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On the upgrade

A developer, manufacturer and distributor of products for the self-care market has made an earnings accretive acquisition, and expect news on other deals imminently
June 7, 2021
  • Earnings accretive complementary acquisition of BBI Healthcare.
  • Significant cost and revenue benefits expected.
  • Cross-selling opportunities across enlarged customer base.
  • New revolving credit facility to free up funds for more acquisitions.

Aim-traded Venture Life (VLG:92p), a developer, manufacturer and distributor of products for the self-care market, has announced the £36m acquisition of BBI Healthcare, a highly profitable global market leading women's health and diabetes/energy management company.

BBI’s key brands are Balance Activ, the leading UK brand for the treatment of bacterial vaginosis; Glucogel, the number one glucose gel prescribed in the UK for hypoglycemia; and Lift, a range of glucose gels, shots and chewable tablets. BBI owns all the IP associated with the brands which are sold or partnered across 27 countries. In addition, BBI has developed a new women’s health product and signed a distribution agreement with an [undisclosed] international partner for the new product to be launched under their own well-known brand in Europe, China and USA.

This is the first acquisition since Venture raised £34m placing and £2m open offer at 90p a share last November to fund its acquisition strategy. BBI reported adjusted cash profit of £2.6m on £10.2m revenue in 2020, and profits will be materially higher this year after taking account of product initiatives and cost synergies. In fact, the £36m acquisition has been priced on a “high single-digit cash profit multiple for 2021”, implying cash profit will grow by at least 50 per cent.

Moreover, there are multiple strategic benefits that will boost BBI’s profits in 2022 including cross-selling opportunities between Venture’s existing customer base, marketing BBI’s products through its enlarged distribution network, and utilising BBI’s manufacturing facilities in Sweden. They are currently running at 20 per cent capacity, thus offering a material opportunity to generate additional revenue by ramping up production.

Although the acquisition leaves Venture in a slightly positive net cash position, the group is putting in place a revolving credit facility to enable further acquisitions. Management expect to update the market soon on other deals in the pipeline including Project Vulcan, a company focused on oncology support therapies to treat the dermatological and oral side-effects of cancer treatments. Venture’s directors see an opportunity to increase the distribution of the brands' products into more territories using its own network of local partners, along with new partners. In 2019, Vulcan generated £3.5m in net sales and an estimated cash profit excess of £1.2m. The £5.5m consideration equates to 4.5 times cash profit.

The point is that although housebroker Cenkos Securities is holding fire on upgrading its estimates for now, then we are guaranteed some hefty uplifts later this summer. Analysts currently expect Venture’s cash profit (pre-BBI acquisition) to increase 14 per cent to £7m on 10 per cent higher revenue of £33.3m. However, a six-month contribution in 2021 from BBI would increase Venture’s cash profit to £9m, implying 50 per cent year-on-year growth. On an annualised basis, group cash profit run rate will be closer to £11m, or 83 per cent higher than in 2020.

This implies Venture is being valued on a multiple of 10 times annualised cash profit to enterprise valuation, a modest rating for a company that is set to generate further revenue and cost benefits from BBI and has a cracking track record of integrating acquisitions.

The key reason why the shares have doubled since I initiated coverage, at 45p, in my May 2019 Alpha Report is management’s ability to outperform. The BBI acquisition and imminent news of further bolt-on deals are set to support further earnings upgrades, and that’s simply not being priced in. I maintain my 130p target price (‘Bagging value stock hatrick’, 23 November 2020). Buy.

 

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