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Primed for bumper profit growth

A developer, manufacturer and distributor of products for the self-care markets, is well placed to deliver a step change in profits
Primed for bumper profit growth

·       2021 underlying pre-tax profit rises 5 per cent to £4.56mn on 9 per cent higher revenue of £32.8mn

·       2021 reported pre-tax profit of £0.95mn stated after £1.3mn exceptional costs and £2.3mn amortisation charge

·       Closing net debt of £3.2mn (excluding £4.2mn lease obligations)

·       Contribution from last summer’s acquisitions materially underpins 2022 earnings forecasts

Aim-traded Venture Life (VLG:33p), a developer, manufacturer and distributor of products for the self-care markets, is well placed to deliver a step change in profits this year as it reaps the full benefits of last summer’s complementary brand acquisitions: BBI Healthcare, a highly profitable market leading women's health and diabetes/energy management company; and oncology support product company, Helsinn.

Having been successfully integrated into the group, Venture’s own brands accounted for two-thirds of group revenue in the second half of last year. They are higher margin product sales, too, hence why analysts at Cenkos Securities believes gross margin will increase by almost three percentage points to 42.4 per cent this year.

Furthermore, with current year revenue forecast to rise by a quarter to £41.3mn, both gross profit and cash profit should increase by almost a third to £17.5mn and £8.7mn, respectively, to produce £7.3mn of net cash from operations, an outcome that would deleverage the balance sheet completely (excluding £4.2mn of lease liabilities).

On this basis, expect underlying pre-tax profit (before amortisation charges, share based payments and exceptional costs) of £6.8mn, or 49 per cent higher than in 2021, to produce adjusted earnings per share (EPS) of 4.5p. This implies the shares are rated on a current year price/earnings (PE) ratio of 7.3. They are priced 43 per cent below book value, too.

Admittedly, investors may be sceptical about such heady revenue forecasts given past disappointments. So, it’s worth noting that group revenue would have been £37.8mn on a proforrma basis if BBI and Helsinn had been part of the group for the whole of last year. Moreover, Venture entered 2022 with its like-for-like order book well ahead of the same point last year, so is generating underlying sales growth. Customers are also ordering further ahead to secure supply, a factor that supports revenue growth estimates, as does the launch of 18 in-market products through the group’s international distribution partners and the upside from 11 new distribution agreements signed last year.

In addition, Venture parted company last December with its former Chinese partner who failed to meet the minimum contract obligations for two of the group’s leading oral care brands – Dentyl and UltraDEX. New distribution partner Samarkand Global should materially outperform the £0.3mn annual sales achieved in China given its expertise in connecting UK brands such as Omorovicza, Temple Spa and Philip Kingsley to the Chinese consumer.

Importantly, Venture’s management has been managing supply chain issues well, successfully pushing through product price increases this year to mitigate higher input costs such as transport to protect gross margin.

If Venture delivers on analysts’ forecasts, then expect a material re-rating from the current valuation of 5.5 times cash profit estimates to enterprise valuation. That’s a hefty 60 per cent plus discount to sector peers, as I pointed out at the start of the year (Venture Life’s recovery potential revealed’, 10 January 2022). N+1 Singer’s 66p target price is not only double Venture’s current share price, but the directors are targeting further earnings accretive bolt-on acquisitions to utilise the £50mn low-cost credit facilities in place, another catalyst for earnings upgrades to support my 100p target. Buy.

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