Very quiet! I've got a decent position in PBP and after doing a...

Very quiet!

I've got a decent position in PBP and after doing a bit more work today I may add some more around current levels.

One of the classic value investing situations are companies where a quality asset or segment is being overshadowed by other under-performing assets or mismanagement. In the case of PBP, the saga of the ADP plant has hung over the company for many years. Not only did it lead to significant write-downs, but it also left the company heavily indebted (which to their credit the company has done very well to slowly whittle down).

But the biggest effect the ADP plant (as well as the consolidation of product lines and sale of drugs to Valeant) is to mask the extremely strong growth of the contract manufacturing segment which will be the backbone of the new, lean PBP. Since FY09 (the first year where PBP broke out contract manufacturing as its own segment), contract manufacturing has grown revenue at a CAGR of 14.5%, from $15.77m to $41.10m. If you take the FY12 revenue number (after which revenue growth really ramped up) CAGR has been closer to 25%.

While margins have fluctuated over that time, they have started to recover over the past 2 years to be back at 11%, roughly where they were in FY12. Management commentary seems to indicate that further cost savings will come through, plus new contracts coming in will continue revenue growth.