Member Info for ox123

Elrico - Acquisitions or Axis-Biotix - which is the one to worry about?

Not sure the acquired businesses are the area to be most concerned - at least their products/services made a profit before they were acquired and, even missing sales goals by a lot, were likely still marginally profitable. As long as that is the case and they are not consuming capital at least the Zenakine royalties would still shine through on the bottom line.

I doubt the same could be said of Axis-Biotix. Given the market is far smaller than the market for Dermatonics products, I cannot see how SA believes he will shift enough boxes to make a profit given the money he seems to be spending on the supply arrangement with Superdrug. This risks wiping out profits on Zenakine royalties. The capital and management effort would be better spent on broadening the Dermatonics product offering (with products which BTS can manufacture of course without shelling out on new equipment...). I am concerned SA is a little too attached to Axis-Biotix as a product as opposed to looking at where the current business, with the acquired businesses, could make the most (and quickest) return on capital...

Shychap, yes I think SA did say that on the last IMC call. But that seems to be about all they have done....

There are some justifiable reasons for discontent amongst shareholders but not so much about the acquisitions at the time given when they were made and that the jury is still out on them (in any case I don't see them as a disaster). However poor and inconsistent comms is definitely a problem and, I believe, the bet on Axis-Biotix when better options exist (and particularly the failure so far to further develop the Dermatonics range). It seems to me that the management have not reassessed strategy post the acquisitions, are only focussed on original SBTX product and we are hearing nothing about how they are going to grow the acquired businesses to make them more successful.

Whilst in the short term it likely makes little difference as Zenakine royalties will be the key factor over the next year or so, it is more concerning if you are taking a longer term view of the business. It seems like after buying the businesses the management have more or less ignored them and switched back to what they were doing prior to the acquisitions (either this or they are not communicating what they are doing!).

Oh well, I guessed there would be some comments about the SBTX management but I really don't care much about this at this point because the focus for me is Zenakine and the SBTX management have no influence over the sales of Zenakine (I hear some posters cheering this...). I am certainly not wanting to be a cheerleader for the management - the communication to shareholders has certainly left a lot to be desired. But my focus is the impact pf Zenakine sales on SBTX profits and I am optimistic about this, perhaps partly because it doesn't depend on the quality of the SBTX management!

I'm thinking Zenakine is out there in the marketplace as an ingredient in skincare products and probably has been for some time now. The companies selling their skincare product with Zenakine as an ingredient don't really want the consumer to buy "contains Zenakine" as a brand, they would much prefer the consumer to identify with their brand of skincare product, not one ingredient....(otherwise they could be undercut by another brand with "Zenakine inside").

Stuart Ashman stated in an Investor Meet Company interview that he would be announcing when products containing Zenakine were launched but my take is that he had not understood from Sederma that they were not going to disclose this to him (why would they disclose their customer list to a third party?). So ok, Stuart isn't perfect especially on the communication front (well, I guess we knew that) - who is? Does it matter in this case? (well, probably not for Zenakine as Sederma are driving the bus here).

Many of us were searching for The Holy Grail when maybe it was right in front of us, we just couldn't see it and Mr Ashman was not at liberty to tell us....

Acr9999, SolaWave could have updated the product to include Zenakine - it certainly says it contains: Lactobacillus Ferment Lysate, Pentylene Glycol, Glycerin, Propanediol, Xanthan Gum which does seem to be quite a coincidence if it is not Zenakine...

Shychap, the RNS 19/11/24 is simply confirming SBTX can't themselves try to sell Zenakine (an ingredient) to Croda cosmetic customers (or any other cosmetic businesses). But what we are discussing here is the potential for a cosmetic business owned by SBTX to market a skincare product containing Zenakine sourced from Croda. I don't see any reason why Croda would object and can't see anything in any RNS that suggests this cannot be done.

As we are discovering there may well be hundreds of cosmetic companies who end up buying Zenakine to put into their skincare product (and we may never find out how many Croda clients are buying Zenakine).

Hi CP, Dermatonics is not a footcare only business (e.g. they do hand cream with Manuka). This business could easily do a night cream for the face, it would fit fine with their brand proposition.

Can't see why Croda/Sederma would object to SBTX launching their own product - they will be selling to lots of skincare companies competing against each other, so why not Dermatonics?

So why doesn't SBTX market a Zenakine based cream under the Dermatonics brand? Seems like a no-brainer to me....Margins should be very high especially as they can make it in-house and get the royalty payment on the base ingredient - double-bubble! Can't see why it can't be sold online and via Boots and Superdrug. And it would strengthen Dermatonics market position with physical retailers - the more successful product offerings you have as a brand the better your negotiating position with the retailer.

Hi mol

Good spot on director resignations.

However, I don't think it definitively means Simon has resigned from his post as COO, unless you know otherwise for sure? It is within the rules of limited companies to just have one director so another possibility could be they just decided no point Simon being a director of the subsidiaries? There is a bit of "paperwork" to do every year for each directorship so I guess they might think it a waste of effort??

Not saying this explanation is correct (and it is certainly possible Simon has resigned his post) but just that we haven't got sufficient information to be certain he has resigned from his post as COO (as opposed to just the directorships of the subsidiary companies). Unless you have some additional information to confirm this?

Either way it will be interesting to see if SBTX announce something - having put this on a Bulletin Board they may feel the need to deny it if he has not resigned (and if he has, they probably need to announce this).

Dustbin - re. Axisbiotix, lets see what the sales are over the next couple of years. I will be delighted if I am proved wrong and sales are strong., that would be just another plus for SBTX.

I am positive on SBTX, but I just don't think the money and management time being spent on AxisBiotix is the best use of resources for a small company when I believe they have other potentially more profitable options. I can't see how AxixBiotix will add enough value to justify any significant growth in the share price. Is the management perhaps a little over optimistic about AxisBiotix as it was their first product?

As others have said, the short to medium term case for investing in this share rests firmly on the Zenakine opportuniuty (which needn't be limited to the royalty income to my mind).

Aquae, yes no issue with the acquisitions or the Zenakine deal as far as we can see and I am positive about the prospects for this company.

However, building AxisBiotix-PS into a very successful product is incredibly ambitious from a marketing perspective, especially for a small business in the early stages of its development. AxisBiotix-PS is effectively a new product in a new category and explaining the benefits to prospective users takes a lot of effort, hence the painfully slow ramp up in sales so far. Doable for a small client base who are social media savvy but a big challenge for a larger client base who may not be so receptive to watching YouTube/TikTok videos etc. Some posters on here have pointed out their concerns about ensuring customers use the product correctly and give it time to work (otherwise you get too much negative feedback). A salutary tale is the experience of a business called Futura Medical, who are struggling with a similar scenario, even with a distribution deal in the US with Haleon. In my experience promoting a product which is a brand extension within an existing product category is far easier and cheaper than trying to create a new brand in a new product category and the results in terms of revenue and profit come through more quickly. Zenakine is effectively a product in a category which already exists, albeit it offers some benefits over existing products, so much easier to gain traction, and in addition the company promoting it has far more experience and resources. Maybe SBTX will prove me wrong but my experience suggests AxisBiotix-PS will take a lot longer than SBTX think to show success and the revenue in the first few years is likely to disappoint versus their expectations (not that we know what these are of course!). I certainly don't see it moving the needle on the share price.

I write this as someone who has used the product and found it to be effective for me but also as someone with some good and bad experiences of marketing products...

Aquae,

Sederma have the capital and the expertise to make Zenakine a success based on a big marketing push with potential end-user numbers probably in the billions.

SBTX do not have the capital or the expertise to build a significant brand out of Axis-Biotix PS and, in any case, the potential market is much more limited (realistically most of the 125m potential customers will either not hear about or, at least, never try the product). There were 2 options for marketing the product - use low cost social media type advertising selling the product online at higher margin with low volumes, or go all out to sell omni-channel with significant marketing spend with (hopefully) higher volumes but at much lower margins. SBTX management are going for the latter (although we have not seen the marketing spend yet...). I think the former option would have been a wiser course of action at this stage. Building a brand takes capital and expertise that I'm not convinced SBTX have right now.

I would be delighted to be proved wrong but for me AxisBiotix PS is just a side show. Management time would be better spent for example on "piggybacking" the Zenakine and Dermatonics brands with day and night creams containing Zenakine, branded Dermatonics, and manufactured in-house by BTS. Higher margin for a lower capital cost and limited marketing effort. I do feel the management are trying to run before they can walk...

I remain optimistic, but just not necessarily for any significant success with Axis-Biotix PS.

From memory Mr & Mrs Dixon acquired shares in Filtronic at below 30p and have done very well out of their holding (that is an understatement). So investors with some success under their belts.

PGlancy, yes and I bet these brands are not selling via physical stores at low margins - SBTX could be making better use of social media for online sales with no need to spend millions for ads and stock to serve Superdrug...

Leapfroggy, I think you are right about AxisBiotix marketing. It takes a lot to build a brand, SBTX is too small with too limited resources and I don't think the market potential for AxisBiotix products justifies the effort at this stage (however valuable they may be for sufferers). It would have been better if they had just stuck to low cost online marketing and sales, albeit with a bit more effort than they have shown so far...It doesn't feel like the management have made a proper reassessment of their assets and opportunities following the acquisitions but just ploughed on with AxisBiotix even though the sales are growing only very slowly from a small base....and the margins on store sales will be much lower even if they get some additional volume.

If SBTX wanted to sell more product via Superdrug and Boots (in addition to the existing Dermatonics sales), they could develop day and night creams containing Zenakine, get BTS to make it, and sell it under the Dermatonics brand. Dermatonics is already an accepted brand by Superdrug and Boots which means they don't need to start with brand building from scratch - and of course it can sit nicely with the existing Dermatonics products on the shelf....Far better option for increased sales with minimal additional marketing cost, and almost certainly higher margin.

So I don't think SBTX has got its Sales & Marketing strategy right. I take comfort from the fact that the marketing of Zenakine is the responsibility of Sederma, rather than SBTX.

Hi Pharmhall, am pleased you already own SRT, increases my confidence in the company! You seem to have most bases covered so I need to do more homework to find a good prospect you haven't come across 😊

Why short a company that has substantial cash in the bank (so no short-term cash needs albeit currently loss-making) and the richest man in the world is the biggest shareholder? What if he decided on a whim to buy the business? (he has funds....). And another big shareholder (IP Group) know the business very well and think it is worth holding on at the current price even though realising more cash would please their shareholders. Wonder what the Head of Risk at each of these Hedge Funds thinks? Surely they could find an easier target?

But then again, what do I know?? I guess the shorters must have their reasons and expect to profit from it.

Hi Parmhall

I took the comment in the Final Results to April 25 about revenue recognition as meaning possibly Defence revenue may be a bit light in the first half despite the factory being full of orders... At last year's half year results the management made the same point and revenue was marginally lower than prior half year (albeit profit a bit higher). MSI provide minimal guidance so I haven't even tried to guesstimate the short term outcome (but take comfort from your efforts!).

In any case I didn't read the comments about revenue as a serious profit warning and even if revenue is down in the half year I wouldn't see it as a reason to sell since management are guiding to growth in long term contracts (plus the potential upside of Terrahawk). But many AIM stocks do have a reasonable number of short-term investors so I would not be surprised if shares sold down a bit at results time if revenue is a bit light due to timing issues. And that might be an opportunity for those looking to increase their holding (which was the prompt for my post).

Rest assured that was the limit of my thinking!

Pharmhall

Thanks for sharing thoughts - weekend homework!

Here's one you may know : SRT Marine Systems. Two parts to the business but "Maritime Domain Awareness" most interesting. As they add contracts with (mostly) "sovereign" clients the incremental costs are relatively small so the margins will increase. And each contract is substantial...Not quite defence but along the lines of defence...

In the meantime MSI ticks the boxes for defence with a product that's needed but it would be nice to see some contracts announced for the Terrahawk...

Have a good weekend.

JL

Half year results December I guess and profit will be down I guess so if the AIM market is true to form the shares will fall then...If so, perhaps a buying opportunity. Can't see a company specific catalyst before then.

The only risk is the management acting out of character and announcing something like a new VSHORAD contract before then or some company bidding for some or all of MSI ....both unlikely before December I would have thought.