Came across this article. Not sure who wrote it but it provide some great insights into how the company got to where it is today, the management team, competitiors and addressable market.
Well worth a read.
Disclosure wobbles aside, and thinking more carefully about the increased production capacity from the end of this FY, I think there’s an argument to be made for increasing my valuation.
Assuming XP capacity increases as they say (funded by the upcoming rights issue) and it happens on schedule, that would mean that FY21 starts at 890 tonnes/qtr, or 3.56 million kg p/year.
Let’s assume that not all of that gets sold in FY21, heck – let’s assume only half of it gets sold in FY22 to be cautious.
Putting it all together, and excluding any other powder sales, we get:
1.25 million kg sold in FY22.
At US$28 p/kg, and assuming an exchange rate of 0.75, we get ~AUD $66.5m in revenue.
Let’s now assume that cost of manufacture scales to ~$31.5m (FY19 ~$5.9m), with other expenses coming in at ~$5.5m (FY19 ~$3.6m). Cost of manufacturing margins look to have been actually improving in recent years, so a linear projection here seems fair.
Apply a tax rate of 30% for NPAT of ~$21.5m.
At $21.5m, that represents >100% earnings growth based from consensus predictions for FY20, so I feel a p/e of 30 is justified.
$21.5m / 60.1m Shares on issue (adjusted for rights issue) = eps of $0.36. Apply a p/e of 30 = ~$10.80.
Discount back at 10% each year for IV today of $8.76.
Feedback from US distributers is that brand owners and retailers are not building up inventory for the summer season as there is a reduction in holdiay bookings.
ANO is shipping additional poweder and dispersions to an FDA approved warehouse for a supplier Deveraux Speciatlies to have available to distribute to Canada.
This suggests that there is not currently buyers for existing stock. A proposed capital reduction of up to 7c per share perhaps sounds like a desperate attempt to prop up the share price especially since there was a rights issue very recently and now there seems to be so much money that ANO will propose to give it back?
Corona virus will be temporary and we don't really know how bad it will be. Potentially there will be a northern hemisphere summer season of low sales which would mostly impact this years and next years revenue and profit numbers for ANO.
This will pass.
Investors with a longer term view may well find a buying opprotunity but it is hard to know where the share price could go in the short term.
It is tempting to accumulate a small amount here around $4.50 with a longer term view.
A hard decision to make as better opportunities could present if there is a broad larger market sell off and I want to keep some cash on hand.
Lots of action on the shipment front this month – another 25,000kg + delivery on the 17th to Deveraux, following on from a similar load only a week or so ago. On these numbers and frequency of delivery, management should get close to their revenue guidance for FY20 of ~$30m without too much trouble.
Feeling a little more comfortable about my recently increased valuation now.
Interim Financial Statements
For the Half Year Ended 31 December 2019
Advance Nano Tek Limited result for the half year ended 31 December 2019 was net profit after tax of $3.366 million. The Company has recorded a profit before tax of $4.818 million which is 2.77 times greater than the corresponding half year ended 31 December 2018. Sales revenue for the 6 months to December 2019 is $11.307 million compared to $4.743 million for 6 months to December 2018. ZinClear XP powder sales are up 4.6 times compared to 6 months December 2018.
During the past 6 months, the Advance Nano Tek Limited has received TGA approval on the Brisbane manufacturing facility.
The tax expense of $1.452 million for the half year ended 31 December 2019 is not payable in cash due to the utilisation of prior year tax losses.
ANO is in the early stages of a feasibility study to leverage the capture of its CO² emissions from its zinc oxide productionequipment and convert the CO² into oxygen through the growth in hydroponics, on site at Shettleston Street Rocklea. We are witnessing a reduction in our energy consumption with the installation of our solar panels completed in December 2019. We will look to utilise this solar energy and battery storage as part of our hydroponics feasibility study.
Review of financial position
The net assets of the Group have increased by $3,361,168 from 30 June 2019 to $21,689,857 at 31 December 2019. A loan was obtained from entities associated with Mr Lev Mizikovsky totalling $1.1 million during the half year ended 31 December 2019to assist the group with working capital requirements and has been repaid in full subsequent to 31 December 2019.
Directors' Report For the Half Year Ended 31 December 2019
The Group has adopted AASB 16 Leases from 1 July 2019. This has resulted in right of use assets of $3.170 million and $3.191 million in lease liabilities being recognised on the balance sheet at 31 December 2019.
Significant changes in state of affairs
There have been no significant changes in the state of affairs of entities in the Group during the half year.
Dividends paid or recommended
No dividends have been paid or declared during the financial half year.(31 December 2018: Nil)
Events after the reporting date
The loan owing to entities associated with Mr Lev Mizikovsky totalling $1.1 million was repaid subsequent to 31 December 2019.
Advance NanoTek Limited has completed a capital raising on 17 January 2020. The Company raised $3.945 millionandissued 682,444 shares on 24 January 2020.
On 2 January 2020, the company completed a share buy-back of 6,678 shares for $37,797.48 from employees no longer entitled to these shares in accordance with the terms of the company’s employee share scheme.
Except as above, no matters or circumstances have arisen since the end of the financial half year which significantly affected or may significantly affect the operations of the Group, the results of those operations or the state of affairs of the Group in future financial years.
ANO will undertake a non-renounceable Rights Issue on a 1 for 50 basis.
Eligible shareholders will be invited to subscribe for 1 new share at $5.78 which represents a 5% discount to the 30-day weighted average share price, being $6.09 as at 27 November 2019.
At the current price, this rights issue is in the money ($5.78 vs current price of $6.35)
1 for 50 is only a small raise, but does indicate that they are trying to keep up with increasing demand.
18-Mar-2020: If anybody else has posted a straw about this, I haven't seen it. Both ANO & AIR are currently suspended from trading, following a call on Monday for a trading halt, pending further details of a patent they have just filed for a novel (new) product or product range.
On Monday they talked about "a highly progressed opportunity regarding the development of Oral Care Products (New Products) which could prevent the coronavirus cells multiplying" , but by yesterday they had corrected that to:
“The patent is looking at a range of oral care products that could inhibit the replication of the novel coronavirus inside the cells of the oral cavity / mouth”
So - slow down/inhibit - instead of stop/kill. Still, that is certainly the sort of thing that DOES require a trading halt or suspension until they are in a position to provide further details (especially in THIS environment), so they've done the right thing for sure.
Apparently, AstiVista (AIR) brought this to ANO's attention, and they are approaching it as a joint venture or partnership, with the details of how that works being just one of the things they needed to iron out. Lev, Geoff and Rade are all directors of both boards (ANO & AIR) with one additional director (Laurie Lefcourt) on the ANO board, so the companies are pretty much on the same page you would imagine. Lev is the Chair of both companies.
Similar announcements have been released by both AIR & ANO, but the full details of this opportunity will be released either after market today or some time tomorrow (I imagine) and they should both recommence trading after that release.
Looking forward to reading more about this!
7 February 2020
The Licence for the Brisbane Laboratory Approved
The Board confirms today that they have received notification that the TGA have completed the approval process of our Brisbane laboratory licence and once the formalit ies are completed the licence should be issued next week.
The Board confirms that there is an anticipated saving of approximately $100,000 per month in external testing costs, with an annualised saving of in excess of $1 million.
ANO expects profit to be 2.5x higher in FY20 compared to the previous year, coming in at around $8.4 million. This is on the back of a 46% lift in turnover.
It also looks as though sunscreen manufacture has recommenced in the US and ANO says it expects an extension to the aluminium oxide supply agreement.
The market has reacted favourably, sending shares over 20% higher.
ASX announcement here
Sat 18-Apr-2020: Just on @Hackenbacker's "Management" straw about the Ausbiz podcast - here's the link:
That should automatically start playing the latest episode (from Thursday 16 April) which starts off with Julia Lee and Mark Moreland discussing Kogan (KGN). RFT is the 4th stock discussed and that begins at around the 17:30 mark. ANO is the 6th stock discussed and that discussion begins at around the 24 minute mark.
Neither analyst recommends ANO, but Mark's comments are indeed worth listening to, because TeamInvest have looked very closely at ANO, and he clearly explains why despite their obvious potential, they are not suited to being a listed company, because of the way they are run. Mark mentions that one of ANO's directors is actually a member of TeamInvest, but he doesn't disclose which one. Despite that link, as a group (team), they (TeamInvest, who Mark represents) have voted ANO down as NOT being an attractive investment opportunity. Many of TeamInvest's members are either business owners or ex-owners or ex-managers of businesses themselves and they do focus quite a lot on the quality of management of companies when deciding whether a company would make a suitable and attractive investment. Mark suggests that ANO does tick a lot of boxes, including excellent earnings growth, superb industry positioning (being in exactly the right place at the right time), and more, but TI failed them purely on management quality and governance issues, and he gives examples of where they have had concerns.
Julia Lee didn't have much to say, except that their latest announcement fiasco (about the new product patent that might be able to inhibit the replication of COVID-19 in the mouth) was bizarre and that ANO had lost a lot of credibility as a result of that. Howard Coleman and Mark Moreland's TeamInvest however had failed ANO before that episode, based on previous issues and behaviours. Not sure if many people are aware, but our own Strawman used to be a member and spokesperson (representative in the media - on TV) for TeamInvest back before the MF days. While I'm not personally a member of TeamInvest - mostly due to the high financial cost of being a member - I do respect their opinions. They base much of their investing philosophy and process on Warren Buffett's and Ben Graham's pearls of wisdom and beliefs, and their approach is much more in that Value Investing camp rather than so-called "Growth Investing" where valuations and price are less important. You can get an insight into how that plays out by continuing to listen to the podcast when they discuss Blackmores. They don't get every call right, but they manage to screen out a lot of companies that carry higher levels of risk, which is the way I look at ANO.
ANO may multibag - and I hope for the true believers who hold them that they do - but the risk/reward equation is not attractive to me any more. I want to have a greater level of faith and trust in management and that they have sufficient regard and respect for ordinary retail shareholders. All shareholders are part-owners of the business. Regular trading suspensions, questionable announcements, and threatening to move your primary listing to the NASDAQ in the USA is NOT (in my opinion) in the best interests of ordinary retail shareholders. And that doesn't even touch the related party transactions, the auditor concerns, and other governance concerns. GLTAH, but they're not for me.
If you are unable to play the video without signing up, you may have more luck if you google various combinations of Ausbiz The Call and Advance Nanotek (or ANO), which is how I found it and watched it the first time. I've since signed up for regular emails from them.
27-Mar-2020: From the ASX (at 5:03pm, after the market closed): Continued Suspension from Official Quotation
In this update from the ASX (link above), they explain why they consider that a continuation of ANO's suspension from trading is appropriate. They include the query letter that they sent to ANO regarding their draft announcement regarding their new patent for various oral care products that may use various combinations (compositions) of "at least one zinc compound or at least one zinc salt and hinokitiol or a salt thereof". The ASX also include ANO's response (reply) to that query letter, and it's not hard to understand why the ASX regarded the ANO reply as lacking in detail and not adequately addressing all of the questions that the ASX had asked.
Just one example:
"Please advise whether ANO has received any legal advice regarding the statement in the Draft Announcement that: “The initial sales are contemplated on the Amazon EU platform as no regulatory approvals are needed.” If it has, please provide a copy of the advice (not for release to the market). If it has not, please explain its basis for making this statement."
Hmmm. Perhaps they didn't read the whole question?
The ASX felt that they needed to release this announcement (link above) in response to ANO releasing their ANO Business Update announcement the previous day (2:20pm on 26-Mar-2020) in which they do make assertions about the ASX that the ASX clearly felt they needed to address.
Apart from the spelling and punctuation errors in the last line of ANO's response to the ASX - "The balance of information sort by the ASX is in the opinion of the Board is not material." - ...the wording is dismissive and provocative. I think they'll find that they won't get out of this trading suspension until they provide satisfactory answers to the ASX and let the ASX decided what is and is not material.
Another fine mess they've got themselves into. Such promising tech, and such a badly run company - from a communications and regulatory compliance point of view.
for those interested in the call podcast here is a list of stocks they have discussed since the first episode
April 17 - EOS, AIA, CSR, VHT, AD8, JLG, CBA, MQG, NXT, PGC
April 16 - KGN, IEL, TAH, RFT, IVC, ANO, BKL, GMG, CAR, IDX.
April 15 - FMG, SYR, FDV, JHX, MSB, ALU, REA, NST, QAN, FCL
April 14- IRI, PET, NXS, MIN, ARB, AX1, CCP, APX, TWE, CTD
April 9 - ELD, TYR, AEF, SIQ, BBN, LLC, IGO, M7T, BRG, MMM
April 8 - PNV, AVH, OML, CGF, MLD, EVN, COH, SNL, CPU, LNK
April 7 – MP1, LYC, VAS, FLT, MRM, AMC, STO, HIL, PAR
April 6 - CWY, CAT, LOV, FXL, CGC, RWC, MND, WOR, IFL, AIZ
April 3 - WSP, SYD, EHE, SGR, COL, ASX, MGR, ADH, SIQ and CKF
April 2 – REG, WBC, VOC, SUN, XRO, CUV, WEB, KMD, WAM and TLS
April 1 – ZIP, COH, NCM, ANZ, WES, GEM, RHC, BHP, CBA, EML
March 31 - BIN, AMP, MQG, WHC, NEA, ALL, WTC, ASB, MTR, NEC
March 30 - VAH, QAN, APT, PTM, WOW, JBH, SCG, FPH, CSL, OSH (Premier episode)
02-Apr-2020: I've already posted a straw with a link to today's announcements from both the ASX and ANO. However, here's the body of ANO's announcement (it ain't real long):
Retraction of Announcements
The ANO Board requests that if we can’t agree, we retract all announcements since 16 March 2020, except for the patent application, ANO Business Update 26 March 2020 and the Appendix 3Y, from the ASX platform and have the suspension lifted.
The ANO Board advises that patent application #2020900820 was filed on 17 March 2020 with joint 50 / 50 ownership between Advance NanoTek Limited and Astivita Limited. There is not likely to be any material positive impact on sales with this patent application #2020900820 in FY20.
--- ends ---
As it turns out, the patent was for products including mouthwash that have not been tested at all for their effectiveness to inhibit the replication of any virus, let alone COVID-19. In fact there have been no tests at all. Tests - on a cat - or cats - were planned to be conducted within the next three weeks apparently, but have not yet commenced.
Further, the "inventors" of this "invention" are listed as Dalia Mizikovsky and Joseph Mizikovsky. ANO confirmed that they are "...obviously relatives of Mr Mizikovsky." Can we safely assume they mean Lev?
Joseph is also the CEO of Astivita (AIR).
When asked by the ASX about ANO’s understanding of Dalia and Joseph's qualifications and experience in the research and development of anti-viral products for ingestion by human patients, ANO's reply was:
Dalia Mizikovsky – Bachelor of Advanced Science, majoring in Biomedical Science. Currently completing her Honours in Developmental Biology at UQ (GPA 6.7) and has been employed by ANO since 17 April 2019. Joseph Mizikovsky – has completed 2 subjects at the London School of Economics, and is currently studying a Bachelor of Business, majoring in marketing at QUT and has been employed by AIR since 26 September 2017.
And that mouthwash was not meant to be ingested except in very small quantities.
Looks like Joseph has some catching up to do. Still, many fine inventions have been thought up by people with little to no relevant qualifications. This could be one of those.
All in all, considering that this latest stoush is due to both AIR and ANO requesting a trading pause and then a trading halt back on March 16th while they sorted out the IP ownership split for a "highly progressed opportunity regarding the development of oral care products which could prevent the coronavirus cells multiplying", a request for further details by the ASX does seem entirely reasonable in the current environment.
In one of their latest responses to the ASX, ANO argues that the ASX did NOT request this level of detail with a previous patent announcement that they made, and the ASX pointed out that the announcement in relation to that other patent was not even regarded as market sensitive by ANO - let alone feeling the need to request a trading halt. Fair point. Of course that prior patent announcement also did not have anything to do with COVID-19 and didn't use the word "coronavirus". This one did. That tends to get people's attention at the moment. We now find out that the whole thing is based on the supposition or hypothesis that it "...could inhibit the replication of the novel coronavirus inside the cells of the oral cavity / mouth” (from the 17th March "Clarification" announcement). I say supposition or hypothesis because there has been no testing done yet to back up that theory or possibility. They do however plan to test it on a cat (or cats) in the next three weeks - or begin to.
Doesn't sound "Highly Progressed" to me, but I guess everybody has a different interpretation of what that means. ANO's interpretation was clearly not the same as the ASX's.
26-Mar-2020: ANO Business Update
ANO Business Update
ANO continues to produce zinc oxide and one of our large customers in the US has reconfirmed their prior orders for 80 MT plus for April, May and June. We are sending additional final products (powder and dispersions) to the US and Europe and will continue to do this on a weekly basis. Despite two countries temporarily closing production facilities, we have raw material in stock and in transit and have placed additional orders from our supplier in a third country. We will have sufficient raw materials to meet future zinc oxide orders well into the next year if current trends persist.
We have today received two new orders from Merck which doubles their orders for calendar 2020 to $3.2 million. Again, we have placed significant orders for raw materials and are investing in spare parts to ensure we have continuous supply of Alusion to Merck over the next 12 months.
Zinc Gluconate Production
ANO is looking into the production of zinc gluconate with lab trials about to start. Given the current worldwide shortage, ANO will look to distribute this product to Europe, where no TGA approvals are required, as soon as possible.
COVID-19 – Remote Setup
Software has been installed successfully by SenterpriSys Limited to allow key functions within the business to be completed by staff from home if required.
Collection House Limited (“CLH”) & ASX
Many of our shareholders may be unaware that our Chairman is currently in court with the ASX and CLH as a result of the ASX publishing a market release for CLH which was defamatory towards our Chairman. Further, CLH remains voluntary suspended. More concerning is that the issues raised by our Chairman appear to be the reasons CLH has extended its voluntary suspension for now 2 months.
ANO believes this is in part one of the reasons we are having difficulties and delays with the ASX at present.
In addition, we confirm to the market that the ASX have raised rumours in regards to margin calls by Directors on Wednesday morning, 18 March 2020. The Board confirms to all shareholders that there are no margin loans in place by any Director.
Update on Suspension
It is astonishing that the ASX would seek to impose forced suspension of ANO’s shares for what can only be understood to be a result of the brevity of some responses (which were in the Board’s view the appropriate factual responses to ASX’s questions). The ASX has offered no clarification as to why the brevity is not acceptable to them nor have they tried to reframe their questions to elicit a different answer.
So, shareholders are aware, some of the questions raised by the ASX were technical in nature and in, the Board’s view, only capable of answer by reference to the patent and the scientific papers referred to therein. It is not appropriate for the Company to attempt to summarise for the ASX matters of such a technical and scientific nature, at the risk of being accused of not effectively summarising the matter. The only appropriate response in the Board’s view is to direct the ASX to the source documents where all the technical detail is available. Of course, this is the Company’s best guess at the ASX’s concerns as it has to date not offered any additional guidance on which responses are deficient or why.
In light of the current situation between our Company and the ASX, and given 70% of our sales are in the US and our market capitalisation is in excess of $200 million, the Board is going to investigate listing on NASDAQ. We apologise to our shareholders and the Board will attempt to resubmit our announcement to have our suspension lifted as soon as possible.
Geoff Acton (B.Com CA)
--- ends ---
AUsbiz TV has a podcast each day where they review 10 stocks by 2 analysts. Yesterday Thurs 16 April was the turn of Advanced Nanotechnology. There was a fairly daming report about management integrity to the point of one analyst questioning if this stock should even be publicly listed. I don't own it but was wondering if anyone has a response?
01-Apr-2018: 9:37am: ANO: Suspension Update
The war continues...
I have updated my valuation for ANO, slashing my TP, and explaining why I'm going to sell as soon as they begin trading again (assuming they begin trading again)...
Amended Appendix 4E
Well! An interesting preliminary FY19 report from ANO to say the least!
At first glance it is a disappointing miss on guidance only provided 31 May (and re-iterated 12 July after the period end), but digging deeper the result is quite strong with the severe share price reaction likely attributed to the enigmatic communication from management. While I agree communication is best described as amateur, I don't question the integrity of ANO's management and may write a straw about them in the future as I feel those who are new the stock don't appreciate the position the business was in when Lev and Geoff assumed control.
Looking at the result closer, revenue of $12.26m was a miss to original forecast of $12.60m. However, the breakdown shows Zinclear revenue came in at $11.06m compared to $10.50m guidance while Alusion revenue of $1.20m missed guidance of $2.10m. That is a substantial miss to guidance, but the future of ANO is the Zinclear product, and the beat in that product vastly outweighs the miss in Alusion in my opinion.
However, while Zinclear is the growth engine for ANO in the future, Alusion still remains a very profitable product in the present with my estimate from backworking past results of 80%+ gross margins. This meant that NPBT of $3.38m missed guidance of $4.10m. Without further commentary from management it is difficult to asses whether the miss on Alusion guidance was simply deferred to FY20 or if Merck are winding back their orders which were expected. Given the forecast from management in the investor presentation is for only $2m in Alusion revenue in FY20 it suggests that the expected growth is not materialising.
That is disappointing, but again it is easily overshadowed by the growth of Zinclear. Management have forecast Zinclear revenue of $28m, or accelerating growth to 150%. PBT margin in FY19 was 28% (up from 17% in FY18) and will expand strongly again with the forecast revenue growth. I will update my valuation straw in the near future but my expectation for $8-10m NPAT looks like an easily achievable target.
The other main negative of the report was the poor operating cash performance. Operating cash of $262k meant the business ended the period with $353k cash in the bank. While the operating cash result is not good, it is entirely attributable to a sharp increase in inventories and prepayments for supplies to service the explosive growth expected. However the low cash balance does raise the spectre of a capital raising to manage working capital through this period. While I won't discount the possibility, I would prefer management to use a working capital facility to manage this period of growth. It is worth noting that we are now ~6 weeks past the 30 June date of the balance sheet without a capital raise, suggesting the working capital issues may have passed. Also, the graph on the first page of the presentation shows no further major capex plans until 4Q20.
Finally, the last question which may not be answered until the final audited annual report is how the ~$500k bonus paid to Geoff to compensate the execution of his options has been accounted. If it has been expensed through the P&L (which I suspect is the case given it was a cash bonus) it has created a one-off impact to this result which will need to be adjusted to determine underlying margins to apply to the forecast revenue.
2/7/18 Unexpected Delays
ANO announced that unfortunately they are still experiencing delays with the start of production in the US. Largely these delays have centred around equipment designed for Australian electrical standards not being certified to be used in the US and requiring modification. Obviously not great news, but operationally the business appears to be doing well.
Consolidation of the Australian manufacturing into one site is now complete with delays partly caused by "unexpected increases in sales" which is not a bad thing. Certificates and approvals now in place for operational efficiencies to be fully realised in FY19
Management provided unaudited guidance for FY18 of 35% revenue growth and $1.5m NPAT. Both figures were slightly above my expectations which is good but a strong FY19 to drive the share price is still predicated on full US production to meet the higher demand expected over the next few years.
Small business that manufactures nanoparticles, primarily zinc oxide (ZinClear) and titanium oxide (Alusion). Bull case centres around the potential of zinc oxide nanoparticles in sunscreen and general cosmetics as protection from both UV A and UV B rays. Zinc is the only natural substance that reflects both, with most sunscreens containing a mixture of chemicals to absorb the rays.
There is a growing consumer and regulatory campaign against chemical sunscreens as consumers prefer natural or organic products and environmental bodies argue that the chemicals used have negative side effects on marine life such as coral bleaching. While zinc has always been known as an alternative natural solution, in its pure form it doesn't absorb and remains opaque on the surface of the skin (think lifeguards or cricketers with zinc under their eyes or on their lips).
However Advanced Nanotek is one of a handful of companies worldwide producing zinc nanoparticles which achieve the full spectrum UV protection with the desired outcome of applying invisible on skin as the particles are smaller than the human eye see. While there were initially some fears that nanoparticles could cause harm if they were absorbed through the skin, all clinical testing so far has proven no known side effects. These fears are slowly being overcome, and consumers desire for a natural, organic product that applies transparent is taking over.
FY18 has been a transformational year for the business as they prepare to ride the large tailwind behind them. Manufacturing has now been outsourced to the US, new supplier agreements have locked in a more consistent, pharmaceutical grade product and the company has lodged for the IP of their own range of OEM cosmetics that can be white-labelled by customers.
6/8/19 ANO Update
ANO management announced yesterday that 1Q20 sales to date are up 400% on 1Q19. Obviously there is not much information to really go on here, but as a point of reference, 1H19 revenue was $5.3m. At roughly $900k a month, this update suggests they have orders for $4.5m assuming no big lumpiness or seasonality in the quarter/half.
ANO did roughly $1.2m NPAT in 1H19 on that revenue but I expect further benefits of scale as the business grows. It is likely ANO will recognise $1.5m+ NPAT for the first month of FY20 when the sales orders are executed. I have forecast the business doing $8-10m NPAT for FY20 for a $5 PT, but early signs are that forecast could easily beaten if growth continues at this pace.
Also, management announced they have signed a new Italian distributor, which is important news given the company has yet to really crack the European market despite it being the largest cosmetics market in the world. Current orders are showing 145% growth on last year, but this could also explode if they can gain traction.
30/01/19 Appendix 4D/Investor Presentation
ANO released their 1H19 report with updated investor presentation. Some key notes:
NPAT of $1.74m ahead of $1.6m guidance provided only weeks earlier. With R&D incentive and 2H growth, FY19 NPAT should be $4-4.5m.
Revenue guidance for FY19 of $10.6m looks very conservative given 1H revenue of $5.3m, no 2H growth factored in.
Zinclear manufacturing capacity will be 2000 tonnes p.a. by the end of the year after the capex expansion program undertaken. No comment on current usage other than 2000 tonnes will be "well in excess" of current orders.
$900k rise in operating costs forecast due to increased employee costs with Perth now running 24/7 with night shifts to accomodate demand and Brisbane looking to employ 9 new staff. Despite this, wages as a % of revenue will fall 213bps because revenue is growing so strongly.
US contract manufacturing will be up and running from May with new equipment ordered and installed. This will lead to further gains in cost ratios.
Revenue growth was stellar in all regions, with Australia up 24%, US/Canada up 158%, Europe up 40% and Rest of World up 392%. While RoW is off a low base, US/Canada was previously 33% of sales and is now 45%.
Overall a very positive half for the business and despite the sharp run in share price I would struggle to label ANO expensive given it likely trades at around 20x FY19 earnings with explosive growth.
My previous numbers were way off track as noted in company announcement dated 31/5/2019.
FY19 NPAT estimated to be $10.5M. Note statutory NPAT has been inflated by $5.9M as the business reinstates historical tax losses.So need to use underlying NPAT = $5.6M
PE ratio = 30 x
Market Cap target = $5.6M x 30 = $168M
58,920,252 shares on issues gives
Share price target = $2.85.
This is very rough and haven't done any work on FY20 or FY21 earning.
Arguably, could use the higher estimated adjusted NPAT figure provided by the firm. Either way looks expensive for a compound manufacturer. Position closed.
Capital Raising & Trading Results
ANO provided further details on their capital raising announced at the AGM, including a detailed breakdown of use of funds.
However, the highlight of this announcement was a small paragraph after the breakdown where management state:
"In the past two days we have seen a further uplift in future sales orders for January – June FY19, with one large customer ordering double their order, which is five times greater than their order for the corresponding January – June FY18. As a result, we will order additional equipment to be located at Rocklea to cater for continual growth in global sales of our products."
Chris Silvestro has provided a fantastic post on HotCopper explaining why he suspects the large customer is likely to be Merck doubling their order for the higher margin Alusion product:
After digging through the evidence I believe he is right which would be an amazing development for ANO as Alusion's margin in the past has been over 80% (though now Merck are ordering large bulk orders the price may have come down).
If this is the case then FY19 NPAT could come in at $4-5m, well above my previous expectations.
31/05/19 Tax Losses to be Reinstated FY19
ANO management announced that their auditors have advised them that under accounting treatment they will re-instate their accumulated tax losses in FY19 based on reasonable expectations of profitability moving forward. While this is non-operating adjustment, it does allow ANO to pay fully franked dividends (an objective of the board) moving forward from FY20.
However the key piece of information in this update was FY19 NPAT guidance. Adjusting for the re-instatement of tax losses, operating NPAT will be $4.6m in FY19. This means that 4Q19 will contribute $1.2m NPAT, a slowdown from the $1.8m in 3Q19. It is also unclear whether this includes the R&D tax credit that was expected to be received.
UItimately, I expect that ANO management have been conservative with this guidance by simply maintaining their original $10.5m NPAT guidance from the 1H19 result and adjusting for the re-instatement of the tax losses. This gives them the flexibility to maintain the pipeline of good news they have been announcing to the ASX with a profit upgrade with another month to go in FY19.
Nonetheless I have maintained my price target at $5 until we get confirmation of the profit number and better guidance around growth.
4/4/19 Profit Update
ANO released an update stating that their unaudited NPAT for the March quarter was $1.8m, a tripling of profit from a year before and better than expected from the last investor presentation in February. Further to this, the backlog remains strong at 100T of customer orders ready to fill pending new production coming online.
Given the update in February was for the first two months of the quarter having NPAT "in excess of $1m", it suggests that month on month growth is still very strong (potentially something like $400k Jan, $600k Feb, $800k Mar = $1.8m). While extrapolating one months profit number can be dangerous, it isn't a stretch to think that ANO could be entering FY20 on a NPBT runrate of $10-12m (useing NPBT given current NPAT uses tax asset) meaning a multiple of 20-25x.
19/9/18 ANO Increased Production Capacity
ANO released an operational update. Management confirmed that US manufacturing is up and running, with equipment to further increase manufacturing capacity expected to be received in November.
However, the interesting part of the update was that forward sales for ZinClear has exceeded 50% growth on last year. In the last Investor Presentation ANO forecast 27% growth for ZinClear, potentially indicating some upside to forecasts.
3/8/18 Annual Report to shareholders
ANO released their annual report, with revenue up 40% to $6.6m and NPAT increasing 169% to $1.5m. Financials were in line with expectations, but management commentary gave us some interesting points:
Alusion sales are set to increase in FY19 as the relationship with Merck has been repaired. Merck are marketing two new products using Alusion, and the current agreement set to expire next year has been extended until 2022. Also, Merck requested ANO move to container shipping with higher quantities.
ZinClear growth also ready to explode. Management stated their FY19 goal is to ramp production to 800T which is faster than I expected. Despite Europe growing 100% in FY18, management focused on growing distribution there. Supply issues limited sales this year, which have now been resolved.
Cost savings are due to flow through very soon and be realised for majority of FY19. US manufacturing up and running which lowers costs and shores up supply. Australian manufacturing now consolidated into one factory. Management confirmed new equipment set to be installed by March 2019 to further ramp up US production.
Management stated that with new precursor supplier and consistent outsourced manufacturing, their product is not only better than competitors with independent testing but cheaper as well (and there is potential to lower the price further)
The chemist network is beginning to reap rewards with end-product formulations. The product that will contribute materially in the short term is ZinXation, ANO's proprietary sunscreen. Confirmed that the first order of ZinXation sunscreen has been received for 15,000 tubes. This manufacturing is being outsourced in NZ.
Management also confirmed that patents have been lodged to protect IP around graphite battery potential. Tests are due to be completed late this year on prototype products.
25/7/18 Appendix 4C - Quarterly
ANO reported their 4Q18 cash results. No real surprise, record cash receipts were muted by a large increase in product manufacturing costs. The audited results will clarify, but I believe we will see a large increase in inventories to accomodate.