Probiotec is such a strange stock.
Interesting to look at his share price performance : in a trading range of 1.60 to 2 $ between Nov 19 and Nov 20.
Then a significant rebound after the acquisition of Multipack (announced in Nov 20) and a return to around 2 $, before this week announcement.
I find always interesting to try to understand the past performance of a stock.
Here, we had probably 2 main elements :
- the significant positive impact of Multipack acquisition (impact of at least 30 % on EPS),
- a poor cold and flu season which explained the poor H1 revenue (- 3 %, despite + 6.5 % for Q1, so Q2 was particularly bad) and a cautious guidance for FY 21, after H1 results.
This week's guidance is probably a relief for the market, showing that the company is doing OK despite the poor sales for cold and flu.
It is also a reminder that the stock is cheap with a PE of 13.9 (using FY 21 pro forma) with a price of 2.30 $.
However, I find quite tough to do forecasts for Mutipack.
After reviewing again the documents following the acquisition of Multipack, I can't find any figure for Multipack past organic growth.
Other elements also missing for Multipack : past Capex and conditions to reach earn-out for the next 2 years.
Only elements I was able to get :
- the company has done well in FY 6/20 despite covid and their market is expected to grow by 1 to 2 % per year during the next couple of years,
- Multipack generates a high level of cash flow (looks logical given their high level of EBITDA) and return of capital.
Other element : also interesting to remind that they expect cost savings from this acquisition during the next couple of years, which are not included in their pro-forma figures.
Overall, I have the feeling that, unlike the past, earning growth will be less driven by organic growth and more by cost saving, M&A and site consolidation going forward.
It may also be one reason for some of the derating of the stock.
The limited level of communication of the company is not helping either.
Anyway, PBP looks cheap with a PE of 13.9 (FY 21 pro forma) while FY 21 is probably a low basis for PBP, excluding Multipack.
The level of free cash flow is also probably really high, if we assume that Multipack has a similar Capex to the old Probiotec (before the acquisition).
Given all the elements above, I don't expect the share price to return to the 2 $ level (if the stock market remains at a similar level).
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