed costs with each new contract. So what are fixed costs at Optibiotix? The last set of numbers were distorted by one offs to do with the Skinbiotherapeutics demerger and other matters. The real annual cost base is just �1 million. And that means that quite clearly, in calendar 2018, irrespective of the timing of payments on the deals already signed and ones that will be signed soon, this company will post a profit. Maybe not a large one, but it will be profitable. And with net cash as things stand today at �1.6 million (with another few hundred thousand due when folks such as us exercise outstanding warrants at 8p, a nil brainer) there are no balance sheet concerns. So the issue is how big could sales be by, say, 2019? It seems exceedingly likely that by then there will be significantly more than ten LPLDL deals, each worth �250,000-�500,000 per annum to Optibiotix, in play. There are many markets both vertical and geographic not yet touched and the deals signed to date indicate that there is a real appetite for the product. But then there is Slimbiome and other products � LPLDL is just one division of three. So as time goes on we could be talking of 30 or 40 such agreements. And for some, we think here of Slimbiome and Tata in India, there is no reason why the annual quantum could not be far larger than �500,000 for Optibiotix which, all the time, will operate with its very low fixed cost base. You can do the maths on the potential profitability within two or three years.
Now consider this: the current market is circa �56 million. A business with such huge operational gearing and which is growing this fast should easily attract a forward PE of 25 or more. As we approach Christmas with more and more deals signed investors will at last start to be able to think about looking at some sort of forecasts. We take on board the timing caveat of O�Hara and also we have no idea whether deals will deliver year one sales of �250,000 and then growing or more than quarter of a Bernie in the first year. But we can say that on the deals signed to date, sales should be at least �1.5 million and could well be well over �2 million and that some sort of profit will be delivered. But by 2019 it is hard to see how sales are not going to be �4-5 million and thus profits �3 to �4 million with the potential for 2020 to be perhaps twice as big again. Thus on a forward PE of 25 you get a market cap of �75-100 million or 96.5p-128.6p by the time we are in 2018 (just 10 weeks away). And that is what investors will be focusing on as 2017 becomes 2018. As 2018 rolls on folks will start to look at the run rate and start to make assumptions about 2020 which would make even 128p look like a modest target.
Continued . . . .
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