Venn Life Sciences Share Discussion Threads

[investordave] 06/10/2016 07:40

I am a tad surprised that there haven't been any buyers at the current low share price

[mrphiljones] 06/10/2016 07:34

Good luck fella I admire your honestly and reasoning.....Unfornatly I still think you may need to purchase yourself a tin helmet....;-))
FWIW I'm looking to buy in....Options,Options Sir

[aishah] 05/10/2016 08:20

Beaufort View:
Venn Life Sciences (VENN.L, 23.75p) - Speculative Buy

Venn Life Sciences (Venn) informed that its wholly owned subsidiary, Venn Life Sciences Limited, has entered into a conditional agreement under which it and Lynchwood Nominees Limited, as custodian for the Helium Rising Stars Fund, would sell the entire issued share capital of Innovenn UK Limited (Innovenn) for a total consideration of up to £4,740,000. The consideration amount would be settled by the assumption by Integumen of £146,032 of Innovenn's debt, and the balance of £4,593,968 being settled by the allotment of ordinary shares of £1.00 each in the capital of Integumen at par credited as fully paid. Venn founded Innovenn in 2014 as an innovation vehicle dedicated to the development and marketing of healthcare products and technologies. Prior to the sale, the subsidiary converted its loan to Innovenn of £1,294,491 into ordinary shares of £0.001 each of Innovenn, increasing its shareholding to 70% of the issued share capital of Innovenn. The other shareholder of Innovenn is the Helium Rising Stars Fund, a Cayman-domiciled fund that invests in small UK companies.

Our view: The sale of Innovenn is positive news for Venn. Innovenn has made good progress in moving from its development phase into commercialisation. The transaction would allow performance of Venn's core CRO business to be more visible. Venn reported solid performance in H1 2016 and made good progress on both operational and financial fronts. Venn reported a sharp jump in revenue and improved EBITDA for H1 2016. Strong Cash reserves should help the Company deliver on its growth plans. Venn made progress on the integration of Kinesis and achieved initial cross sales. The Company expects to benefit from the acquisition of Kinesis in H2 2016. Venn extended its operating capabilities into the USA with the establishment of Venn Inc and the appointment of a VP of Operations USA. The Company has a solid line of opportunities for H2 2016 and remains fundamentally strong. Therefore, we retain a Speculative Buy rating on the stock.

[pentangle] 05/10/2016 07:01

Thanks Adam, very helpful summary. There is plenty of M&A activity in this space, but acquirers often do not disclose what they have paid. However 10 times plus EBIDTA seems to be the going rate so a €3m EBIDTA would imply a €30m plus valuation with anything from Innovenn a bonus on top. Still feeling bullish!

[glasshalfull] 05/10/2016 06:54

I'd also like to add my thanks to Adam & Tim for posting-up their notes on the presentation.

V helpful indeed.

Kind regards
GHF

[investordave] 05/10/2016 06:47

Makes the market's reaction to the H1 results even more puzzling.

[investordave] 05/10/2016 06:46

Many thanks Adam. Most informative.

[cocker] 05/10/2016 06:44

Thanks Adam,

[battlebus2] 05/10/2016 06:42

Thanks Adam.

[rivaldo] 05/10/2016 06:40

Terrific notes Adam, many thanks. My main reassurance here is that the CEO has done it done it all before and knows what is required to turn a very small business in this sector into a much larger one.

Great to hear that H2 has started well too.

[buywell3] 05/10/2016 05:00

PE ratio 680

Operating Loss EUR0.033m (H1 2015: loss of EUR0.079m)

[adamb1978] 04/10/2016 22:17

My very belated notes from the management presentation last week:

- management team: CEO came across as very credible. My fear was that, given the sector and size of the company, he would be quite spivvy and unreliable. He actually came across as the opposite of that - someone who wouldn't just think twice about things....more think about a dozen times and quite cautious! The CFO was quite young and I didn't think explained answers well - he seemed to know what he wanted to say, but just couldn't get it out. This is a small co though, so a stellar CFo would be a surprise

- Financials: rule of thumb in the industry is €100k revenue per employee, which means that these can make €20m revenue with their 200 people. Also industry rule of thumb is 15% EBITDA margin is good (checking one comp - Quintiles - this appears to be very achievable). On this basis they should be able to make €3m EBITDA and given that there is little int, tax or D&A, implies EPS of perhaps 4p

- Q1 this year was weak - largely as a result of new employees coming on board and therefore taking a while to generate run-rate revenue. Hence why turnover was nearer €9m than €10m in H1

- M&A: looking at smaller targets in Eastern Europe - 25-30 people. So €2.5m - €3m additional revenue and presumably at higher margin given lower cost. The implication was that they're already in discussions with a couple targets so I'd expect to hear something about this in the coming months. Using a similar multiple to VENN, this implies €2m cost, though poss lower price given location and scale of targets, so maybe €1m - €2m price? He was adamant that they could fund this from cash resources, and they do have €2.6m net cash

- Working cap spike in June: attributable to a large customer taking a long time to pay. Customers are generally much larger so he said that they pretty much always do pay, but sometimes it takes longer than ideal. Typical level is 10% - 12% of turnover (I haven't checked this)

- Innovenn spin-out: exactly as announced this morning. VENN shareholders get a 30% stake in a listed combination with these other assets and then raising capital from third parties. Personally I'm viewing this as blue-sky upside, but it does have the immediate benefit of making VENN more profitable

- H2 started well. I asked a question about KPIs and utilisation rates. CFo said that Jul and Aug utilisation rates were higher than the 70% rate which represented a decent level.

So my figures:
- as above, for 2017 market forecasts of £16m and 2.36p EPS look very, very light
- for 2016, market forecasts are £14m and 2.27p from what I can see. The £14m certainly looks light based on the logic above. For the bottom line, you need to adjust for Innovenn costs which would now be presented as discontinued operations so actually H1 from continuing ops would have been profitable, perhaps 0.2p EPS. For H2, simplistically assume €10m revenue and €9m opex so €1m EBIT (=PBT=net inc). E1m net income is around 1.3p - 1.4p EPS and then you need to adjust out the Innovenn costs which get you to around 1.6p - 1.7p. Therefore I can see how this year comes in somewhere close to 2p, and if utilisation rates are higher then you could see how you get to 2.5p (e.g. by t/o being say €500k higher). I expect the company to manage down expectations for the year slightly to nearer 2p but whatever you pick, the PE is no more than very low double digits.

Upside from this over the long-term comes from:
- the continued buy and build strategy which in this industry should be possible. Some basic figures suggest that a small acquisition could easily increase EPS by say 0.5p, so put say 5p - 8p on the share price
- there's a few global large cos in the industry which could gobble VENN up easily
- the Kinesis acquisition large year seems highly complimentary
- the Innovenn spin-out is blue sky upside.

The presentation I found very reassuring and if you look forwards to 2017, this feels very very cheap (6x PE?). I believe this is an accurate summary - happy to answer any questions!
Cheers

Adam

[battlebus2] 04/10/2016 20:01

Directors talk, here's the link...

[rivaldo] 04/10/2016 19:43

Thx for the Proactive article timbo. It's encouraging that the CEO says in the interview the new business would be listed on AIM "in the coming months".

The introductory narrative is worth a read too:

"Innovenn split will ‘maximise shareholder value’, says Venn CEO
14:39 04 Oct 2016

Venn Life Sciences Holdings plc (LON:VENN) chief executive Tony Richardson says that separating Innovenn from its core business simplifies the firm and generates more value for shareholders.

Speaking exclusively to Proactive, Richardson says: “Spinning [Innovenn] out, we believe, will just bring much greater clarity to our core business and to Innovenn itself.”

“We believe that a separation of the two [businesses] would result in a much more optimal arrangement in terms of maximising shareholder value.”

Richardson also tells Proactive that the true value of Innovenn will now be realised and not “hidden” by the wider business, as he thinks it might have been in the past.

“We would argue that there is considerable value in [Innovenn], but we weren’t really getting recognition for it under our current corporate structure.”

Looking forward, Richardson is bullish about what the future holds for Venn.

“There’s plenty of opportunity to continue to grow the business organically and we want to crack on and do that” "

[investordave] 04/10/2016 18:04

Just pm me your email address.

[investordave] 04/10/2016 17:14

Have just had a response from the company to the email I sent yesterday. Happy to share contents if anyone wants to see it.

[timbo003] 04/10/2016 16:48

There's a new interview with Tony Richardson (CEO) on Proactive-investor during which he explains the rationale for the Innovenn disposal:

[yump] 04/10/2016 15:10

OK everyone...

and breathe...

;-)

[timbo003] 04/10/2016 14:01

>>>InvestorDave

At the Rocket Bar meeting last week, the directors said that they were waiting for HMRC to give their blessing (from an EIS/VCT perspective) for the proposed demerger of Innovenn, so maybe they now have that in the bag, which is maybe why they did not announce the Innovenn news with the results.

[mr hangman] 04/10/2016 12:41

One would imagine Techinvest will give this a bit of a "push" come next issue

[b1ggles] 04/10/2016 12:27

No, Dave, they've never had a stoploss on Venn and their portfolio still holds three fairly substantial positions. Their only comment this month was to merely report their interim results.

[shanklin] 04/10/2016 12:09

pentangle

I looked at the potential downside to make sure that, if push comes to shove, its affordable for VENN.

Its certainly my hope that that is not the outcome.

Cheers, Martin

[pentangle] 04/10/2016 10:51

Shanklin - I can see where you are coming from. However the Innovenn/Integumen plans seem quite advanced so I see it as likely that Venn will pull off the IPO, although whether all 3 of these proposed acquisitions come to pass is in the lap of the Gods. If Integumen does fail further down the line there will be write offs, but the €1m guarantee would be the cash hit - however, this would likely be a while into the future. So I see short term upside but not ruinous downside from Innovenn.

Meantime a lot depends on what they can deliver in terms of EPS this year. We really need updated forecasts as surely the visibility must be quite high now for this year. Leaving aside Innovenn, if they can deliver in line with the last broker forecast then the share price is cheap.

[investordave] 04/10/2016 10:38

I assume that Techinvest will have sold up following the recent fall in the sp? As I recall, they had a 20% stop loss in place.