PBP - Probiotec

[Footsie]

This stock is underreasearched and un-loved.

Current EPS guidance is for 30% growth.

However, run rate to date is 112%. Guidance is expected to be revised at the half year.

This company has the potential to go from $1.45 to $5.00 in 18 months.

Current p/e is 13x assuming 100% eps growth FY08 p/e is <6.6x

Pengana... Aussie's best small cap manager have just gone sub with a 6% stake.

Watch this space.

[macduffy]

I'll second that, Footsie! I bought a few at $1-33 recently.
They manufacture and/or distribute some well known pharmaceutical brands - Milton, Lomotil etc. Plenty of info on their website.
A small company which is gradually shifting from contract manufacturing to higher margin business in its own brands.

[Lizard]

I have a few of these too. Just a few though - I'd like to see the free cashflows improve, especially on current balance sheet. Considerable "investment" in brands etc over past year.

Also, lots of inventory said to be buoyed by pipeline fill on Celebrity Slim launch - not sure what the shelf-life is on that product, but I imagine it will be towards the shorter end?

[Footsie]

celebrity slim is selling like hot cakes. Go to your nearest radius pharmacy. Ask them. U will probably find them out of stock.

Cashflow. Wait for the half yr. ! I haven't been this confident about a stock since abano . I have shifted a large chunk of my portfolio into pbp

[thereslifeafter87]

I agree re the potential of Celebrity Slim. You should see the bulk stacks in the Priceline pharmacys in Aussie. It has as much space as the rest of the diet products combined!

Also, a salesgirl at radius in queen st told me she'd lost 2kgs on the programme in the last week and said it's selling fast.

The issues I have with PBP are:

1. The high debt levels

2. The quality of earnings - product development costs are capitalised, meaning increasing present earnings at the expense of future earnings. I would say this is done so that the company is not in breach of EBITDA or NPAT based banking covenants.

3. The continuing spectre of a large legal liability that will put a big dent in cashflows and result in an increase in gearing for an already highly geared company.

[macduffy]

Yes, its difficult to quantify the extent of the potential legal liability but from what I can work out, its now a matter of costs, against which the co and its co-defendants are appealing, the damages cost having already been provided for in the accounts and paid. Can anyone confirm or advise?

At the AGM it was stated that Sales are +40%, EBITDA +63% and NP +113% for the 4 mths to 31/10/07, compared with the corresponding 2006 period, but I note that the previous NP forecast of +30% for the year still stands. We wouldn't expect a revision to that figure after only 4 mths but, as noted, the half year result will be eagerly anticipated.

[Footsie]

upgrade will come at half yr. Bulk of earnings comes in 2nd half. So too early to upgrade full yr.

Ppl you are talking about a company with potentially eps growth of 100% and fwd pe of 6 something. This wont last. Pengana funds are smart and theyhave gone sub. This is going to be the small cap story of 08.

Legal issue may amount to nothing

[Footsie]

January will be a good buying month i think for those who have guts.

PBP incredibly cheap. wont stay that way forever.
The market always flushes out inefficiencies.

[tommy]

Bummer, I had been picking up PBP lately under $1.20 but the latest announcement caused a bounce! Good news for PBP before half year results due to be released soon...


11 February 2008
Probiotec Appeal Successful


Probiotec Limited has made previous announcements (on 15 March 2007, 16 April 2007, 20 April 2007 and 24 May 2007) regarding its potential liability in a legal action referred to as the Phoscal Claim. In April 2007 three Probiotec group companies were ordered to pay the legal costs of the claimant in the proceedings. As previously advised, Probiotec appealed the decision and also commenced proceedings against its former legal representatives to recover all moneys payable as a result of that judgment.

The judgment in Probiotec's appeal was delivered on 8 February 2008. Probiotec was successful in the vast majority of its claims. The effect of the appeal judgment is that it has reduced Probiotec's liability from 100% of the claimant's legal costs to 10% of those legal costs. The claimant has also been ordered to pay Probiotec's legal costs of the appeal. Any appeal by the claimant must be commenced by 7 March 2008.

Probiotec's preliminary assessment is that its liability (which is yet to be quantified) under the appeal judgment will be for an amount estimated to be in the range of $50,000 - $350,000. This is a substantial reduction from the previous estimate of legal costs under the original order of $2.1m - $5m.

Probiotec intends to continue with its proceedings against its former legal advisers. It considers that it is likely to recover the majority (if not all) of the amount it pays under the revised judgment through this action.

Probiotec will advise the market immediately once a definitive amount is determined that the
company is required to pay as a consequence of both its successful appeal and the results of the action against its former legal advisers.

About Probiotec
Probiotec Limited is a brand owner, manufacturer, marketer and distributor of a range of
prescription and over-the-counter (OTC) pharmaceuticals, complementary medicines and
specialty ingredients. The company owns four manufacturing facilities in Australia and distributes
its products both domestically and internationally. Products are manufactured by Probiotec for
both its own products and on behalf of others, including major international pharmaceutical
companies.

[tommy]

Yeah baby, NPAT up a big fat 73%!!!! EPS up 62%!!!!

http://sa.iguana2.com/cache/75a6c223a54cf2f32b08af7fe003902c/ASX-PBP-196878.pdf

Sales Revenue UP 38.7% to $32.81 m
EBITDA UP 39.9% to $5.52 m
NPBT UP 69.5% to $3.50 m
NPAT UP 73.0% to $2.46 m
Earnings Per Share UP 62.7% to 5.29 cents per share

Plus 1c maiden dividend declared

Read da presentation:
http://sa.iguana2.com/cache/732537b91553b545e01c8c477ca3d0c8/ASX-PBP-196879.pdf

Wonder why they didn't upgrade full year forecast?

[Footsie]

Mgmt is very conservative....
Which is good in times like this.

+ bulk of $$ come in 2nd half so expect the upgarde to come as soon as they are confident its in the bag.

surprised it hasnt rallied more.

[tommy]

mmm, potentially bad news, further update needed on this one. I sold out of PBP after this news... good luck to holders.

CLAIM AGAINST SUBSIDIARY

Probiotec Limited (“Company”) advises that one of its subsidiaries has received a claim (“the
claim”) from one of its customers, Pfizer Australia Pty Limited (“Pfizer”).

The claim arises from a recall of product manufactured by the subsidiary using a raw
material which the subsidiary subsequently found to be counterfeit and the subject of a
forged certificate of compliance. The subsidiary informed Pfizer of those circumstances
when it learned of them. The presence of the raw material did not give rise to any health or
safety issues. The subsidiary acquired the raw material from a reputable Australian third
party supplier specifically approved by Pfizer to supply the material. It was this approved
third party supplier who provided the certificate of compliance in question.
The Company has taken legal advice. Its board believes that its subsidiary has strong
grounds to defend the entirety of the claim and the subsidiary will strenuously defend the
claim. Solicitors, senior counsel and a barrister have been appointed to represent the
subsidiary.

The third party supplier of the raw material has been informed that the subsidiary will be
bringing a cross claim against it to recover from that supplier any amount for which the
subsidiary might be held liable to Pfizer, along with its legal costs. The Company is confident
that the subsidiary will be held entitled to fully recover those amounts from the supplier.
The claim does not quantify the damages sought. The Company’s assessment is that the
limit of any exposure the subsidiary could be found to have is $3 million. The Company
believes that any such amount will be held payable by the third party supplier. Having
considered all relevant information presently available, the Company’s board considers that,
in their final outcome, these proceedings will not result in a material payment by the
subsidiary, or by any other group company.

Further updates will be provided to the market as more information becomes available.

[tommy]

3 mil equates to about 6c per share. Shares dropped by that much at one stage today,
too much of an over-reaction imo.

Big buyer of almost 1 mil shares just appeared on market thinks so too.

What I am worried about is NOT ONLY the potential damages (legal costs and damages claimed) BUT ALSO loss of sales (revenue!) in terms of clients taking their business to someone else (Pfizer and some other customers who may suspect quality control at PBP).


Anyway, "The subsidiary acquired the raw material from a reputable Australian third party supplier specifically approved by Pfizer to supply the material" so I hope they will be able to resolve this matter amicably. In the meantime, I have better use of my capital in other areas :-)

[Footsie]

who is the mystery 1m bidder?

will be interesting to see over the next few days if they are real.

PBP is a good cash earner and a potential takeover target...

contracted revenue is low margin and they are now focusing on own branded good high margin and export.


Happy to hold.

[The Big Ease]

30&#37; down from its peak after a 73% increase in earnings.
is the claim the only thing hanging over this stock?

[Footsie]

Its still the last of the Opes stock

OPes had over 800k..... and for whatever reason its taken them this long to get it out.

I THINK.... that might be the last of their line.....


Saw a big display of Celeb slim in an NZ pharmacy today.... Im told its selling well
Certainly if you read about it on the blogs.
http://www.productreview.com.au/showitem.php?item_id=48944

[macduffy]

Its still the last of the Opes stock

OPes had over 800k..... and for whatever reason its taken them this long to get it out.

I THINK.... that might be the last of their line.....


Saw a big display of Celeb slim in an NZ pharmacy today.... Im told its selling well
Certainly if you read about it on the blogs.
http://www.productreview.com.au/showitem.php?item_id=48944


I think you're right - the Opes holding has had a big, depressing effect on a very thinly traded stock.
Under continuous disclosure, any bad news should have been announced by now?
At least today's quotes are a little firmer.

[Footsie]

I still think 100 110 120

who cares...... its the value in 3 years..... right of $3.00+

[The Big Ease]

my concern is more around the general sentiment in the consumer market, rather than the company itself.
it looks shaky beyond the next 3-6 months.

inflation is going at a cracking speed. the rba has left rates in the belief that this is the peak before it moderates to acceptable levels. if they are wrong, which they have been in a few instances recently, it will require another couple of taps on the brakes. i think we are at the threshold of what people can cope with.

pbp is at full speed growth, good strategy and seemingly executing very well.
cant ask for more than that!

$3.00 easily within 2 years.
they could get that with this year's growth in earnings and a reasonable PE re-rating to 15.
but i still have this nagging doubt in the back of my mind.

[thereslifeafter87]

Any re-rating on a PE basis will depend on how much they are frontloading earnings by capitalising product development costs (not disclosed in the HY). They've done this in the past to make NPAT look better than it is, and probably also to comply with banking covenants.

At some point those capitalised costs need to be amortised (assuming celebrity slim isn't a runaway success forever).

[The Big Ease]

i also follow pme, though not invested atm.
they used to treat all rnd as an expense but have been forced to capitalise much of it due to accounting regulations (?) is this related to IFRS/sarb-ox.

good point tla87.

[Footsie]

TLA 87

IF that were the case then they wouldnt have such a good cashflow.

This company has the best +ve cashflow i have seen in a small cap.

[macduffy]

I see that director Maurice Van Ryn has bought another 5,000 shares bringing his holding to 337,502.
Only a small transaction but at least its a sign of confidence in the company.

;)

[Footsie]

least he is not selling!

[macduffy]

Turnover in PBP has slowed to a crawl this month, 112,000 shares traded so far!
At least M/D Maurice van Ryn shows his faith in the company, declaring the purchase of another 10,000 shares on market. Let's hope it's a sign that the company is travelling well, albeit under the radar.

;)

[macduffy]

Being thankful for small mercies, I note that PBP is the only Aussie stock on my watchlist ( and in my portfolio ) which is in the green today. So far, at least!

:)

[thereslifeafter87]

TLA 87

IF that were the case then they wouldnt have such a good cashflow.

This company has the best +ve cashflow i have seen in a small cap.

You should check out RFG and RCG then.

But more on point, the cashflow is less than earnings because of the capitalisation of product development costs.

At some point this capitalisation will have to be amortised, then earnings will drop. That point could be a long way off though.

[macduffy]

Trading update from PBP. All positive!

- Sales revenue up 32.3% in four months to 31 October.

-Solid gross margins being maintained.

- Strong order book for November and December 2008.

- Forecast of at least 20% growth in NPAT for FY2009 re-confirmed.

;)

[macduffy]

Managing Director Maurice van Ryn has bought another 25k shares on market.

I've still got mine!

;)

[macduffy]

It looks like the 73% increase in half-year profit is beginning to be noticed. Another strong performance by PBP today.Up another 6.2% to $1-89.

:cool:

[macduffy]

Not too many seem to be watching this stock.

NPAT up 41% in another strong performance.

SP now $2-45!

;)

[macduffy]

Not too many seem to be watching this stock.

NPAT up 41% in another strong performance.

SP now $2-45!

;)

Probably the most impressive aspect of this result is that Probiotic have increased their Gross Margin to a heady 50.8%!

Can any company beat that?

;)

[Footsie]

under continuous disclosure these guys should get a slap on the wrist.
they forecast profit growht of at least 20% and did 41%

That's more than the +/- 15% from forecast. and they didnt disclose. Thats part of why i sold out......

I was thinking EPS of 15c and they did 19c

so Not holding personaly at the moment. shame.

good story. I'd like to buy back in on any weakness.

I note they have said the same for 2010... at least 20%..... they have made this statement 3 years running now!!!!

[macduffy]

Fair point there, Footsie.

Still, it's nice to see a company being conservative in its forecasts and then beating them handsomely.

;)

[macduffy]

A disappointing announcement from PBP today to the effect that they are raising new capital by a placement to institutions at a discount to the current SP.
Directors and senior management are also selling down a portion of their holdings in the placement.

This disregard for other shareholders is becoming too prevalent these days. Might have to re-think my interest in PBP.

:(

[macduffy]

PBP came out with an impressive interim today - at least on the face of it.

But the NPAT of $6.2m - up from last year's $4.2m was boosted by Other Income which included "Loans Foregiven" of $4.089m. While this was disclosed in the Notes to the accounts there was no further explanation or mention of it in the commentary.

So I'm out of PBP today. One too many question marks as far as I'm concerned.

:rolleyes:

[Footsie]

As usual

all the information was in the price

A question for phaedrus would have been when would the sell trigger have first occured.

probably way back when the CEO sold down....
or the last signal was a break of the uptrend at the beginnig of jan.

[Phaedrus]

As usual all the information was in the priceYup. That's dangerous, provocative TA talk Footsie!


When would the sell trigger have first occured......The Bearish divergence was the first indication of weakness. Some might have sold on that alone, but generally it is best to wait for confirmation before acting.


....probably way back when the CEO sold down.....So, that huge red spike (depicting "smart money" getting out) was the CEO!!!!! How smart was that! Anyone seeing/knowing this and doing nothing should not be surprised at their subsequent losses. This sale also broke the OBV trendline giving another sell signal, but I have lumped both together as number 2.


The last signal was a break of the uptrend at the beginnig of Jan.Not really. Use of the usual logarithmic price scale brings that trendline break forward more than 2 months to October. The last signal shown here was number 6 - the Slow stochastic Oscillator which fired on 3/11/09 giving an exit at $2.46. The first 5 signals gave much higher exit points, averaging over $2.60.

http://i602.photobucket.com/albums/tt102/PhaedrusPB/PBP218.gif

[Footsie]

Thanks
its amazing how on the small stocks the smart money is often a major trigger time and time again. obviously information leaks to the large "smart" holders

how do you know whether to use linear or log?

[Phaedrus]

How do you know whether to use linear or log price scales?First choice should always be log. Very occasionally linear is better if it gives more points of contact. Over small price ranges it makes little or no difference either way.

[drillfix]

First choice should always be log. Very occasionally linear is better if it gives more points of contact. Over small price ranges it makes little or no difference either way.

Hi Phaedrus,

When you say occasionally, in what reference do you mean, on daily, intra-day, weekly etc? or can you advise what actually is the benefit of each one?

[Phaedrus]

Always use a log price scale unless a linear one gives more points of contact. This doesn't happen very often.

Stocks in a linear uptrend give a straight trendline with a log price scale.

Stocks in a decelerating uptrend give a straighter trendline with a linear price scale.

[drillfix]

Thanks Phaedrus,

I checked it out to see the difference but I only seem to see the candles becoming smaller when choosing Log, plus the change seems to shift all the candles up or back down on a chart when toggling between the two.

[Phaedrus]

The choice of a linear or log price scale can make a very big difference, Drillfix.
Here is the PBP chart using a linear price scale.
See how the trendline has fewer points of contact than the log chart one. (More points = better)
The linear chart trendline break was nearly 2 months later and quite a lot lower than that of the log chart.
Instead of being at number 4, right in the middle of many other indicator signals, the trendline break came in at number 7, well after all the others and last by a long shot.

The downtrend continues. They have a nasty habit of doing that.

http://i602.photobucket.com/albums/tt102/PhaedrusPB/PBP224.gif

[drillfix]

Thanks again Phaedrus~!

[thereslifeafter87]

PBP is potentially looking cheap now. They expect significant revenue uplift this year as they have added a number of new distribution points for their products in the UK, will get the full impact of their asian distribution, and have acquired a number of new brands - as well as the 50% of Celebrity Slim they did not already own.

Issuing shares in the high $2 has turned out to be a brilliant play, but their performance since then has definitely not endeared them to institutions who are probably behind the sell down to around 92c now.

It looks very attractive on a forward PE basis.

[COLIN]

PBP is potentially looking cheap now. They expect significant revenue uplift this year as they have added a number of new distribution points for their products in the UK, will get the full impact of their asian distribution, and have acquired a number of new brands - as well as the 50% of Celebrity Slim they did not already own.

Issuing shares in the high $2 has turned out to be a brilliant play, but their performance since then has definitely not endeared them to institutions who are probably behind the sell down to around 92c now.

It looks very attractive on a forward PE basis.

I did hold some of these at one stage, and waited too long before I ditched them 6 months ago when it seemed apparent that they were on a very slippery downward slope. And the pace of that decline has not abated since. The chart looks horrible, and there are twice the number of sellers v. buyers. The fundamentals may look encouraging but the market isn't confirming that. The lights are still a vivid red, I'm afraid.

[thereslifeafter87]

Yeah, it could definitely fall more before it rises. Companies tend to perform badly for around a year after they release a profit warning, then significantly outperform the market from that point. I'm expecting something similar from PBP.

[Lizard]

In my view, PBP reporting has not been particularly up-front. At the very least, I would say they have not communicated clearly to shareholders as to major items affecting performance. At the worst, devious. I only traded them briefly at one stage, but was a bit wary of them then and now more so. I'd prefer to see a change in management before I'd trade it again, but agree that it is probably worth keeping an eye on at these prices.

[thereslifeafter87]

I think there's an argument that they were caught by surprise when the initial order from the UK wasn't repeated. They probably didn't have visibility on the level of sell through achieved at the time of their half-year results. That was the major item that impacted results.

My thesis is that they had a shocking 2H09 that is unlikely to be repeated this time around. I think the massive sell-off has given rise to a potentially attractive entry point.

[steve fleming]

Has been trading around 30c since the poor half yearly (m/c = $16m), a fair way back from $2.75 it reached a few years ago.

While FY13 will be a bit of a transition year, FY14 should be a significant improvement, particularly with the benefits of the improved ASP plant as per below.

"The upgrade and re‐establishment of the ADP Protein Plant remains on schedule with the construction phasecompleted and with plant commissioning underway. The commencement of commercial operation isscheduled for the beginning of the June quarter this year. The directors remain confident that the previouslyreleased forecasts for ADP of EBITDA of $1.8 million in the first full year of operation increasing to $4 millionin future years, will be met. With a total investment in excess of $18 million, the directors believe this plantwill deliver consistent, strong financial returns and provide the foundation for a pipeline of innovation,research and product development centred around a range of dairy proteins and their therapeuticapplications. "

[Stranger_Danger]

This one is high on my watch list too. I can't feel any trust for the directors and can't see a short term catalyst, which is all that is stopping me really.

[DarkHorse]

I recently topped up my holding - good growth, defensive sector, low valuation and now takeover interest:

Small-cap Probiotec Limited, which provides contract manufacturing services to global bigwigs like Pfizer and L’Oréal, is fielding interest from suitors keen to assess whether it’s worth taking the company off the ASX boards.
https://static.ffx.io/images/$zoom_1.042%2C$multiply_1%2C$ratio_1%2C$width_378% 2C$x_29%2C$y_177/t_crop_custom/c_scale%2Cw_220%2Cq_88%2Cf_auto/f5424e92066f06ea41518a4937fe00311b0ae584Artist impression of the new Probiotec warehouse that Frasers and Aware will build in Sydney.
Street Talk can reveal Probiotec has had Melbourne corporate advisor Canterbury Partners quietly vetting M&A options for the business. Sources said the company received an unsolicited approach and had decided to parlay it into a traditional process.
The tyrekickers were understood to be private equity types rather than strategics. It was not known who was on the scene after Canterbury called for non-binding indicative bids last week.
Probiotec chair Jonathan Wenig declined to comment on Canterbury’s appointment when contacted by Street Talk on Sunday, “We have a very good strategic vision for the company and business,” he said.
The company was founded in 1997 and listed on the ASX nine years later, in 2006. Its founding family, the Stringers, are still involved in day-to-day operations and control nearly 20 per cent of the register, making them pivotal to any attempts to acquire the company.

Probiotec runs six facilities in New South Wales and Victoria that provide full-service contract manufacturing and packaging services across six product categories: pharmaceuticals (prescription as well as over-the-counter), vitamins and supplements, veterinary products, cosmetics, food and beverage and pet food.
https://static.ffx.io/images/$width_620/t_resize_width%2Cq_88%2Cf_auto/d1f966c39d4d36db4a6227e1e8633daab20f23d6It has more than 200 clients on its books ranging from alcohol brands like Asahi and Diageo to blue-chip pharmaceuticals like Pfizer and Sanofi.
Under pressureAll of that added up to first-half revenues of $106.8 million and $17.8 million EBITDA. Its margins have been hit over the past two years by higher input costs (labour, freight and energy), but it has beat forecasts, reduced leverage to 0.75 times on a net debt-to-EBITDA basis and consolidated facilities.
The group is trading at 13.26 times on a price-to-earnings basis and has a market value of $195.2 million. The shares last closed at $2.40, up 6.19 per cent in the last 12 months.



Should the interest firm up into a binding bid, it would spell a big payday for Probiotec founder Wayne Stringer, who’s holding on to 10.85 per cent of the company 26 years after he set up the business. Its chief executive officer, Wesley Stringer and chief financial officer Jared Stringer own 5.98 per cent and 3.89 per cent respectively.
Also on the register are fund managers Perpetual Limited (5.1 per cent), Pie Funds Management (5.08 per cent), Copia Investment Partners (4.21 per cent) and Wilson Asset Management (1.46 per cent).
Interestingly, Canterbury’s mandate is said to include identifying acquisition targets. Probiotec has made a handful of bolt-on acquisitions, including the $52.5 million purchase of contract packer Multipack-LJM in 2020.