Collagen Solutions is a biomaterials company developing and manufacturing medical grade collagen components for use in medical devices, in vitro diagnostics, and regenerative medicine. New leadership has formed a global commercialisation team and introduced a number of initiatives to build on the strong base business clearly visible in the 2016 results, and execute on a scalable growth strategy. COS is also establishing a pipeline of finished devices, such as ChondroMimetic, to add incremental value to the business. These initiatives are enhancing significantly the value of the company which is not being reflected in the current share price.
Under new leadership, strategy has been re-focused and a number of initiatives introduced to accelerate the growth opportunities. The strategy to move COS from a reliable collagen supplier to one that also has proprietary products will move it into profitability and cash generative at a faster pace.
Underlying sales growth for 2016, at +74%, was an exceptional performance and ahead of expectations that had been revised downwards in January given uncertainty surrounding year end contracts. This fell through to the bottom line with period end net cash also better than forecast at £2.4m.
Our DCF valuation has risen 16% to £54m or 32p per share on the back of these improved results. There are few quoted competitors that could be considered as comparator companies for valuation purposes. The closest, Innocoll, is developing proprietary products and commands an EV of £140m.
Timing of development and manufacturing contracts, supply agreements, customers’ regulatory delays, collagen sources and potential competition from alternate biomaterials. However, sequential half year sales growth and c.70% of 2017 sales secured, suggest that risks to forecasts have been minimised.
2016 was transformational for COS, the new leadership team has realigned strategy onto an accelerated growth platform, whilst maintaining core objectives. Investment in new opportunities (China JV and Orthomimetics) continues to build a pipeline of strategic relationships that should drive long term growth, whilst delivering short term financial objectives