AFT Pharmaceuticals

[tango]

I don't think it can... Although it is a healthcare/pharmaceutical stock and they trade on different multiples.

I'm still getting over the shock of the downgrade announcement. Honestly was expecting an upgrade the way the price bounced back to $5 in the days leading up to the announcement. Thought it was the usual story of insiders buying up..

The announcement was almost as disappointing as when my beloved MPG announced their dismal trading update. I sold those quick. Thinking the same here

I agree. It was very disappointing.

I think Harley is a master marketer so I expect the company to rise again.
The medical weed has exciting prospects but is high risk.

[winner69]

More great news

Another 50 million people can buy Maxigesic now ...cool stuff

http://nzx-prod-s7fsd7f98s.s3-websit...242/343699.pdf

[wilba]

I've been trying to understand their miss in the numbers, particularly blaming license deals. Best as I can figure out that the licensing is valued as a right-to-use. I'm no technical accounting expert but I take it to mean they book the revenue upfront for these deals so long as they have met their obligations (dossiers prepared for regulatory approval etc) which explain why they can whiff 4-5m that presumably is booked at close to 100% margin. In that respect the Poland and Greece deals will be in FY23 revenue numbers.

Does anyone know in more detail if this is correct? Is there a licensing plus a royalty component - i.e. part is fixed, and then another layer driven by volume?
Their non NZ/Aus (retail) business is not something I have come across in more detail yet, but presume it is broken down somewhere. Perhaps I need to get into their prospectus.

I do wonder whether Hartley needs to make the tough decisions partcuarly if he wants to take it from being a company with a market cap meddling between 400-500m to 3-4b.
I.e. who he surrounds himself in from an executive level. The big miss in forecasting (for what should be basic fp&a) doesn't give me much confidence in their cfo (who i haven't looked into too much or recall hearing from in snippets, who knows maybe he is a superstar) and is doubly regrettable as they did create a group financial controller position last year. it is not as if they can say lacking in resource.
maybe I need to bite the bullet and take an interest and waddle along to their agm this year.

[Rawz]

I've been trying to understand their miss in the numbers, particularly blaming license deals. Best as I can figure out that the licensing is valued as a right-to-use. I'm no technical accounting expert but I take it to mean they book the revenue upfront for these deals so long as they have met their obligations (dossiers prepared for regulatory approval etc) which explain why they can whiff 4-5m that presumably is booked at close to 100% margin. In that respect the Poland and Greece deals will be in FY23 revenue numbers.

Does anyone know in more detail if this is correct? Is there a licensing plus a royalty component - i.e. part is fixed, and then another layer driven by volume?
Their non NZ/Aus (retail) business is not something I have come across in more detail yet, but presume it is broken down somewhere. Perhaps I need to get into their prospectus.

I do wonder whether Hartley needs to make the tough decisions partcuarly if he wants to take it from being a company with a market cap meddling between 400-500m to 3-4b.
I.e. who he surrounds himself in from an executive level. The big miss in forecasting (for what should be basic fp&a) doesn't give me much confidence in their cfo (who i haven't looked into too much or recall hearing from in snippets, who knows maybe he is a superstar) and is doubly regrettable as they did create a group financial controller position last year. it is not as if they can say lacking in resource.
maybe I need to bite the bullet and take an interest and waddle along to their agm this year.

Nice post Wilba, I was thinking along the same lines. I figured new licensing deals would come with instant sales as the distributor would have to order enough product for the shelves. Miss the timing of the licensing deals and miss a load of sales in any given FY. Okay fair enough- but like you say forecasting is terrible.

Without new licensing agreements and on a like for like basis you would have thought sales would have increased at a double digit rate given the multiple it currently trades on. Yet sales only increased 4.7% So once a new licensing agreement is signed up you get a nice pop in sales but post that growth seems pitiful.

Worst yet operating profits have decreased. Why they haven't at least grown in line with sales will be interesting to see.

They say covid has interrupted production and shipping. We aren't talking bulk items here. Sometimes I wonder if covid is just a convenient excuse

[wilba]

i can buy the increased cost because of covid. i think some of their stock is made in india and there was disruption along with limitations on export of drugs (think paracetamol was included) and they had to diversify their sourcing. on top of that air freight costs were elevated by 7-8 normal cost for a period during covid, if you could get the flights to begin with. singapore airlines was the crucial link in the supply chain for ensuring supplies remained coming into the country. i wouldn't be surprised by a 300-500 bps hit in margin for that period - but that stuff we are talking about as being nearly a year ago and should have normalised now.

the licensing agreements should provide pops as new ones are signed, but the existing ones will roll off and (should) get renewed - i can't recall if how long these agreements has been disclosed. i don't think anything flows back for initial stocking to aft as they are license deals, i.e. aft not supplying the product directly to them?

i think there is a lot to unpack with aft and what their long-term outlook looks like

[Getty]

No surprises there.
@4.95 Market cap $517M, yet only $14/18M operating profit FY forecast., say 3%, and not NPAT.

Unlike growth cos like PLX & PEB, who are carrying the cost of a direct marketing force overseas, but will reap full rewards later, this co has licenced out territories, which is cheaper upfront, but limited long term gain.
A very simple, some may say flawed, analysis, is that there are 46 territories, only producing $48m revenue 6 monthly.

Presumably they have targeted the best ones first, so add ons will average less revenue.
Generalising, the existing ones are about as good as they will ever be, or are sitting on their hands.

The SP had got way ahead of itself

I posted this 20.11.20.
In response to above 3 posts, it may give you further insight.

If I was completely cynical, It looks like some territory holders may already have a vested interest in another product, and are using their agreement with Papa Surf as a restraint of trade.

[Rawz]

Revenue from operations as per note 7 FY20 accounts.
- Sale of goods $101m
- Royalty income $0.4m
- Licensing income $3.8m

The bulk of the income is linked to how much product the territories sell.

AFT expect revenue to come in at $110m. If licensing income is lower than FY20 then sale of goods percentage gain could be closer to 10%, but still under. Needs to be double digit.

[wilba]

a 500 bps margin change would be a cogs increase of 10% (keeping revenue constant). partly it could also be attributed to a sales mix difference - the vitamin c sachets they have talked about are made by a company in poland. which in itself is another aspect of aft - the number of products they distribute into into nz and aus that they effectively white label

as getty mentions they are quick to license out their product into markets they don't want to grow. i can see the benefit in that - regulatory costs and infrastructure are huge when you only have a few products and can't benefit from the scale. you need to ensure your ip has very strong barriers to entry to be able to get into that, or have a distributor willing to do it.

[winner69]

Revenue from operations as per note 7 FY20 accounts.
- Sale of goods $101m
- Royalty income $0.4m
- Licensing income $3.8m

The bulk of the income is linked to how much product the territories sell.

AFT expect revenue to come in at $110m. If licensing income is lower than FY20 then sale of goods percentage gain could be closer to 10%, but still under. Needs to be double digit.

Jeez - is that all royalty and licensing is?

Not going to get rich on that

So essentially a manufacturer of pills and hope they sell lots of them

When I had a buggered neck last year the doctor loaded me up with boxes of panadol and ibuprofen pills (cheaper through me than the super market the nice doctor said). I said why not Maxigesic - he laughed and said not for me

[Getty]

Not for you, no,

He wasnt getting a back hander from Maxi, or as much as the other 2.

Did you only need half of what you got?

Dr JPG.

New patients welcome.
Old one's please go away and annoy someone else.