Analyst comment on Venture Life Group
With the global economy being buffeted by the war in Ukraine, lingering Covid lockdowns (China), the cost of living crisis & tightening monetary conditions – where can investors generate 'relatively safe' positive returns?
One naturally defensive sector to consider is OTC, consumer healthcare. Particularly those stocks trading at attractive valuations, with strong niche positions, secular growth trends and pricing power.
Enter(VLG ), who today released ‘in line’ 2021 results, adding that it is also on track to achieve 2022 consensus expectations (Singer Capital Markets for turnover & EBITDA of £40.5m & £8.2m respectively).
It’s easy to see why too, given last year’s earnings enhancing & successfully integrated BBI Healthcare & Helsinn acquisitions, which are “performing well”.
In fact, VLG exited 2021 on a H2 proforma EBITDA run-rate of £7.9m (20% margin) on sales of £37.8m. More than underpinning analyst forecasts for this year, despite having to manage “unprecedented” supply chain challenges (eg RMs, packaging, etc).
Sure it may take a little while before things fully normalise - yet equally, customers are ordering much further ahead, providing VLG with robust visibility & margin protection.
What’s more the balance sheet remains robust. Sporting net debt (pre IFRS16) of only £3.2m (0.4x EBITDA) as at Dec’21 - which this set to reverse to £0m by yearend, reflecting the VLG’s favourable cash generation, attractive unit economics (40%+ GMs) & capex-lite model (re spare manufacturing capacity).
Indeed the Board’s aim going forward is to continue its “buy & build” strategy. Augmenting new products to the portfolio (re now 59%+ own brands vs 41% 3rd party), alongside delivering 10% pa LFL growth & another 10% from M&A. Here the company has access to a £50m RCF, available until Jun’24 subject to a 2.5x EBITDA drawdown limit.
Finally wrt valuation, at 35p the stock trades on an extremely cheap 5.4x 2022 EBITDA compared to typical OTC consumer firms at often >15x. Plus in Jan’22, Unilever offered GSK £50bn (equivalent to 20x EBITDA) for its much bigger, yet slower growing consumer healthcare division.
Not surprisingly therefore, astute investor Simon Thompson of Investors' Chronicle recognises the attractions - particularly vs his 100p price target & Singer Capital Markets' of 66p.
CEO Jerry Randall adding: "We enter 2022 with an order book comfortably ahead of that at the same time last year, on a like for like basis, which gives us confidence for the year ahead in how our customers will be performing. "
AGM in June.
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