RE: RE share price18 Dec 2021 11:00
HD2U is spot on
As per last RNS, the company has invested £8.9m in expansion over the last 12 months
Quote: · "£8.9m invested in expanding manufacturing capabilities in York and Doncaster"
Add that to the current £6m cash position, *IF* we do get £8m from the DHSC you have
£6m cash
£8m DHSC payment
£8.9m invested into expansion over the last 12 months
= £22.9m vs a market cap of £30m
Which ultimately, means the entire business minus cash and investments over the last month, is currently being valued at £7.1m - the existing assets are likely, as HD2U points out, worth more than £7.1m - so ultimately at this price we are pretty much rock bottom
Of course, we did make a loss last year - so there is that, if you did buy the company for say £30m, you would have to turn around its finances or it would be a drain on your pocket, BUT think of it this way...
You have a lateral flow DEVELOPER who is outsourcing production - they current give 50% of their profits away to the developer (e.g ABDX)
Lets say this company sells 1m tests per month at £2 per test / 50% all in margin
They give us 50% to manufacture, so we both make 50p per test sold
1m tests per month, £1m revenue each per month, £500K profit
The developer, makes £12m PA along with ABDX and £6m profit
All of a sudden, the developer, has made ABDX profitable due to the contract - instead of now being loss making, ABDX is profitable - however the share price suddenly reflects that, and existing investors get a considerable return on their investment at 28p
Does the developer, then let that happen? Why doesn't the developer, who has more than £30m cash in the bank *(plus shares should they be listed) make a cheeky offer to buy the company right now, for say £40m (33% premium)
What do they get in return?
Well they get a PROFITABLE BUSINESS - why, because the added value to their company and their contracts make ABDX profitable
They also get to bank an extra £6m profit to their bottom line, just on their own contracts, immediately (12m revenue)
So in theory, that £40m investment pays for itself in CASH in 6x7 (7 years) however, the value of that assets, considering the above (cash position, invested amounts) would likely cost the developer say £20-30m in CASH anyway to set up themselves - so the risk really is about £10m, and with the contracts, the actual ROI could be almost immediate!
The company I am talking about here is quite clearly Avacta! Should they get substantial long term contracts - but any developer who sells a large amount of tests and outsources these to a manufacturer, could do a LOT LOT worse than making an offer for ABDX
For what its worth, I put £40m as a cheeky offer and I certainly do not think the board would accept an offer so low - but I simply put that amount as a bare minimum to showcase how massively undervalued this company is at present, and secondly how much added value it can give a developer or existing manufacturer at to
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