aap should reach its FY15 guidance after a solid Q1 and distribution deals enabling a US launch of LOQTEQ in Q3. However, we trim our CAGR 2014-18e revenue from 15% to 12% and our valuation from €3.17 to €3.05 per share. An eventual sale of Biomaterials may prompt a re-rating of the fastgrowing trauma business
aap’s Q1 trading was solid: group revenues rose 16% to €7.1m, of which Biomaterials' portion grew 23% to €4.4m and LOQTEQ soared by 45% to €1.7m. This was balanced by LOQTEQ’s cannibalisation of other Trauma revenues, which declined 27% to €0.8m. aap expects LOQTEQ to grow by c 25% in FY15, helped by the planned launch in the US and possibly Brazil in H2. Also, aap is working to raise delivery capacity and reduce production costs. This should enable it to meet its financial guidance of €33-35m revenue and €2.5-3.5m EBITDA in FY15e and to grow revenues and profits considerably in FY16e.
aap has signed US distributor agreements, paving the way for launch of LOQTEQ in six states in Q3. In addition to these non-stocking distributors, it plans to engage stock-carrying intermediaries, which we believe will yield a more immediate sales contribution. Further, aap’s position has been reinforced in recent months by intellectual property awards in Europe for LOQTEQ, the antimicrobial silver and the resorbable magnesium technologies, mirroring previous awards in the US.
While the sales process stalled in Q1, aap still aims to sell the Biomaterials division. We estimate a sale could raise €35-40m (8-9x EBITDA). The resulting cash could be deployed to bolster Trauma (acquisitions and organic growth) and to repurchase shares for up to €3m pa (10% of subscribed capital). Also, being focused on IPprotected trauma products may make aap a more attractive acquisition target.
We have trimmed our sales estimates, due to a more paced roll-out of LOQTEQ and its stronger cannibalisation of other Trauma sales, and our profit forecasts as a result of expected higher depreciation charges in FY15e and FY16e. Based on a DCF, we reduce our valuation from €97m to €94m or €3.05 per share. An eventual sale of Biomaterials may crystallise €3.42 per share.