The shares are down by a couple of pence at 72p-75p. The press release was long, verbose and not well crafted. As a loyal shareholder, I found a long chat with boss Steve O’Hara far more constructive. Optibiotix (OPTI) has never been in a better place and thus its shares are very cheap and a strong buy...
Full year sales for the period to November 30 came in at £514,000 but of that £434,000 came in during H2. That is the nature of this beast. The company has now got more than 30 sales and distribution partners signed up and it knows that some will not deliver much, some will be good performers and some stars. But until they start delivering it is hard to know which will be which. The point is that as time progresses more start to come onstream making orders and those who are onstream make larger and larger orders. Meanwhile, the company’s own direct to market web operation launched last Autumn is already, according to O’Hara, generating monthly sales of £12,000 and that number grows at 10% per month (margins 85%).
In terms of costs, some bears have looked at the headline number of £1.85 million for last year. But they ignore the fact that Optibiotix must, for accounting reasons, account for its equity share of the Skinbiotherapeutics (SBTX) losses and also that there are a raft of non-cash items. The underlying cost base at Optibiotix remains static at c£1.1 million per annum. So what can we expect in this year? Firstly there will be more distribution deals announced. O’Hara targets two a month. More importantly, more of the deals already signed will either start to kick in or see a material ramp up in orders which will deliver sales with a 95% gross margin to the company. O’Hara insists there will be a very material ramp up in FY sales from the levels seen in H2 last year. And that means that the company will report a profit this year, the only issue is how big will it be? Year end cash was, including VAT recoverable and R&D tax credits, £1.67 million and the post period end fund raise at the Probiotix subsidiary adds another £800,000 to that so cash is clearly not an issue – a point made somewhere in the war and peace length statement.
When will the really big profits kick in? Last July, O’Hara stated that within 2-3 years profits will be £7-10 million. Does he still stand by that? Yes he does and explicitly so. He has delivered on everything he promised last July and continues to do so and so I have no reason to doubt that two to three year profits forecast. Put such profits on a PE of 15 (not generous for such a growth story) and you get a share price of 200p or more. What will drive a re-rating? I suspect larger deals with numbers attached is the key and they will come this year. The stance at up to 90p is strong buy.
Filed under: Optibiotix, MRS, John Zorbas, Bearcast, Bould Opportunities, Zytronic, Echo Energy
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