- New Chinese distribution partner for two of the group’s leading oral care brands – Dentyl and UltraDEX
- Directors purchased 300,000 shares at the end of 2021
- BBI Healthcare and Helsinn starting to make progress on exploring and exploiting the expected synergies
Aim-traded Venture Life (VLG:40p), a developer, manufacturer and distributor of products for the self-care markets, has appointed a new Chinese partner for two of the group’s leading oral care brands – Dentyl and UltraDEX – both of which have established recognition and sales in the China market.
Venture’s previous Chinese partner failed to deliver on its minimum contractual sales targets, so the appointment of UK-based Samarkand is a smart move. The publicly listed group has proven expertise in connecting UK brands to the Chinese consumer, representing large brands such as Omorovicza, Temple Spa and Philip Kingsley.
Furthermore, with operations in Shanghai and London, the directors believe that Samarkand is well placed to replicate the success achieved by both Dentyl and UltraDEX in the UK, and the success achieved by its previous partner in the Chinese market before the pandemic. The sales shortfall from China coupled with customers delaying orders and reducing inventory led to a profit warning in December, which was accentuated by input cost pressures, not all of which could be passed onto customers.
At the time house broker Cenkos Securities lowered its 2021 revenue estimate from £36m to £32m, which led to underlying operating profit being slashed from £5.2m to £2.9m due to the operational leverage of the business. On this basis, last year’s adjusted earnings per share (EPS) are set to fall 30 per cent to 2.86p.
However, this looks like the low point as the directors, who purchased 300,000 shares at the end of 2021, note that “following months of intense integration since [last summer’s] acquisitions of both BBI Healthcare and Helsinn, our commercial team is making good progress on exploring and exploiting the expected synergies.” A new distribution agreement has been signed for Pomi-T in Germany and progress has been made in identifying other prospects in other key parts of the world. Pomi-T is a polyphenol rich mix of wholefoods used for the management of prostate specific antigen (PSA) levels in prostate cancer. It was one of three brands acquired as part of the Helsinn acquisition.
A full 12-month contribution from BBI (a global market leading women's health and diabetes/energy management company) and Helsinn underpins a high proportion of Cenkos’ 2022 revenue estimate of £41.3m. Based on a gross margin of 42 per cent this implies annual cash profit rising from £6.25m to £8.7m and operating profit recovering to £4.4m, or a fifth above the 2020 high-water mark.
On this basis, expect pre-tax profit to bounce back from £1.65m in 2021 to £4m and deliver EPS of 4.55p. Of course, that is well shy of expectations 12 months ago when Venture’s shares were riding highs above 100p, and the company pulled off a £36m placing and open offer at 90p, the proceeds from which funded the £37.4m upfront cash costs on the two acquisitions.
However, with a market capitalisation of only £50m, effectively the market is placing little value on Venture’s Dentyl and UltraDEX legacy businesses even though they accounted for a high proportion of the group’s £3.7m operating profit in 2020. Any recovery in these operations, not to mention upside from the acquisitions and a return to growth in China, is not being priced in with the shares trading around 40p. Estimated net debt of £5.5m is well within Venture’s £50m revolving credit facility, so the group has no financial concerns and the board has funds available for additional earnings accretive acquisitions.
So, having first suggested buying the shares at 45p in my May 2019 Alpha Report, and with those shares rated on an enterprise valuation to cash profit multiple of six times for the 2022 financial year – a deep discount to the average 15 to 20 times multiple for Over The Counter branded healthcare companies, according to Paul Hill of PMH Capital – I see strong potential for the shares to recover back to the 100p level. Buy.
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