First half results to 30th September demonstrate clear progress against the Board’s objective of creating a business with at least a £100m valuation by 2020. Proforma sales growth of 97%, driven by new customer contract wins and by pipeline progress from existing customers’ medical device programmes. The potential for operations in China (via joint venture) and the development of a new production facility for a global device manufacturer are both in late stage discussions which would underpin longer term growth, if successfully executed. The long term pipeline continues to build with strategic collaborations.
Results benefited from the inclusion of the SLB acquisition, (Dec 2014), driving sales to £1.46m (£0.14m) although strong performance was also reported in the heritage business. A LBITDA of £79k was reported. Net cash outflow of £0.2m due to phased capex resulted in net cash of £3.1m.
The market has often questioned the likelihood of meeting what are quite demanding growth expectations but evidence to date suggests that Company is on track. On a proforma basis assuming SLB inclusion in prior periods, sales growth was 97% and 38% on half yearly sequential basis.
Our DCF valuation remains unchanged at £73m or 39p per share. Whilst this is driven by the terminal value, which itself, is dependent on achieving year 5 free cashflow of c.£5.5m, the trajectory of travel in these results, together with the potential pipeline, provides us with confidence.
Exact timing of development and manufacturing contracts and supply agreements remains uncertain, but recurring revenues do exist. Regulatory delays for client products remains a source of risk. Route to Chondromimetic commercialisation is currently in early stage planning.
The Board’s objective is to create a £100m business by 2020. We have not changed our forecasts for the current year and beyond. Not only has the company described two significant new opportunities (China JV and new dedicated collagen production facility) but it continues to build a pipeline of strategic relationships that should underpin and drive long term growth, whilst retaining a clear focus on delivering short term financial objectives.