OptiBiotix Health Plc’s robust earnings strengthens the case for market revaluation

Summary

• OptiBiotix Health Plc posted a strong 104 per cent surge in revenue to £1,523,247 for FY 2020.
• An increase in the value of the SBTX holding during the year resulted in a net profit of £5,801,866 for the group.
• The company’s valuation, when compared to its financials, growth prospects and competitors, seems low, which presents an opportunity.

OptiBiotix Health Plc (LON: OPTI), a company engaged in the development of technologies that modulate the human microbiome, delighted the street with a 104 per cent rise in revenue for FY2020 (period ended 31 December 2020). The strong numbers, which were announced last week, were in line with the strategy and commercial update that the company released earlier this year.

The field of microbiome has been fascinating scientists and microbiologists since long but has started gaining consumer interest only in the last five years. The sector has tremendous growth potential, indicating that this nascent-stage life sciences segment holds a great opportunity for investors in the future.

Given the robust numbers and the scope of the segment, OptiBiotox proves to be a value proposition. Let’s look at the numbers first and then analyse what's in store for investors.

FY2020: The Year of Stupendous Growth Despite Pandemic

OptiBiotix posted a strong 104 per cent surge in revenue to £1,523,247 in FY2020, as compared to £744,883 for the 13-month reporting period in 2019.

Gross profit for the year witnessed an impressive rise of 124 per cent to £879,819 from £392,803 reported in the previous year. It was majorly due to the rise in sales volume that gave an opportunity to the company to renegotiate its contract terms at a better margin with the commercial partners.

Another major outcome of 2020 earnings included a sharp 49 per cent reduction in operating loss to £1,111,393 from a loss of £2,166,638 in 2019. Most remarkably, the increase in the value of the SBTX holding during the year resulted in a net profit of £5,801,866 for the group, as compared to a net loss of £2,368,362 in 2019. In March 2021, after the reporting period, the company sold £900,936 worth of SBTX shares.

Also, the company managed to reduce its other administration costs by 27 per cent to £1,616,069. A year back, its other administration costs expenses were £2,204,216. The company received £746,751 through the partial disposal of its holding in SkinBioTherapeutics Plc. As a result, OptiBiotix now has a sharply higher (90 per cent) cash on the balance sheet of £864,680 at the reporting period end.

(Image Source: Company Website) 

Also Read: Optibiotix Health Plc Set to Take Next Big Leap in Human Microbiome Space

OptiBiotix and its value proposition 

Strategic strides: OptiBiotix, which is much ahead of its competitors, is at a strategic inflection point—while the revenue of the company from its first-generation products has been consistently rising, its second-generation products have already started showing commercial traction.

As per its long-term strategy to target the large healthcare market of cardiovascular disease, diabetes as well as obesity, the company is focusing on the development of two-stage prebiotic and probiotic commercialisation approach.

This strategy led the company to develop and launch two products (LPLDL® and SlimBiome®) with ‘low risk’ routes. This not only helped in revenue generation but also helped gain a network of commercial partners in over 160 countries.

Market edge

The stock price of OptiBiotix, which has a market capitalisation of around £41 million, is currently around GBX 50.00. The stock price did touch a high of GBX 66.50 in the last 52 weeks but at present is almost at the same level as of last year same period. If we take a look at the financial performance of the company, the present valuation is pretty low, which makes the company undervalued in the present scenario and opens up a possible opportunity for investors, according to reports.

A sum-of-the-parts valuation done by its sole broker Cenkos Securities Plc, indicates high growth for the company in the future. Based on a three-segment valuation analysis—on market, skinBioTherapeutics and its second-generation product--the broker has estimated that OptiBiotix will record around 120 per cent growth from the current market valuation.

Cenkos has valued the company’s “on market” part at 14-times its forecasted EBITDA for its two profitable divisions, Functional Fibres and ProBiotix. SkinBioTherapeutics valuation is based on the current market valuation of the company’s holding in it. Further, the valuation of the second-generation products was done keeping in view the value and group level costs.

 For more comprehensive insight into the valuation metrics, one can go through the complete report of Cenkos available on the company website.

Way forward

OptiBiotix has invested scientifically and clinically in developing its products. It follows a two-stage prebiotic and probiotic commercialisation strategy, which is low-risk in nature and will ensure the company bags deals in different territories of the world with multiple partners such as manufacturers, formulators as well as distributors. The company’s science-led strategy helps it market its products in a manner that hedges associated risks of price and other factors. It also opens higher value ‘medical-setting’ markets. The company has shown strong sales growth for its two of the first-generation products with improved margins. The margins are likely to increase going forward, in turn strengthening the company’s financials.