Nothing ventured, nothing gained

Investors are taking a cautious stance on Aim-traded Venture Life (VLG:28p) after the developer, manufacturer and distributor of products for the self-care markets disappointed last year. However, the metrics remain positive for a year of decent growth even if the share price suggests otherwise.

For starters, last summer’s complementary brand acquisitions (oncology support product company, Helsinn, and women's health and diabetes/energy management company BBI Healthcare) have been successfully integrated and are proving their worth, delivering revenue of £6.3mn (9.5 per cent growth on a like-for-like basis). They enjoy higher margins, too, hence the 5 percentage point increase in gross margin in the first half. The gain would have been more, but for the impact of net cost increases and a greater proportion of legacy brand sales coming from lower-margin products this time around.

True, revenue from legacy products dipped slightly to £12.6mn, partly due to lower international sales and lockdowns in China. New distribution partner Samarkand had to delay the launch of oral care brands Dentyl in that country as a result, and Venture reported weakness in the mouthwash category domestically as consumers reined in discretionary spending. Revenue from women’s intimate health brand Balance Activ also suffered slightly, mainly due to loss of revenue from a local distributor due to the Russia/Ukraine conflict. That said, revenue growth from the category is expected to return in the second half driven by retail sales through online channels and product launches.

The fact that Venture’s customers are proving amenable to product price rises is a positive, as is the fact that they are purchasing further ahead to mitigate supply chain issues. The order book is 30 per cent higher year on year, and should increase further as China reopens post lockdown.

Furthermore, having delivered 74 per cent growth in first-half cash profit to £3.3mn on 36 per cent higher revenue of £18.9mn, the directors are comfortable with full-year estimates that point to cash profit rising by almost a third to £8.7mn on revenue of £41.2mn, albeit there is a greater second-half weighting. On this basis, the group is valued on less than five times cash profit to enterprise valuation, or two-thirds less than sector peers.

The shares remain unloved, having undeperformed the FTSE Aim All-Share index by 5 percentage points since the annual results (‘Primed for bumper growth’, IC, 19 May 2022). However, with acquisitions outperforming, new product launches set to aid second-half sales of legacy brands, and the order book strong, Venture’s recovery potential is simply too lowly rated. Buy.

Simon Thompson was named Journalist of the Year at the 2022 Small Cap Awards.

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