AFT Pharmaceuticals

[trader_jackson]

The first time AFT has showed its operating profits as well (slide 9), it is good to see a return to profitability, and a very strong uplift of nearly possibly 100% growth on operating profit in the next year.

We all knew it was going to be operating cash flow positive as well - so nice to see this (and again, this will only continue to grow bigly).
Nice to see also that they have shown they can keep virtually all expenses under control - achieving 14% underlying top line growth, whilst keeping costs of goods sold, selling and disti expenses and admin expenses under control (in fact, they have reduced them) is very impressive.

Good underlying revenue and profit growth, although people might get not so excited when they look at actual profit growth of 5% (and don't bother reading any further). 'Other income' payments should also grow strongly.

Rest of world growing strongly as well - in fact looks like countries outside of aussie and NZ will be the real drivers of growth going forward, as I previously mentioned on this thread.

Finance costs was a killer, in fact if they had a similar finance cost as FY18, they would have made a NPAT of $4m ish. I believe debt has been a concern previously for AFT, and it is great they now have the cash flow/good feeling to make a separate announcement to go out to local banks and get an interest rate at probably half what they are currently paying (13.5%).

It would not surprise me to see AFT make a NPAT of $10m in FY20, putting a growth company on a PE of 26x in FY20, and probably a PE of 10-15 in FY21 - not that bad given the strong growth earnings growth ahead.

Then in FY22 when NPAT is $30m+, the founder might be ok with selling out at $5 a share I certainly wouldn't mind my investment doubling ish in the next 3 years, might get a dividend then as well.

In conclusion, if you couldn't be bothered reading the above, or anything related to AFT, the headline says it all: AFT Pharmaceuticals poised for strong earnings growth

[petty]

Hi Team,

Ive been in and then out of AFT at a small gain. I'm keen to understand how you can value this as a growth company with only 5% uplift in revenue? The operating earnings seems to be driven by reducing costs (R&D). A business cant continue to reduce cost year on year and so Id expect further earnings gorwth to come through increases in revenue. I didnt see alot there in terms of slid increases in revenue over the next couple years?



Appreciate your insight into this ?

[trader_jackson]

Hi Team,

Ive been in and then out of AFT at a small gain. I'm keen to understand how you can value this as a growth company with only 5% uplift in revenue? The operating earnings seems to be driven by reducing costs (R&D). A business cant continue to reduce cost year on year and so Id expect further earnings gorwth to come through increases in revenue. I didnt see alot there in terms of slid increases in revenue over the next couple years?



Appreciate your insight into this ?

The 'muted' 5% actual revenue growth was largely because they divested a product line fairly recently... in the future, operating revenue will likely grow at about 15% (underlying revenue growth - ie growth when excluding the now divested business was 14% in FY19)... it is very impressive that they are able to growth revenue at double digit rates, yet reduce expenses (in reality, it would even be ok if expenses grew - just as long as they grew less than revenue)

Operating profit in FY20 of up to 12 million (a 100% increase from FY19!) won't be achieved by cutting costs that is for sure.

So they are not just growing the bottom line by reducing costs, although this is unfortunately what alot of companies are having to do in this low growth environment I suppose.

[trader_jackson]

This was posted by me nearly exactly 2 years ago... wow my FY17 and FY18 forecast weren't bad (ended up being $69.2m in FY17 and 80.1m in FY18 operating revenues)

What I certainly didn't forecast was AFT share price dropping to its lowest point ever, despite my forecast (if true) showing a doubling in gross profits in just 4 years... someone was clearly very keen to get out, although the reason is not entirely clear why (it wasn't an insider selling as this would have been disclosed already).
Speaking of insiders, wow the board of AFT has been rock solid, nobody coming and going, just solid and steady management.

Anyhow, now to FY19: What I was also a bit off on was my FY19 forecast... $100m operating income likely a bit optimistic... I'll be expecting this in FY20 for sure (+ a significant portion of other income it has been indicated, which maybe several million additional income for FY20)

What I'd like to see in a months time when FY19 is announced:
- FY19 Operating Revenue of $88m, total Income around the $90m mark.
- Gross profit of $42m (wow that would be double what it was just 4 years ago - can't fault a company for doubling profitability every 4 years)
- Underlying operating profit of a few million
- Operating cash flow positive
- Bonus: first NPAT (not ever, AFT has been profitable for years and years) but a first NPAT as a listed company

What I say when FY19 was announced earlier today:
- Operating Revenue was $85.1m, total income was $87.4m - not too far off my numbers above
- Gross profit was $40.7m, again, in the ball park
- Underlying operating profit of $6.1m - was about double what I expected
- $1.1m Operating cash flow positive - another tick
- Bonus: first NPAT - would have been an NPAT had finance and interest costs not quadrupled from the prior year

So I am fairly pleased, and a further bonus was seeing them address the finance and interest costs 'issue', and providing operating profit guidance for FY20 - the first time they have done such thing.

I look forward to enjoying some caramel slices in August at the AGM in Milford.

[BlackPeter]

Quite of lot of positive numbers this year eh t_j

Pretty good ....but not exactly stellar for a company with $0.25 billion market cap.

Share price might be hyped up to $3.00 plus on this though

http://nzx-prod-s7fsd7f98s.s3-websit...841/300213.pdf

Well ...

If we ignore all the hype about the future - revenue growth was less than analyst consensus (is 85.1m vs 88.9m expected) and loss was larger than analyst consensus (is 3 cts/share loss vs an expected loss of 1 cts / share).

Balance sheet is a shocker: Total liabilities $58.5m; total assets: $63.6m; That's an equity ratio of 8% (or a debt ratio of 92%: - I guess this ratio would be ok for a large bank, but for a manufacturer?

Did I forget to mention that they have as well roughly $8.2m intangibles on the balance sheet? if we remove them, than their NTA is negative.

Maybe a bit too early to start the victory dance ...

[winner69]

Well ...

If we ignore all the hype about the future - revenue growth was less than analyst consensus (is 85.1m vs 88.9m expected) and loss was larger than analyst consensus (is 3 cts/share loss vs an expected loss of 1 cts / share).

Balance sheet is a shocker: Total liabilities $58.5m; total assets: $63.6m; That's an equity ratio of 8% (or a debt ratio of 92%: - I guess this ratio would be ok for a large bank, but for a manufacturer?

Did I forget to mention that they have as well roughly $8.2m intangibles on the balance sheet? if we remove them, than their NTA is negative.

Maybe a bit too early to start the victory dance ...

Numbers are just numbers eh BP ...but you probably already know that

The story is more important at this stage of their development.

[trader_jackson]

Well ...

If we ignore all the hype about the future - revenue growth was less than analyst consensus (is 85.1m vs 88.9m expected) and loss was larger than analyst consensus (is 3 cts/share loss vs an expected loss of 1 cts / share).

Balance sheet is a shocker: Total liabilities $58.5m; total assets: $63.6m; That's an equity ratio of 8% (or a debt ratio of 92%: - I guess this ratio would be ok for a large bank, but for a manufacturer?

Did I forget to mention that they have as well roughly $8.2m intangibles on the balance sheet? if we remove them, than their NTA is negative.

Maybe a bit too early to start the victory dance ...

Your above points, both of which are valid (I'm not arguing that): Balance sheet 'shocker' and larger loss than analyst consensus (how many analysts cover AFT?) are due to the very thing they are addressing: debt and finance/interest costs (reducing EPS).

Significant earnings growth will support paying down debt - reducing the balance sheet 'shocker', and changing from USD to a NZD loan will reduce foreign currency exposure, whilst probably having interest costs as a result of AFT becoming significantly less risky due to a huge turn around in earnings.

So yes, if AFT's underlying business, which I note you have yet to comment on, wasn't so sharp, then I would be concerned about debt (eg EVO), AFT IPO'ed and borrowed to grow the companies product line, capabilities and geographic reach - they have delivered on all of these points and now at a point it can now repay that (rather expensive) loan with a very scalable operation.

Winner is right - the story is more important when it comes to a growth company (eg XRO) that the numbers

It is to early for a victory dance, but the victory dance is now a question of when, not if (and that when is a mere year away)

[BlackPeter]

Your above points, both of which are valid (I'm not arguing that): Balance sheet 'shocker' and larger loss than analyst consensus (how many analysts cover AFT?) are due to the very thing they are addressing: debt and finance/interest costs (reducing EPS).

Significant earnings growth will support paying down debt - reducing the balance sheet 'shocker', and changing from USD to a NZD loan will reduce foreign currency exposure, whilst probably having interest costs as a result of AFT becoming significantly less risky due to a huge turn around in earnings.

So yes, if AFT's underlying business, which I note you have yet to comment on, wasn't so sharp, then I would be concerned about debt (eg EVO), AFT IPO'ed and borrowed to grow the companies product line, capabilities and geographic reach - they have delivered on all of these points and now at a point it can now repay that (rather expensive) loan with a very scalable operation.

Winner is right - the story is more important when it comes to a growth company (eg XRO) that the numbers

It is to early for a victory dance, but the victory dance is now a question of when, not if (and that when is a mere year away)

No doubt - the story is crucial,particularly if the numbers don't impress ; History shows that of 20 companies with great stories 18 fail one survive and one win.

I could see them as survivor, but am not yet convinced that they ever will be worth as much money as the share is currently traded for. I just don't see the growth a "growth" company would need.

But hey - that's what the speculation game is all about ... different people do see different aspects and some win and some lose;

[winner69]

Still talking about medicinal cannabis

Cool .....should keep the interest up

http://www.sharechat.co.nz/article/f...viable-yethtml

[trader_jackson]

Mr Market doesn't like it, share price down over 4%

Not enough believers in the story today... headlines not helping... gone from "Kiwi drug company AFT looks at medical cannabis opportunities as referendum nears" a month ago (when share price was just $1.70) to "AFT interested in medical cannabis but says its not commercially viable yet"... almost reads like a u-turn (share price still waay higher at least than $1.70)