As aap gears up for a US launch of LOQTEQ in H2, its FY15 guidance looks attainable. As expected, Q2 trading was soft, reflecting the lumpy orders in Biomaterials. Taking into account the combined effect of €5m lower net cash and rolling forward, we trim our valuation from €3.05 to €2.96/share.
As anticipated, aap’s Q2 trading was affected by weak orders in the high-margin Biomaterials business, which has grown strongly during several recent quarters. Group revenues shrank by 20% to €6.5m, driven by a 34% decline in Biomaterials to €3.2m, partly offset by LOQTEQ revenues rising 15% to €2.0m. LOQTEQ’s recent cannibalisation of other Trauma revenues stabilised, resulting in a 9% rebound in other revenues to €1.2m. Both group revenues and EBITDA of -€0.8m (including €1.5m non-recurring costs due to the planned sale of Biomaterials) exceeded company guidance for Q2 of €5.0-6.5m and -€1.0-1.5m, respectively.
Appointed distributors are due to launch LOQTEQ in six US states in Q3 with more significant sales expected in Q4. aap is building stock (+€2.1m y-o-y in Q2 also in anticipation of a strong Q3 in Biomaterials) and is hosting product training courses for the employees of the new distributors. Moreover, management is strengthening in a targeted manner the US product management and distribution teams.
aap expanded its LOQTEQ portfolio in Q2 to include a radius system with variable locking technology and plates with polyaxial locking technology. Further, it is developing a foot and ankle joint plate system and aims to launch a periprosthetic femoral plate in H2. It intends to submit its antimicrobial silver coating technology for CE-marking by the end of FY15. While still opportunistic about a divestment, it has identified new expansion opportunities within high-margin Biomaterials.
Based on a DCF, we reduce our valuation from €94m to €91m or €2.96 per share. The change reflects the €5m reduction in net cash since the start of the year, partly offset by rolling forward our valuation. An eventual sale of Biomaterials may crystallise €3.26 per share (reduction from €3.42 due to lower net cash), based on assumed net divestment proceeds of €35m.