PAZ Pharma Zen

[percy]

Attachment 13347Attachment 13348

Photos from Percy, with thanks to Minimoke for sharing them

Thanks Rupert Bear.
In the first photo we can see a lot of electricans' vans.We know there are huge transformers at the gate,so I expect these electricans are wiring the factory for the installation of freeze driers.In the background is a tower used for extraction.Extraction of Kril oil,mussells and blackcurrants is very profitable.The higher the tower the better the product quality.
The second photo also shows the extraction tower,together with vessels/cylinders used in the extraction procees.These would have been imported from China.

[percy]

Today's announcement of good turnover and profit increases was welcome.
However what I loved was "Pharma Zen has commenced a range of initiatives to take the company to the next level." Exciting days ahead?

My first post on this thread.21-04-2011.
Exciting days ahead I said,ten and a half years ago.
Some things never change,exciting days ahead...lol

[Sideshow Bob]

Its hard to put a value on a company in a complete vacuum of information. Directors and the new private equity investor will know how they're trading year to date, 11 months to November and accordingly a very good idea on what the annual result will be for 2021 but shareholders are not even provided with proper interim financial statements. The lack of disclosure is disgraceful.

I have a revised value using my own methodology and appropriate discounting for lack of liquidity, lack of financial disclosure, risks, extended Covid influence, Aiora being withdrawn from Chemist Warehouse to name just some factors but its so far south of the recent share price I won't share it on here or bid at that price.

PAZ used to be on a PE of 20 and those that bought on that metric certainly have done extremely well. 20 x eps of 3 cps in 3 years time, (if achievable with Covid headwinds) = 60 cents 3 years hence. Discount that back to today's dollars using an appropriate discount rate for the risk and lack of liquidity. My updated 2 cents worth.

And with that vacuum of information grows speculation or just perhaps disinterest? Looking back at last year, FY announcement was 1st of April, so could be over 3 months before we have any news, and guidance. In the meantime, the share price drifts along......if any trades at all.

It could be a thing with the USX - less regulation, less focus on smaller holders, less updates etc. If look at say SFF, slightly different kettle of fish as a Coop with their major holding a 50% share in SFF Ltd - but get no guidance, or even a half-year. Just have to glean some guidance on how they are going from newsletters, comparison to competitors and other forums. Albeit they are a heavily seasonal business.

But with PAZ, it isn't a tin pot company and now has a market cap of $180m. It does need to double its EBIT to get to a PE of 20, and still alot of growth priced in.

Just drawing on Percy's post, in my mind the key aspect is not producing the stuff, or necessarily how good the quality is. It is about marketing/selling the product, and creating a brand.

For example, Go Healthy sold about 4 years ago for something like $100m. then sold again last year. CDH bankers up for $500m-plus GO Healthy vitamins sale (afr.com) This will be priced for earnings, and they'll probably just buying and capsulting the ingredients. Nothing particularly special in that, but building a brand and sales in a competitive market takes skill, dedication and money.

We all know you can have as good a product as anything, but if you can't market/brand/sell it, then ain't worth jack. Looks at Blis - run by a bunch of scientists and 20 years later largely going nowhere. Plenty of companies in NZ can freeze-dry product, or do extract - but the value/margin gets larger as move closer to the customer, or have some sort of defence or moat.

PAZ are obviously under taking a large capital programme, and while I haven't been close enough (ie been to any meetings etc), they obviously have reasons for capacity and must have some confidence. Understand from Percy they are maxxing out of their current factory.

I can understand all of Beagle's concerns/reasons, but there is risk in plenty of sectors and have to be weighed up. Most holders would be sitting on large paper gains. I wouldn't be buying at these prices or be all-in on them, but I see them as a small dabble as part of diversified portfolio, with a wait and see approach for when the new factory opens and what this translates to.

But some updates in the meantime wouldn't go astray.....

[Beagle]

Good post Sideshow Bob. I can confirm the USX regulations do not mandate the full disclosure of interim financial statements.
In my view one needs to factor in the extra risk involved with the lower level of disclosure and much lower level of liquidity.
Last traded at 71 cents = 40.1 times 2020's earnings. Directors made it clear supply chain challenges are serious this year.
Most commentary I have seen from companies and commentators suggest supply chain challenges could endure for quite some time and maybe not normalize until 2024.

When updating my assessment of fair value today I guessed that this years profit will be down on last year and their previously articulated goal of doubling 2020's earnings within 3 years will get pushed out another year so we're looking at maybe 3 cps earnings in 2024 announced in March-April 2025. Choose you own PE and discount rate to bring that back to today's fair value. In a nutshell I expect Covid problems and their earnings impact will be more enduring that I assumed some time back. (Blame Omicron and whatever other variants are to come after that)

[Sideshow Bob]

Good post Sideshow Bob. I can confirm the USX regulations do not mandate the full disclosure of interim financial statements.
In my view one needs to factor in the extra risk involved with the lower level of disclosure and much lower level of liquidity.
Last traded at 71 cents = 40.1 times 2020's earnings. Directors made it clear supply chain challenges are serious this year.
Most commentary I have seen from companies and commentators suggest supply chain challenges could endure for quite some time and maybe not normalize until 2024.

When updating my assessment of fair value today I guessed that this years profit will be down on last year and their previously articulated goal of doubling 2020's earnings within 3 years will get pushed out another year so we're looking at maybe 3 cps earnings in 2024 announced in March-April 2025. Choose you own PE and discount rate to bring that back to today's fair value. In a nutshell I expect Covid problems and their earnings impact will be more enduring that I assumed some time back. (Blame Omicron and whatever other variants are to come after that)

Agree with your comments Beagle, and this is all fair comments and assessment.

While not bound by reporting/disclosure rules on the NZX, I think it is good discipline and investor relations if took a more proactive approach. Understand NZX listing might be on the agenda one day, and this is a fair size company - no longer a penny dreadful.

The price had gone beyond its value in my opinion, and trading has been extremely illiquid of late. There is still a fair bit of growth priced in, and this has most likely been delayed. It is trading at a PE above the likes of EBO, RBD, MFT, MFT - which are commonly seen as "expensive" but these are major companies, with moats that are still growing and generating dividends.

From my perspective, the most worrying aspect of the Covid/supply chain issues is on the new plant, the extra cost in this, and the delays and resulting cashflow in not being operational. At least raw material is local, and shipping a reduced mass or product, in a dry/ambient form. Shipping would be a lower proportion of the product cost.

I'm still hopeful that when their capacity increases then they have the ability to ramp up volumes reasonably quickly and help flow to the bottom line.

There is no update on this years performance (that I'm aware of) so have to guess what that will be - at least have the old factory going while the new comes on stream. But that illiquid nature of the trading does have to be taken into account - even if wanted to exit, wouldn't be that easy at the moment.

Hopefully patience will be rewarded......but we'll see.

Merry Christmas to all holders!

[iceman]

This is a very good summary SB and touches on all the issues that are indeed a cause for concern, mostly caused by COVID like so many other companies are experiencing as well. Like you I appreciate the difficulty PAZ management has in implementing the ramping up with the ridiculous border restrictions as well as the huge shipping issues being experienced World wide.
I have faith in the management and am content, while clearly expecting a delayed ramping up of production and sales. As you and Beagle touched on, it would be nice to see management keep us small holders a bit more up to date with what is obviously a challenging environment.

Despite this being a large holding for me, I am happy to sit this one out and watch progress. Sitting on a +300% paper gain helps keeping the heart rate down :-)

Merry Christmas and a happy, joyful 2022 everyone.

[percy]

https://www.usx.co.nz/uploads/paperc...pdf?1640291574

[Joshuatree]

Lots of good stuff there for the longer-term leavened by the freeze dryer unit completed in march but yet to be delivered.

[Beagle]

Pure guesswork on my part but how I read it...
Break even or small loss for 2021 ? Somewhat muted outlook for next year and 2023 should hopefully see them firing on most cylinders with 2024 being the year when all new plant acquisitions really fire up to maximum capacity and production.
My estimates. Maybe 2.5 - 3.0 cps earnings in 2023 ? rising to 3.0 - 3.5 cps in 2024 ? Choose you own PE and discount rate to arrive at today's fair value.
Growing pains look pretty serious to me.
Many years of growth already baked in at 70 cents in my opinion.

[Joshuatree]

Future growth looks exciting to me.