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Small-Cap Growth Stock with Fully Franked Dividends - Probiotec Limited

  • July 14, 2020 01:59 PM AEST
  • Team Kalkine
Small-Cap Growth Stock with Fully Franked Dividends - Probiotec Limited


  • Probiotec is a contract manufacturing and packaging company, specialising in consumer health and pharmaceutical products.
  • PBP operates three major facilities in Australia that provide capabilities to manufacture a range of products for its customers.
  • The company experienced increased demand from customers due to COVID 19 and reiterated its full-year guidance for revenue and EBITDA.
Gold MTF non-AMP

Catering to the Australian and global markets, Probiotec Limited (ASX:PBP) develops, manufactures and sells consumer health, pharmaceuticals and nutraceutical products. The company operates three major facilities that include Probiotec Laverton, South Pack Laboratories, and Australian Blister Sealing.

Strategies of the Business

Presently, the company intends to have a high-quality customer base with capacity to grow. In the short-term, Probiotec seeks to drive organic growth, acquire new clients and undertake new product development for existing clients.

In the medium-term, the company would continue with short-term goals along with efficiency improvements, entering export markets, and acquisition and industry consolidation. Over the long-term, Probiotec has ambitions to become Australia’s largest pharma contract manufacturer and packer.

These strategies would be enabled by three state-of-the-art facilities, TGA and GMP certified capacities, portfolio of quality customers, experienced management team, IP ownership, and mergers and acquisitions.

Probiotec believes that macro trends would support its growth, including ageing population driving demand for consumer health products, increasing awareness and desire for high-quality Australian made products, and pharmaceutical industry reforms driving hunger for new products and revenue sources.

Source: PBP 2019 Annual report

Over the past years, Probiotec Limited has delivered strong organic growth and completed accretive acquisitions, with consistent double-digit organic revenue growth achieved (above figure), and acquisitions of South Pack Laboratories (SPL) and Australian Blister Sealing (ABS).

ABS acquisition, which was earnings accretive from the first day, was completed on 31 July 2019. The consideration for the acquisition was $23 million, and up to $5 million in earn-out based on earnings target for the first year. The acquisition was valued at 4-5 times EBITDA that was funded by a mix of cash and debt.

Probiotec’s capabilities include lotion & gels, powder blends, powders, sprays, tablet coating, blister packaging, high-volume solid dose, liquids & suspensions, creams & ointments, sachets, tablet capsule caplets, and tub/jar filling.

Sales Up 34% in Half-Year

In the half-year ended 31 December 2019, the company recorded sales of $44.1 million, up by approximately 34% from $33.03 million in the previous corresponding period. Cost of goods sold for the period was $30.8 million compared to $22.15 million in the same period last year.

PBP delivered a gross profit of $13.3 million against $10.87 million in the same period last year. Its net operating profit after tax from continuing activities for the period was $1.81 million compared $1.01 million.

Source: PBP Half year report

In the half-year period, the company incurred $0.22 million in non-recurring costs and $0.42 million in amortisation cost related to the acquisition of ABS. Among underlying figures, its EBITDA was $6.2 million, EBIT was $4.33 million, NPBT was $3.13 million, and NPAT was $2.44 million. The company paid a fully franked interim dividend of 1.5 cents.

During the period, the company completed the acquisition of ABS, acquired assets and customer contracts of CPSA, completed an on-market share placement for approximately $10 million, on-boarded new clients and contracts, and finished construction of a purpose-built warehouse and manufacturing facility near to its primary facility.

Funds raised through the placement were intended to be used for strengthening the balance sheet and facilitating integration and growth opportunities, including acquisitions of ABS and CPSA. The acquisition of CPSA was settled in cash for ~$4 million and inventory at cost.

Meaningful Uplift in Orders Amid COVID-19

During late-April 2020, the company reported that all of its facilities were designated under essential services and continued to operate during the pandemic. The business was trading strongly during the pandemic, as demand for several categories increased with meaningful uplift orders, including analgesics, immunity, cold and flu products.

Probiotec highlighted that some of the demand would flow into the first quarter of FY21 and is expected to continue to the first half of FY21. But these demand impacts were offset by several factors, including lower demand for other products, increased costs due to the pandemic, rising freight costs, and margin deterioration due to lower AUD.

Although new pricing was agreed with major customers, it would take effect from the start of FY21. The company ensured that inventory is available to meet increased demands from its customers. It invested in additional working capital to add buffers for the potential supply chain disruptions.


Probiotec experienced minimal supply chain disruptions to its input, and due to its diversified supply lines, the company did not anticipate a material impact on the group. Despite some setbacks, the company reiterated its full-year guidance of over $100 million in sales and EBITDA between $16 million to $17 million for FY20.

Board of the company remains optimistic for FY21 and beyond after customers appreciated the company’s industry-leading supply performance during the pandemic. They also supported calls by the Australian Government and industry leaders to ensure the supply of critical medicines through additional onshore manufacturing, which the company stands to facilitate.

Besides, the company was monitoring evolving conditions due to the pandemic. The forecast given by the management was on an underlying basis, excluding any impact of potential extra-ordinary items or impairment charges due to COVID 19.

On 14 July 2020 (AEST 01:39 PM), PBP was trading at $1.985, down by 3.641% from the previous close. The last one-month return of the stock was noted at 17.71%.



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