Byotrol Share Discussion Threads

[microscope] 11/10/2019 16:30

Very strange comments on the qualified audit. Can't recall seeing anything similar before.

[mudbath] 11/10/2019 16:27

Thanks for your responses regarding Byotrol's US venture.

As for ramping,I just feel hugely optimistic that :-

1.The Company is poised to expand revenues and profitability whilst also having the potential to develop additional products alongside new partners ..and that..

2.The share price is totally in the wrong ball park with 3.5pence looking very achievable in the current trading period.

[wisecat2] 11/10/2019 16:03

Clocksucker you should do your research, STP is right they are seeking a financial or corporate partner to accelerate growth in the USA. For the record Mudbath reads as though he does his research and expressing a view is not ramping

[slicethepie] 11/10/2019 15:59

Yeh right, that's why they are seeking a partner in the us! They realise it is tough and expensive to establish a new product in the us however there trial with Target will have provided data which will be the basis for attracting a partner. The approval they got is the key, this was extremely hard to get.

[clocktower] 11/10/2019 15:41

I have just had a brief look at the accounts and comments, it suggests to me they will need to raise a lot more money and dilute the stock further to progress the US business which may in the long term be a huge mistake, as it such a hard nut to crack, and one which so many businesses have floundered on.

DYOR but beware of mudbath ramping.

[sikhthetech] 08/10/2019 17:00

hope v expectation..

Mudbath, I'd consider sacking your contact for saying Medimark is trading above expectations...
But before you do, ask them when Byot is returning from suspension..


mudbath8 Sep '19 - 19:22 - 3663 of 3684
0 2 1
<...>
Because I have it on good authority that trading and profitability at MS is running above forecast.
<...>

[tradertrev] 07/10/2019 15:18

Wow - never seen this board so busy......and the shares are suspended!
Some people appear to be confusing hope with expectation.

[sikhthetech] 06/10/2019 20:03

1gw,

"The comparison with tly is relevant because of the similarity of the acquisition model,"

That's exactly my point and what I was saying... you use 'original contingency to state TLY fell short of expectations', yet on here you refer to potential of BYOT's acquisition..

and in your usual devious way, you change your view and, with your smooth posts, make it seem as if your view hasn't changed...your ego get's in the way, eh?

But good to see you finally agree with the acquisition model being similar


I mentioned the similarity in the acquisition model on the TLY but then you went quiet after I posted this, strange wasn't it, 1gw?



sikhthetech - 07 Jun 2019 - 20:42:42 - 9223 of 10490 Totally Health - 2014 onwards - TLY
1gw,

There's this company who specialise in disinfectant cleaners... you may have heard of them... Byotrol (BYOT)..


They bought Medimark, nearly a yr ago as follows..:
1) Initial consideration of £2.3m
2) £0.4m Medimark debt
3) £1.15m cash
4) £1.15m from additional shares @ 4.1p
5) £1.8m deferred subject to achieving EBIDTA targets...

Total consideration £4.5m for a company making ADJUSTED EBITDA of ONLY £380k on revenues of just £2.7m... using a similar strategy as TLY.



"year ended 31 March 2018, Medimark reported adjusted EBITDA of GBP380k on revenues of GBP2.7m."


"Consideration of up to GBP4.5m is payable in respect of the Acquisition, which includes GBP0.4m of debt that Byotrol is assuming.. Initial consideration of GBP2.3m is payable on completion, being GBP1.15m in cash and GBP1.15m from 28,048,780 new ordinary shares ("Ordinary Shares") being issued at 4.1p per share. An additional GBP1.8m of consideration is payable subject to achieving EBITDA targets in FYE 31 March 2019 and FYE March 2020. The deferred consideration is also to be paid half in cash and half in new ordinary shares."





The placing price @ 4.1p, the current share price is around 50% lower @ 2.1p.


Your ONE post on the acquisition, on the day of acquisition announced:

1gw - 23 Aug 2018 - 13:10:33 - 3152 of 3628 BYOTROL-CAN DELIVER AMAZING RESULTS - BYOT
Nice surprise on my return from the beach! Good to see them get the results out today in the end and I like the fact that the acquisition shares are priced above 4p. Also I agree it sounds like good news that the Target trial is being extended - although I suppose it could mean the results are borderline and they need more time to decide whether it is going to be viable.



Didn't you look at the accounts, liabilities, strategy etc, before loading up...
Oh you did.


Management seem to be doing the right thing, eh...
Management seem to be doing the right things...


1gw - 28 Feb 2019 - 15:04:42 - 3455 of 3628 BYOTROL-CAN DELIVER AMAZING RESULTS - BYOT
I've bought some more. Takes Byotrol into the top 3 in my portfolio.

High risk, but management seem to be doing the right things and sound confident. I think there is potential for the share price to do very well, especially if they can derisk the US by landing some licensing deals now that they've got such a good shop window through the Target trial.

[1gw] 06/10/2019 15:10

Finally, for now, on the "magic money tree" point, I was pleased to see in the byotrol preliminaries that they appear to be trying to avoid this.

"The difference between the original fair value of the contingent consideration and the fair value of the contingent consideration at the reporting date has been deducted from goodwill arising on acquisition"

So they are reducing both the liability and the asset side of the equation, and therefore not generating "profit" from a miss on the provided-for contingent consideration.

I think they can do this because it is the first set of annual accounts since the acquisition. It may not be possible in the FY20 accounts (should the actual contingent payment be lower than currently provided for) because their policy does say that "the corresponding gain or loss is recognised in the Statement of Comprehensive Income" as far as cash contingent consideration is concerned (amounts classified as a financial liability).

If they have now provided too little, and the Medimark team manage to qualify for the full FY20 earn-out (and maybe even makeup of any missed FY19 earn-out), then presumably this would create a "loss" on the provided-for cash contingent consideration. But I would guess this would be offset by the profit generated in the business by the better-than-provided for performance.

[as always, errors excepted - happy to be corrected on any of this]

[1gw] 06/10/2019 14:57

In terms of FY20 (i.e. this year) clearly there is some way still to go until the result is known. At the moment, the finnCap estimate of £3.2m revenue and £0.6m EBITDA (vs £0.47m EBITDA in FY19 and vs a max earnout target for FY20 of £0.65m) suggests that Medimark is still growing and is again going to be relatively close to the max earnout target.

Although acquisition of a salesforce and access to synergies are important considerations in the acquisition, it would be good to see the Medimark business continue to deliver growth on a "standalone" basis, so I do hope to see growth on both revenue and EBITDA confirmed in the FY20 accounts.

[1gw] 06/10/2019 14:53

So there are lessons to be learnt from tly's experience, which can be applied to our understanding of the byotrol acquisition.

Having looked through the preliminary accounts and also various finnCap notes, I think Medimark performance is as follows:

Revenue (£m)
1.66 FY16
1.98 FY17
2.66 FY18
3.00 FY19 (preliminary)
3.20 FY20 (finnCap estimate)

So revenue growth was around 13% FY18 to FY19 (byotrol acquired it around 1/2 way through FY19) and on the finnCap estimate will slow to around 7% this year (FY20).

EBITDA (£m)
0.09 FY16
0.11 FY17
0.33 FY18 (NB or 0.38 adjusted EBITDA)
0.47 FY19 (preliminary)
0.60 FY20 (finnCap estimate)

The £0.47m estimate is based on the comment in note 19 to the accounts "the further consideration payable in respect of the first year earn out is expected to be a nominal (undiscounted) amount of at least £0.62m (and potentially more)." together with (from a finnCap note) the 9x multiple ("[the earnout payment] will be reduced by £9 for every £1 below target"). So £0.62m is £0.28m below the max earnout payment of £0.9m, which divided by 9 is £31,111.

So we appear to be looking at a maximum £31k miss on the maximum earnout target ebitda.

In the context of a base of £0.38m (adjusted) EBITDA for FY18 and a max earnout target of £0.50m for FY19, I think hitting (at least) £0.47m is well within a reasonable margin for stretch on the original target. Having said that, byotrol do appear to have been expecting to do the full £0.50m when they reported the interims in December 2018 and I wonder if the reference to "a re-assessment of accounting classifications in the Medimark business" means there has been a bit of a basis change as a result of the audit (the first time Medimark accounts have been audited I think).

[1gw] 06/10/2019 14:34

The comparison with tly is relevant because of the similarity of the acquisition model, with tly paying 7x (ebitda or profit) contingent consideration and byotrol paying 9x (according to earlier finnCap note).

I think it reasonable that the maximum payout on contingent consideration contained an element of stretch - as the buyer wants to incentivise the seller to work hard to be paid. That goes for both tly and byot. The issue with the 3 tly acquisitions was the scale of miss (on maximum payout) and the fact that they started going backwards after tly acquired them. i.e. the failure to pay out any contingent consideration in years 2 or 3 (for some if not all of the 3 acquisitions) meant that year 2 ebitda (or profit, depending on which acquisition) was lower than year 1, and similarly year 3 was also lower than year 1 I think. So having effectively paid 7x the year 1 metric (ebitda/profit), the metric was lower in years 2 and 3.

The "magic money tree" point, was that this big miss in maximum contingent consideration was written back to the income statement, effectively generating "profit". So the FY18 income statement for tly showed a £1.8m profit after a £6.5m gain on revaluation of contingent consideration. Similarly in FY19 there was a £2.7m contribution to "profit" from revaluing (down) the contingent consideration. Chickens started to come home to roost in FY19 though with tly having to take a writedown on goodwill on these FY16 acquisitions.

[sikhthetech] 06/10/2019 12:46

The ghost,

The acquisition model is great and very clever... Obviously BoD the seller want to sell at a max price and the buyers want to pay the lowest possible, so they negotiate an agreement somewhere in between

TLY have been using the SAME model for their acquisitions and I posted on TLY thread that it was a good model..Over just 4 yrs, TLY have used their 'add and build' strategy to grow their revenues from £400k to expected over £100m and have cash...
Their chairman Bob Holt used the model at Mears, where he built up the company from £50k to £500m...


However, 1gw doesn't think much of the acquisition model on TLY, where he mentions the expectations based on the contingent consideration but doesn't question the expectations based on the consideration on here!!
His smooth posts, full of figures also claims TLY's acquisition model is a 'Magic tree' of money..

He clearly hasn't grasp how the model works...
Hypocrite...



1gw - 04 Nov 2018 - 18:04:42 - 6240 of 10481 Totally Health - 2014 onwards - TLY
grahamwales - well that wouldn't be the worst outcome for TLY shareholders if profit really takes off just after the earn-out period is finished. The implication of the amount of contingent consideration originally provided for is that they expected About Health to be producing about £1.0m of profit before tax by this year (y/e 31/3/19), so it seems they've got a way to go to catch up with that.



1gw - 06 Nov 2018 - 21:31:50 - 6354 of 10484 Totally Health - 2014 onwards - TLY
Clever old TLY - the magic money tree?

I've been puzzling over how writing back the deferred consideration creates profit in the accounts, when actually it reflects acquisitions underperforming against the profit expectations that lay behind the deferred consideration calculation. This is how I think they've done it.

Consider the acquisitions of Premier Physical Healthcare (PH) and About Health (AH). In the balance sheet they valued these at £5.1m and £7.7m respectively. But actual assets amounted to very little, so most of this was "goodwill". This was paid for by a relatively small amount of up-front cash plus an assessment of the contingent payments.

PPH
£5.1m value = £0.1m Net assets + £4.3m goodwill + £0.7m value of contracts
£5.1m consideration = £0.5m cash + £4.6m deferred consideration

AH
£7.7m value = £0.4m Net assets + £6.8m goodwill + £0.5m value of contracts
£7.7m consideration = £2.0m cash + £5.7m deferred consideration

In summary, for PPH and AH together:
£12.8m value, of which £11.1m goodwill
paid for by £12.8m of consideration of which £10.3m deferred

In the FY18 accounts they wrote down the deferred consideration by £5.3m (£2.4m PPH + £2.9m AH), reflecting failure of PPH and AH to hit the earn out targets in FY18 and presumably expectation of reduced payout in FY19. These targets were profit based (basically 7 x incremental pbt or ebitda).

But here's the clever bit. They didn't write down goodwill at the same time. So they effectively created the profit by keeping the goodwill value the same but reducing what they expected to pay.

The auditors have looked fairly closely at this in their review of the FY18 accounts(Risk 2 on Key Audit Matters: Valuation of non-current assets).

And then in the 1HFY19 accounts they've said another £1.0m of deferred consideration is going (seems likely to be PPH/AH since the only other is £0.5m due to Vocare which is just repaying employee loans). So that must mean more underperformance against the deferred consideration pbt/ebitda expectation in FY19.

I can only imagine that the auditors will look closely at this again for the FY19 accounts. £11.1m goodwill sitting on the balance sheet when the companies have failed by some way to hit the profit targets that were behind the original valuation. Maybe it's just as delboy and sikhthetech maintain - great prospects for AH mean they can produce impressive looking cashflow forecasts going forward to pass the impairment test. But they're also going to have to watch that discount rate in the goodwill impairment test. It went up from 3.5% in FY16 to 12% in FY18 and if they can't get the balance sheet in better shape by the end of FY19 you'd have to imagine it might go up again.

[the ghost who walks] 05/10/2019 08:02

That's exactly the point I made, earn out to protect us shareholders. Seems like they structured it very cleverly for us and created value through that. Management doing their job!

[sikhthetech] 04/10/2019 21:32

Where do they say that MediMark has performed above expectations?

In fact, they DO mention that the original value was fair at the time, BASED ON EXPECTATIONS...



"Other financial liabilities represent the payments potentially due to the vendors of Medimark under the terms of the sale and purchase agreement for the Medimark acquisition. On acquisition these liabilities were provisionally assessed at an aggregate fair value of GBP1.27m (as discounted to the present value at the time of acquisition) based on expectations at the time. Following a re-assessment of accounting classifications in the Medimark business, the performance in the 7-month period since acquisition and updated business projections for 2020 trading, at the completion of the measurement period at 31 March 2019 the contingent consideration liability for payments potentially due in the period 2019 to 2020 was reassessed at GBP0.82m. The difference between the original fair value of the contingent consideration and the fair value of the contingent consideration at the reporting date has been deducted from goodwill arising on acquisition. The carrying value of this liability will continue to be reassessed at future reporting dates."

[the ghost who walks] 04/10/2019 18:19

An earn out is typically used to manage seller expectations, which are often 8nflated, while ensuring the buyer in this case byotrol is protected from those expectations. That has no bearing relative to whatever byot roles expectations may have been

[sikhthetech] 04/10/2019 15:55

""The business continues to trade well"?"

A business trading BELOW EXPECTATIONS can continue to trade well at at LOWER EXPECTATIONS ...

[sikhthetech] 04/10/2019 15:52

1gw,

"Do you understand what "up to" means, stt?"



Do you understand what "SUBJECT TO ACHIEVING EBIDTA TARGETS" means, 1gw...

They failed to reach those targets, so below expectations, isn't it, 1gw?
;-)



They originally bought Medimark, over a yr ago as follows..:
1) Initial consideration of £2.3m
2) £0.4m Medimark debt
3) £1.15m cash
4) £1.15m from additional shares @ 4.1p
5) £1.8m deferred subject to achieving EBIDTA targets...

[1gw] 04/10/2019 15:51

Or for that matter what do you make of the first part of the statement "The business continues to trade well"?

They are updating on 2 things in the statement:

1. Current trading: "The business continues to trade well"
2. The expected consideration, which was originally announced at up to £4.5m, "but we now expect total consideration payable to be around £3.5m"

[sikhthetech] 04/10/2019 15:49

Micro,

Absolutely, questionable events here, just like at rthm, eh 1gw...

[1gw] 04/10/2019 15:45

Do you understand what "up to" means, stt?

[sikhthetech] 04/10/2019 15:45

Nobby,

The approach used for acquisitions is sensible... I've said that on the TLY bb - they are following their stated strategy of add and build and growing the business...
Bob Holt used the same strategy at Mears, where he grew the business from £50k to £500m...


The point here is Medimark are trading below expectations...

[nobbygnome] 04/10/2019 15:36

I endorse what 1gw has written about what Bob Holt said at the TLY AGM. When he said that it made perfect sense to me and seemed like a very sensible approach.

[microscope] 04/10/2019 15:30

The quotes are encouraging, on the face of it, on the Finncap note, but the problem is that if they were close to a new US chain store trial in May and don't mention it at the end of September, can we really give credence to a broker 'chat' with a management who can't even get audited results out on time for a company of this size.

Red flags for me.