YPB Group (YPB) combines patented anti-counterfeiting technology with security packaging solutions, consulting and forensic services to help businesses protect their brands from the risks of counterfeiting and product diversion. The company recently completed a A$4.54m share placement and provided guidance to the market for FY17 profit before tax of A$5m. We have incorporated this guidance and the effect of the share placement into our forecasts, resulting in a 24% upgrade to our FY17e PBT to A$5.4m. Our DCF valuation is A$0.43/share (A$0.44 previously) following the upgrade and after incorporating the additional 18.91m shares in issue.
YPB announced on 19 May that it expects to reach cash flow break-even by end Q117 and deliver profit before tax of A$5m for the year ending 31 December 2017. This is the first time the company has given guidance for FY17 and follows a spate of successful contracts for the group, the latest being a memorandum of understanding to supply its technology to global packaging group Orora, a A$1.2m three-year supply contract to Comtech Solutions for New Zealand exports to China and the fourth Mexican contract through its Affyrmx JV. YPB noted that its forecast was achievable across a range of revenue outcomes due to the flexibility of its costs base. A key assumption of the profit guidance is that the company would have sufficient access to capital until it reaches break-even and is self-sustainable.
The company has bolstered its cash position with an 18.91m share placement at A$0.24/share to raise A$4.54m (before expenses) to accelerate conversion of its business opportunity pipeline into recurring revenues, expand into new markets and enhance its solutions suite through R&D investment. The A$4.54m share placement, announced on 24 May, was oversubscribed, we understand, by at least A$500,000, and was supported by both existing and new shareholders, including six new institutional investors.
Our DCF valuation is A$0.43/share (previously A$0.44/share) after incorporating the profit upgrade and the impact of shares issued. On the same basis, and after including the future value of in-the-money options, YPB is trading on FY16e EV/sales of c 2.7x (or 3.4x excluding the value of options) and FY17e EV/sales of c 1.1x (1.4x), which compares to the 12-month forward EV/sales multiple of 2.9x of its listed peers.