Aim-traded Venture Life (VLG:39.25p), a developer, manufacturer and distributor of products for the self-care markets, flagged up its annual results in a pre-close trading update at the end of January, but there were still positive surprises.
Last year’s adjusted cash profit of £9mn came in £0.3mn ahead of joint house broker Cenkos Securities’ forecast, customer brands delivered eye-catching 41 per cent growth in like-for-like revenue to £20.8mn (47 per cent of group total), and the closing order book was more than 114 per cent ahead of the same period in 2021.
Customers have been ordering further ahead than in previous years not only to ensure continuity of supply, but to lock in prices in an inflationary environment. Therefore, it’s reassuring to note that after encountering supply chain as well as input and inflation challenges last year, Venture is now seeing downward movement in input prices, improved product availability and an easing of energy prices. This augurs well for the delivery of the order book at a solid margin.
It also augurs well that management has been extending the group’s geographic footprint, signing 12 new long-term overseas distribution agreements, launching 16 new products last year through international partners, with an additional 15 products launched since the year-end. The eye-catching performance from some past acquisitions is worth noting, too.
Reaping the upside from acquisitions
- 2022 cash profit and revenue up a third to £9mn and £44mn
- 17 per cent pro-forma like-for-like revenue growth
- £13mn acquisition of ear-nose-throat brands in November 2022
- Order book 114 per cent higher than 12 months ago
Both of Venture’s 2021 complementary acquisitions continue to perform well – BBI Healthcare, a market-leading women’s health and diabetes/energy management company; and oncology support product company Helsinn. 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.
International sales of Balance Activ (14 per cent sales growth on a like-for-like basis) helped the product contribute £5.5mn of revenue, the brand accounting for 12.5 per cent of the group total. Lift performed even better, delivering eye-watering 36 per cent higher like-for-like revenue of £4.2mn to account for almost 10 per cent of group revenue. Increasing sales to independent pharmacies, a general sales rebound post-Covid, and the launch in Ireland with a new distributor were key to the brand’s outperformance. Importantly, the momentum has continued into 2023.
Helsinn’s main brands, Gelclair and Pomi-T, should deliver higher sales this year, too, after Venture signed major distribution agreements in Brazil, Canada, Vietnam and Germany. Gelclair is a muco-adhesive oral rinse gel used for painful symptoms of oral mucositis (a side effect of some cancer therapies), and Pomi-T is a polyphenol mix of whole foods used for the management of prostate-specific antigen (PSA) levels in prostate cancer.
Venture’s annual results benefited from one month’s revenue contribution from three HL Healthcare ear-nose-throat brands (Earol, EarolSwim and Sterinase) purchased at the tail end of 2022. The brands are sold directly to wholesalers and retailers in the UK and to licensing partners internationally, through a distributor network across 23 countries across central and eastern Europe, Canada, and the Middle East. End-market demand is well underpinned.
For instance, sales of Earol have grown significantly over the past five years due to ear wax removal (EWR) and general ear care transitioning away from primary care to private audiology clinics, and an ageing population and technological advancements in hearing aids boosting demand for EWR and prophylactic ear care. Both growth drivers are unlikely to wane anytime soon.
Furthermore, Earol, EarolSwim and Sterinase are high-margin products that earned a cash profit margin of 38 per cent on annual revenue of £4.5mn in the 2022 financial year, well above Venture’s 20.4 per cent margin in 2022. The maximum consideration payable of £13mn (£8mn cash on completion, £3mn contingent consideration and £2mn subordinated loan note) equates to a sensible multiple of 7.7 times cash profit.
Implication on forecasts
Post results, analysts at Cenkos edged up their 2023 revenue to £50.7mn, implying 15 per cent year-on-year growth, with almost two-thirds of the increase accounted for by a full 12-month contribution from the newly acquired HL Healthcare’s ear-nose-throat brands. It’s a more profitable business mix, too, as highlighted by a projected 2.3 percentage point improvement in group gross margin to 42.5 per cent and a higher cash profit margin of 23 per cent, up from 20.4 per cent in 2022. On this basis, cash profit is forecast to rise 29 per cent to £11.6mn.
Importantly, the directors are not only focused on delivering organic revenue growth from existing brands, but deleveraging the balance sheet. This explains why analysts at Cenkos forecast year-end net debt (excluding IFRS 16 lease liabilities) to be slashed from £16.6mn to £9.5mn, the debt reduction being underpinned by estimated net cash of £11.9mn generated from operations. This implies closing net leverage of 0.8 times annual cash profit, down from 1.4 times at the end of 2022.
In other words, the £49.5mn market capitalisation company’s forecast year-end enterprise valuation of £59mn equates to only five times cash profit estimates, or less than half the rating of peers. That’s a low multiple for a recovery play that is now benefiting from tailwinds and is set to de-gear its balance sheet, thus transferring more of the economic value in the entity from debt holders to shareholders.
The bottom line
So, having rated Venture’s shares a buy, at 28p, when I covered the half-year results (‘Nothing ventured, nothing gained’, 22 September 2022), and reiterated that advice at 36p (‘Investors are being too cautious with this self-care stock’, 11 January 2023), I feel that the shares, at 39.25p, have potential to double in value. Buy.
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