Venture Life Group: Strong FY23 results and promising outlook amid private equity surge
Long criticised as asset strippers, private equity (and for that matter trade buyers too) have been feasting on UK smallcaps over the past 12 months.
So what's brought the 'Barbarians to the Gate' again? Well, current valuations are undoubtedly cheap, with many fund managers also willing to accept bids in order to meet redemptions.
Who will be next? Unfortunately, it's impossible to tell. Albeit I suspect () , a niche consumer healthcare products firm falls into the 'quality target' camp too - not only sporting a modest rating and high profit margins, but also generating robust cashflows and growing its economically resilient revenues.
What's more, healthcare is a fragmented industry that benefits from scale. Indeed, as 's top line expands further over the next few years, earnings should accelerate even faster. Plus, there’s an 'arbitrage' opportunity, where larger players command richer multiples than smaller ones - which is another reason for the recent surge in M&A activity (re roll-ups).
In terms of financials, this morning posted strong in-line FY23 results and another positive outlook reflecting solid demand (turnover +5.4% LFL to £51.4m) and improved operating leverage (adj EBITDA margins coming in at 22.5% vs 20.5% LY).
Additionally, most of this growth was driven by volume (+4.2% vs price +1.2%) - particularly relating to its own brands (eg Balance Activ, Lift and Earol), which climbed 9.3% LFL to £30.5m and now represent 59% of the group.
Going forward, there are lots of opportunities for further growth, such as increasing retail listings, new product development, online (FY23 revs +40.7% to £4.3m), private label (FY23 revs +26% to £2.3m), factory utilisation, and continued tight cost control.
Sure, this will involve greater marketing spend in 2024, which will temporarily compress margins as new products are launched. Yet equally, the fruits of this investment should accelerate growth and profitability in the years ahead.
Elsewhere, supply chains normalised in H2 (re lower inventory levels), helping reduce net debt to £13.7m (pre IFRS 16) - equivalent to 1.3x EBITDA and 1.15x in Mar'24 vs 1.65x (£16.6m) Dec'22 & 1.47x (£15.6m) in Jun'23. This came after paying the final £3.0m instalment for its £13m HL Healthcare acquisition in Dec'22.
This means 2024 is setting up to be another year of progress. Here Cavendish (TP 68p/share) are forecasting FY'24 sales, EBITDA, and adjusted EPS of £55m, £11.7m, and 5.5p respectively - in turn putting the stock on modest multiples of 5.4x EV/EBITDA and 7.2x PER, alongside delivering a double-digit free cashflow yield and closing Dec'24 with net debt of £9.2m.
CEO Jerry Randall commenting: "With a strong commitment to improving EBITDA margins, successful new product launches, and digital transformation initiatives, we are well-positioned for sustained success in 2024 and beyond."
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