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#Broker/Analyst Views
stale
Last edited 4 years ago

26 May 2020:  Taylor Collison: Probiotec (PBP):  Update - Industry normalizing

TC have an "Outperform" call on PBP, but no price target.  They have a DCF valuation of $2.13.  PBP closed yesterday at $1.91.

Excerpt:

Our View:  We retain our Outperform rating and forecasts. We believe that underlying demand is strong, FY21 will benefit from past acquisitions and cost synergies. The business may also be able to bolt on further accretive acquisitions. Recent contract wins should feed into FY21 results as these contracts ramp up. We have derived a DCF valuation of $2.13.  

In late April Probiotec announced that it had been fully operational during the COVID-19 crisis and continues to trade strongly. FY20 guidance was re-iterated with sales expected to be excess of $100m and EBITDA of between $16-$17m. There has been minimal supply chain disruption despite some press suggesting ingredient access problems out of China and India. Probiotec had seen meaningful uplift in orders for coughs, cold/flu, analgesics and immunity products.

Key Points 

Recent update and our analysis

  • The late April Probiotec update re-iterated guidance for FY20. The market may have been hoping for an upgrade due to the March and early April COVID-19 panic buying.
  • Recent industry feedback and commentary from listed wholesale/chemist shops players API (API, not covered) and Sigma (SIG, not covered) also indicates a return to more normal conditions in April and May.
  • The actual cold and flu season might be much reduced this year due to social distancing, higher flu vaccination rates and more frequent hand washing by the community. We believe that colds are more of a driver than the fully fledged flu for Probiotec.
  • This is partly why the traditional spike may not occur and leave some stock in the channel.
  • Panic buying will result in some stock exceeding expiry dates (and being thrown out) and may also have pulled some demand forward. The driver will by the resumption of the actual cold/flu season.

Late April update and our analysis

  • We also review our forecasts for FY21 and believe that upside exists. We assess the quite specific reasoning around our FY21 EBITDA forecasts (acquisitions/full year contribution, premises savings, new contract wins). We believe that FY21 is very achievable.
  • The business may also be able to accretively acquire bolt-on(s) - given the recent bedding down. We have not factored this in – but like this optionality.  
  • Risks – include loss of contracts, in-house competition, product quality, increased competition and integration of acquired business. 

--- click on link above for the full update ---

Disclosure:  I don't hold any PBP shares.

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#ASX Announcements
stale
Last edited 3 years ago

FY21 Guidance (see table at footer for comparisons)

Revenue: FY21 guidance, $118-$122m 

Underlying EBITDA: $21-$22m

Underlying EPS: 10.0-11.0 cps

  • We continue to see a strong level of inquiry from existing and new customers including to onshore manufacturing;
  • Pharmaceutical product categories that have been affected by the health measures put in place to respond to Covid-19 are expected to improve progressively through the first half of FY22 and normalise through the second half.
  • Demand has already started to return coupled with the clearing of stock on hand in the channel. The latest unfortunate lockdown in Victoria has had a minor negative impact on the Group’s FY21 earnings.
  • The Multipack-LJM acquisition was successfully completed in January 2021 and has performed in line with expectations for the first 6 months with its earnings seasonally weighted to the July to December half.
  • The Group is now focused on leveraging Multipack-LJM’s capabilities and high-quality customer base to drive the next phase of growth
  • The NSW site consolidation strategy is being progressed and we expect this to be materially accretive for shareholders in the medium term
  • We continue to assess a range of accretive M&A opportunities, with a focus on bolt-ons that bring new customers, synergy potential or strategic acquisitions that expand our capabilities.

About Probiotec
Probiotec Limited is a manufacturer, packer and distributor of a range of prescription and over-the-counter (OTC) pharmaceuticals, complementary medicines, FMCG and consumer health products. The company owns five manufacturing facilities in Australia and distributes its products both domestically and internationally. Products are manufactured by Probiotec on behalf of a range of clients, including major international companies.

ASX Announcement

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#ASX Announcements
stale
Last edited 3 years ago
  • Probiotic announced that it will acquire the assets and business of H&H Packaging (“H&H”) for total cash proceeds of (up to) $4 million.
  • H&H is a Sydney-based contract packer and manufacturer with a 30-year operating history.
  • The acquisition of H&H will deliver new customers to the Probiotec Group including exciting opportunities to service the industrial, chemical and agricultural markets, widening our overall reach into even more end markets. The acquisition will also add plastic moulding capabilities that can be rolled out across the Probiotec business for our own internal needs as well as to our existing client base, adding an element of vertical integration to the Group.
  • In time, certain H&H functions may be incorporated into the proposed Sydney site consolidation project.
  • H&H is expected to generate Revenue and EBITDA of approximately $6 million and $1 million respectively for the 12 months ended 30 June 2021.
  • The acquisition is expected to be immediately EPS accretive (pre-synergies) from completion. The transaction will be funded from cash reserves and completion is expected to occur at the end of July 2021.

Chief Executive Officer of PBP, Mr Wes Stringer comments: “we look forward to welcoming H&H’s employees and customers to the Probiotec Group and continuing to build our manufacturing footprint in Australia via organic growth and further accretive acquisitions".
---ends---


About Probiotec
Probiotec Limited is a manufacturer, packer and distributor of a range of prescription and over-the-counter (OTC) pharmaceuticals, complementary medicines and consumer health products, and fast-moving consumer goods. The company owns five manufacturing facilities in Australia and distributes its products both domestically and internationally. Products are manufactured by Probiotec on behalf of a range of clients, including major international pharmaceutical companies.
Further details about Probiotec are available at www.probiotec.com.

ASX Announcement

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#Results in line with expectati
stale
Added 2 years ago

A great set of FY22 results for Probiotic today. It looks like underlying EPS of 16.7 cps was in line with Commsec analyst forecasts of 16.6cps. Great result all the same! Looking forward to revaluing the business shortly.

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Source: Commsec 24/08/22

Held: IRL and SM

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Valuation of $3.00
stale
Added 3 years ago
In today’s (9/6/21) trading update Probiotic provided Pro Forma FY21 Revenue Guidance of $159m- $163m assuming the Mutipack acquisition had been owned for the full 12 months to June 2021. This is up +50% compared to FY20 Actual of $107m. Similarly, FY21 guidance for underlying EPS would be 16.5-17.0 cps assuming a full year including Multipack earnings. Using a PE of 18, the value of Probiotic based on FY21 earnings including Multipack would be 18 x 16.5c = $2.97. A PE of 18 sounds reasonable given PBP has a track record of 23% earnings growth over the past 5 year and Forecast earnings growth of 44% over the next 3 years (PEG = 0.6). Simply Wall Steet gives Probiotic a fair value of $4.90 based on their DCF formula. Looking at forecast 2023 earnings of 20 cps (using Simply Wall Street data) and using a PE of 18, the 2023 value could be 18 x 20 cps = $3.60. I think $3.00 is reasonable value now based on current FY21 earnings capacity of the business including the Multipack acquisition and the potential for future earnings growth. If earnings continue to grow as forecast, Probiotic will be returning 24.5% on shareholders equity (ROE) in 2023. Keeping in mind that a ROE of 24.5% is highly leveraged by company borrowings (debt/equity currently 75%). Disc: hold shares (RL portfolio)
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Valuation of $3.50
stale
Added 4 years ago
A blue sky valuation for a company that's highly profitable and experiencing solid growth at ~18% p/a. Waiting on the HY report which I feel will confirm the investment case.
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