Venn is priced to show annual falls in earnings over several years ie go nowhere or suddenly develop massive losses. That might be right or wrong I really don't know. But with the stock market at all time highs, it seems Mr Market believes most other companies have hugely profitable futures while having certain opinion that Venn has none. Even if you believe that, you can still buy the share at a price that reflects such serious doubt, while if it turns out that venn has a profitable future you are certain to make money.
"Q&A: talking investigator initiated trials with Venn Life Sciences
by Dave Gray
28 September 2017
Behind every great medical device, theres a great clinical trial. MTI editor Dave Gray spoke to Colette Donaghy, clinical operations manager, Venn Life Sciences, to find out what goes into making a device trial successful."
"Yet despite these challenges, Donaghy says that Venn continues to attract innovators from around the globe. In fact, the group recently collaborated in a clinical trial in cardiology which turned out to be one of the largest investigator-lead studies in disease of the left main artery being conducted anywhere in the world.
The project began when Venns COO was approached by one of two lead investigators, Professor Robert-jan van Geuns at the Erasmus University in the Netherlands. Both he and Professor Keith Oldroyd who is based in the Golden Jubilee Hospital in Glasgow realised at a very early stage that they needed help to conduct this large-scale investigator initiated study....
.....The first challenge was the administrative task of setting up the study in different countries. To do that requires knowledge of the regulatory pathways in each country.
Venn has experts around the world capable of undertaking this kind of work.
Donaghy says that this specialist knowledge is invaluable when trying to conduct trials on an international scale. In each country we had to go through the relevant ethical review bodies, who looked at the study, checked that they were happy for it to be conducted, and that there would be no negative impact for the patient.
The other challenge for the client was setting up contracts. Venn needed to set up a contract with each institution, and in some cases with each investigator. The group uses a corporate legal adviser, which is essential in securing an agreement which protects both Venn, and the client.
Theres a lot to do when setting up an international clinical trial. Each country needs to be set up individually and the sites trained in the study processes. And if thats going to be happening in different countries, then you need people who can speak the language. Venn has sites in Russia, Poland, Germany, France, the Netherlands and the UK.
The trial is ongoing, and Donaghy says that there is significant interest from clinicians in the eventual findings and the primary outcomes at 24 months.
This study will be followed up for the next five years. We will monitor major adverse coronary events and theyll be classed into categories e.g. bleeding, thrombosis, stent replacement, etc. We will monitor this over a period of five years, allowing us to look back and see why those things happened.
Currently the client is highly satisfied that we delivered the trial within the timelines that we were given, and that we managed to get full recruitment. This is one of the largest investigator-lead studies in this area that is being conducted anywhere in the world.
H1 results: Solid revenues; building on its operational capability
Sep 12 2017, 08:00 IST/BST Company Report 5 page(s)
Sectors: Pharma and healthcare
COMPANIES: Venn Life Sciences
Venns interim result reflects a business in the growth phase of its development. Infrastructure and systems initiatives are being implemented to improve profitability. The management team was further strengthened with the appointment of a new COO. H1 revenues and EBITDA were adversely affected by the deferral of a late phase project to Q1 2018, which needs to be reflected in our full-year forecasts. With significant scope to increase margins in a growing sub-segment of the healthcare market, we remain confident on Venns long-term prospects."
My prior post stated I didn't think VENN would achieve Hybridan's forecasts this year - I reckoned on a 600k PBT rather than Hybridan's 1.27m PBT.
Well whaddyaknow - Hybridan's new forecast is 0.77m PBT, with 0.9m EBITDA. So I wasn't too far off :o))
They "understand that the pipeline remains strong and should significant deals land in Q3 or early Q4 there remains the possibility of upgrades."
- 2.9m of cash (forecast to rise to 3.1m at the year end)
- £1.25m of shares in Integumen PLC
- trade on an EV/EBITDA of only 6, with sector deals being struck between 13 and 25
- should have 18.5m of revenues this year
- now more realistically forecast to make 0.77m PBT this year
Nobody was expecting much from this H1, so good to see a small core profit, particularly given the project delay outlined today.
VENN have approaching £3m cash, so another acquisition may still be on the cards.
Not many specifics as regards H2 performance except a general optimism re numbers of clients, recurring revenues etc.
Given the cash and revenues I'm of the opinion that VENN is very undervalued. It's hopefully a question of a contract win or two, a steady improvement in PBT and/or another acquisition to kick-start a re-rating.
The MMs are fleecing sellers - down 9% on just £20k traded!
The fundamentals here are telling me that VENN is fundamentally undervalued. That will be the case even if VENN fails to achieve Hybridan's forecast £1.27m adjusted PBT, which I'm not sure they will.
If VENN were to achieve only 50% of that - say a £600k PBT - if you combine that with the almost 3m cash pile, the investment in SKIN and the value of the core business then VENN is worth considerably more than the current share price.
In a small-cap like this, one or two larger sellers can easily drive the share price down to silly levels given the propensity of others to follow them out on a drifting share price, the hitting of stop-losses etc. I believe that's what happened here.
It looks like the share price has hit a bottom and is starting to lift itself off that bottom now. The solid H1 trading update and the confidence for the full year should continue this into and onwards from the H1 results next month.
Interesting new note out from Hybridan a couple of weeks ago. This pointed out that Evotec's recent acquisition of Aptuit was on a multiple of 2.4 times revenues, and on 23 times adjusted EBITDA.
Other similar deals include Inc Research buying InVentiv Health at 2.1 times trailing revenues and 13 times EBITDA, Thermo acquiring Patheon at 4 times trailing revenues and 18 times EBITDA, Pamplona buying Paraxel at 2.3 times trailing revenues and 25 times operating profit, Labcorp acquiring Chiltern at 2.2 2017 forecast revenues and 13 times EBITDA etc.
Based on their 2017 numbers VENN trades on an EV/Sales of 0.32 times and 4.39 times EV/EBITDA.
With £19.3m forecast revenues this year, and £1.27m adjusted PBT, a multiple of say 2.3 times sales would value VENN at £44.4m.
This compares to the current £8.2m m/cap - which also includes the (now reduced!) stake in SKIN and the almost 4m cash pile.
Hybridan brought out a new note on Thursday envisaging a 30p+ share price on delivery of 2017 forecasts (against the current 13.75p).
Their forecasts are:
this year : 1.83 EPS, 3.62m cash pile
next year : 2.07 EPS, 4.03m cash pile
"Solid H1 2017
After a lacklustre full year results released in March 2017, the growing Contract Research Organisation providing drug development, clinical trial management and resourcing solutions to pharmaceuticals, biotechnology and medical device clients today provided a trading update for the six months ended 30 June 2017.
The new financial year started well with the Company securing contract wins in January and February with a value of 5.7m. Total revenues for the Company were
ahead compared to the same period last year at 9.11m (H1 2016:9.06m), with the client and revenue mix well balanced and strong rates of repeat business.
Moreover, we understand that Venn, has successfully introduced and delivered cross selling between early and late phase client bases.
We estimate that the Sedana contract announced in November 2016 and the 5.7m contracts won in January and February this year will contribute 4.3m in fee income in the current year. The Company has a strong proposal book, which should begin to turn in to business wins now that the full R&D lifecycle proposition is up and running. In addition to this, solid first half performance brings confidence around full year revenue expectations.
The sector continues to see growth, with encouraging trends in outsourcing likely to continue. We would expect that Venn continues to evaluate complementary acquisition targets which could at least in part be funded from its current balance sheet depending on size. The Company is well positioned to accelerate its win rate particularly with Biotechnology companies where its offering of a full lifecycle service combined with a customer-centric flexible approach sets it apart from the competition.
The shares of Venn have slid by 11% over the past 3 months, and given this trading update and its potential to meet expectations for full-year results, it presents a potential buying opportunity for investors. Delivery of our 2017 forecasts should see a recovery in the share rating and we see scope for the shares to surpass 30p over that horizon which would put the shares on a 16.5x 2018 earnings rating.
Cash and cash equivalents remained strong at 3.4m at 31 December 2016 and we are forecasting for FY 2017 cash and cash equivalents of £3.6m. With that said, a HY 2017 cash of 2.9m puts the Company in a strong cash position."
"The new financial year started well with contract wins of 5.7m secured in January and February, as previously announced. Overall, the Company has achieved total revenues of 9.1m (H2 2016 8.84m) for the first six months of the year. Our client and revenue mix remains well balanced with strong rates of repeat business and we have successfully delivered initial cross sales between the early and late phase client bases. We have a strong proposals book which coupled with this solid first half performance provides confidence around full year revenue expectations. We finished the first half year with a cash position of 2.9m (1.75m as at 30 June 2016)."
Apr 13 2017, 11:45 IST/BST Company Report 4 page(s)
Sectors: Pharma and healthcare COMPANIES: Venn Life Sciences
Venn is a small, fast growing Contract Research Organization (CRO) that is strategically positioned to take advantage of structural drivers in the outsourcing market. Near-term execution will be pivotal for company profitability as it seeks to leverage its full clinical service capability across Europe. We believe there is plenty of upside in the current share price. Venn is trading on a forward two-year P/E of 11x and an EV/EBITDA of 4.3x."
FYI here's Hybridan's summary and new forecasts from 2 weeks ago:
"Continuing growth not recognised in current price. Underlying fundamentals remain strong.
m 2015A 2016A 2017E 2018E
Total Income 11.64 18.24 19.29 21.22
PBT* 0.72 0.27 1.27 1.57
31 March 2017
Venns full year results last week highlighted some of the growing pains associated with high growth companies and bedding down significant acquisitions. The impressive 57% top line growth was tempered by a fall in EBITDA and the market has not reacted favourably, with the shares down 17% since the results and 28% on a
Fundamentally the growth drivers remain in place and increased levels of business and new systems in place should help to overcome some of the issues seen with resource allocation during 2016. With year-end cash of 3.4m, the balance sheet remains strong.
We have reintroduced forecasts and see this as a year where profit growth can outstrip revenue growth, as the Company uses its human capital more efficiently reducing the need for contractors. However, we are applying more conservative margin and revenue growth assumptions than previously, reflecting the lower profit base from 2016. We see little need to expand headcount in the short-term allowing Venn to benefit from an operational gearing effect. We estimate that the Sedana contract announced in November 2016 and the 5.7m contracts won in January and February this year will contribute 4.3m in fee income in the current year.
With the five-year backlog (23m in September) typically being front end loaded, it is reasonable to assume than VENN has visibility on another 9 to 10m in this year. Business wins should accelerate now that the full R&D lifecycle proposition, and depending on timing, a double digit(m) performance in contract wins could generate in the region of 4m in fee income in total. Adding on an estimated 6% in pass through costs and leaving other income (mainly grant income) flat,
brings us to a to a total income of 19.3m.
Our 7.3% EBITDA margin expectation should be achievable (industry leaders can be over 20%) should utilisation rates improve. This translates to EBITDA of 1.4m which translates to adjusted PBT of 1.27m (growth of over four-fold albeit from a low base) and adjusted EPS of 1.83c.
It is not the case that Venn is overstaffed, but that activity has been somewhat lumpy. The Company is seeking to address this by diversifying into more smaller ticket projects to complement its increasing win rate of major projects.
In 2018 we have simply assumed that Venn can grow revenues by another further 10%
organically and that it will be able to squeeze out a few more percentage points on EBITDA margin up to a margin of 8% on total income. This brings us to total income of £21.2m and adjusted PBT of 1.56m.
The recent fall in the share price leaves Venn trading at an EV/Sales of under 0.5x and a 2017 adjusted PE of 10.18x. The sector trades on a mid-teens PE rating and a significantly higher EV/Sales rating of over 3x. Given Venns size and capacity to win market share and benefit from operating leverage its long-term revenue and profit growth prospects are arguably superior subject to execution risk. Venn continues to assess complementary acquisition targets which could at least in part be funded from its current balance sheet depending on size.
Delivery of our 2017 forecasts should see a recovery in the share rating and we see scope for the shares to surpass 30p over that horizon which would put the shares on a 16.5x 2018 earnings rating. Within our forecasts we believe there is some latitude to improve in terms of both margin progression and earnings growth. Venn is well positioned to accelerate its win rate, particularly with Biotechs, where its offering of a full lifecycle service combined with a customer-centric flexible approach sets it apart from the competition. Last years slowdown
in FDA drug approval for
Let's assume the Integumen IPO happens on 5th April with no premium at all.
In that case, VENN would have around £3m of cash, plus over £2m of shares in Integumen. In which case £5m, or more than 50% of VENN's current £9.9m m/cap, would be covered by liquid assets, leaving the core business in for very, very little.
One might assume in a rational market some might see that as a good investment opportunity!
A new RNS from Integumen confirming their intention to float and details of their four acquisitions to date:
Also worth noting that VENN may distribute their shares in Integumen to VENN shareholders:
"In the event that integumen completes the aforementioned transactions and successfully lists its shares, the board of Venn will decide whether to retain the investment in Venn or distribute the shares to Venn's shareholders".
A confusing set of results, with core EBITDA at first glance well below Hybridan's forecast for one? It would be useful to see an analyst report to identify any discrepancies.
The reassurance is that (1) the business appears to be growing strongly and scaling up, and the m/cap is good value at only £10.5m relative to historic and growing 18m euros turnover, and (2) Integumen have a few minutes ago confirmed they will definitely IPO:
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