Venture life - In-vitro clinical trial
#VLG.
Today's RNS is great news indeed.
When I spoke last week with Andrew Waters CFO, he went into quite a lot of detail about these trials but I did not write much about this in my note here on Stockopedia as I did not want to get side-tracked from the already excellent newsflow.
These are clinical studies at the University of Cardiff on a number of mouthwash brands including VLG brands Dentyl and I think Ultradex also. Dentyl is a unique formulation including CPC. There are 2 trials:
The first is a test tube trial and tests to see how quickly the virus is eradicated in a test tube. The result was released today show that Venture Life's two CPC based mouthwashes eradicated the SARS-CoV-2 (COVID-19) virus completely (>5log reduction, equivalent to 99.999%) within a 30 second exposure.
The second test is on infected people and tests the effectiveness of mouthwash at eradicating virus after 15, 30, 45 and 60 minute intervals. The result will appear early next year.
If effective, it is hoped that Venture Life's mouthwash brands Dentyl and Ultradex become part of the virus toolkit along with handwash, masks and social distancing.
https://www.investegate.co.uk/...
I hold
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34 comments
I've copied this from SCVR today to carry on my theme of Venture Life (LON:VLG) are pretty rubbish....
Ahhh, the Mephisto of guidance and reporting that is Venture Life (LON:VLG) ...
Market liking their results today as up 5%...taking valuation to 45x 2020 earnings if we use PAT and market cap at c.£107.5m.
Adjustments (mainly amortisation) will take you to c.20x 2020 p/e.....but given that the amortisation relates to acquisition intangibles inc 'product formulations' and development costs (really!...shouldn't they be expensed for a potions manufacturer?) the higher adjusted earnings to lower the p/e ratio looks optimistic.
Add in that H2 2020 sales of £13m were just a touch above the rate of H2 2019 (£10.8m) once the build in inventory is removed (£1.8m build from end of H1 2020 to end of year) -> £0.4m/4% YoY growth comparing H2 2020 to H2 2019 excluding the inventory build
Inventory patterns over time are interesting. As at end of 2020 they hold £8.9m of inventory. Their run rate revenue based on adjusting H2 2020 revenues for inventory build is approx £23-24m pa so they are holding 4-5 months of inventory....this doesn't make sense to me, why does a simple consumer products business 'over produce' like this?
They say they built inventory for Brexit at end of 2020....but then go on to say that UK revenue is only 16% of their total revenue in 2020. So if we take their half year revenue run rate of £11.2m they are implying that they built up a full half year of supply for UK market!
Inventory always seems to be high percentage of sales. Unwinding this inventory should lead to bumper profits given that inventory held at cost so the mark up on sale should be meaningful. But that never happens. Why? Is this inventory sitting on shelves in stores and they have promised to take it back if it doesn't sell? Or do they end up 'discounting' it and selling at cost? (Did they really make money on the China sales in 2020...or did they take knockdown goods?) And why the need to keep expanding production capacity when they aren't shifting more product?
There's much more going on with what VLG report that I've covered before. Unless China pulls through with a mega order I suspect investor expectations are way too high. Add in some inventory or intangible write down and I'm sticking to the view this can go sub 50p.
Of course, credulous investors gave them extra cash last year to do mystery things with....supposedly 3 projects were in immediate sight yet 4 mths later no news....but mgt did get to offload lots of shares in the placing (and then grant themselves some more).
Good luck....I think you'll need it
I work in drug development services and I can tell you that 99% of the companies that have anything that could kill COVID have or are testing it on COVID. I've seen everything from a plum extract (not a normal plum but something from a hard to reach place) to a surfactant (think Fairy Liquid) being touted for COVID.
The complication is that the virus is more likely to be in the nose and respiratory tract so I'm not sure a mouthwash is much use medically. Maybe I'm wrong.
I do have a small holding. It is disappointing today after what looks like a good update, that the shares are down 5%.
Clearly everyone must do their own work and views...that said, I would encourage you to look at the available and disclosed information from Venture Life (LON:VLG) closely, take note of their rampy RNS (IMO obvs) and look at how they report revenues on products (H1 was all about hand sanitiser really). China is reported as €168m minimum order over 15 years. So far they've done about €2m....so approx €12m pa for the next 14 years. If they start hitting that in 2021 then I'm totally wrong.
Clearly everyone must do their own work and views...that said, I would encourage you to look at the available and disclosed information from Venture Life (LON:VLG) closely, take note of their rampy RNS (IMO obvs) and look at how they report revenues on products (H1 was all about hand sanitiser really). China is reported as €168m minimum order over 15 years. So far they've done about €2m....so approx €12m pa for the next 14 years. If they start hitting that in 2021 then I'm totally wrong.
Hi Herbie47
Yes it is disappointing, but I can't see why management cannot be more forthcoming. They say that profits are ahead of market expectations but have chosen not to give an indication of what pre-tax profits are likely to be, but instead choose to focus on EBITDA. This is somewhat unsettling. I sincerely hope that the company is not being disingenuous.
I have a reasonable holding and have taken some profits, selling about 30% this morning. I remain invested and if I am doing the company an injustice and hopefully I am, I will benefit from a re-bound in the share price on the preliminary results and/or on news of the proposed acquisitions. In the meantime I have some cash to add to existing holdings in which I currently have more confidence
I take comfort from the fact that Mark Slater, one of fund managers I admire, continues, as far as I am aware to hold 15% of the company.
All the best
Yes I agree that they should not be using EBITDA although quite a few companies do. They do state " ADJUSTED EBITDA FOR YEAR ENDED 31 DECEMBER 2020 EXPECTED TO BE NOT LESS THAN £6 MILLION, MORE THAN DOUBLE 2019 ADJUSTED EBITDA."
Many companies don't even give any figures at all, just beat forecasts but fail to mention any figures.
I don't feel after this RNS that the company is worse than before but seems the market does not trust it.
I like Mark Slater but he does not always get it right.
I own 12000 shares in Venture Life and am still undecided whether to take up the rights at 90p. Still have a lot of confidence in the company but not sure I want to own anymore than I have already .
I went to take it up but the amount was so small but my holding is somewhat less than yours. Now the share price has gone up, probably worth taking it up, if you have a sizable holding.
Hi guys,
Did you see today's news this afternoon of VLG placing another 40 million plus shares to raise £34-36M share price drop by 10p as at 4pm?
Pump, pump, dump...
I think mgt just told you they don't really believe in the organic potential of the business they have...and perhaps that they've got something a bit wonky in their working capital (ie it hides net debt rather than delayed revenue).
My questions re durability of covid surprise, brand power, defence against bigger competition, what's going on in brand versus white label sales, why WC is so high, etc not answered. Also, why this raise when they've got that fat Chinese pipeline to fill up with what they already do and supposedly have nice cash flows?
Do you now value the 'bullet proof' balance sheet and that 2-3 years from now 'excellent' mgt will have made acquisitions sing in their model? Or do you you look at the earnings dilution and operational hiatus this flags and think it quite overvalued?
Speak to management and many will whisper sweetly into your ear whilst f.....
TBF there's a chance that they have a really nice scalable model and big plug and play potential...maybe they have sold this well to insider institutional fund managers and laid out the path really well to that...its possible...but it doesn't seem to be info sitting in sight of PIs
My key concern was cash generation on half year - fact that they are raising cash and directors are selling suggests cash generation is not that great.
A few days after an announcement using the fabled CoVid (which really did not say anything) and looking at the study itself, I am not sure what Dentyl did that other mouthwashes didn't.
Placing at a discount few days after CoVid announcement.
Mid market announcement on a Friday with directors selling - not indicative of a lot of confidence in the business, but I am sure there is a lot of institutional demand to satisfy.
Will leave each to their own judgement but quite frankly this does not pass the smell test
Some views and questions on Venture Life (LON:VLG) s
Its a stock I looked at when much cheaper and I thought it was cheap. Clearly prior investment meant it was exposed to operating leverage if sales increased...and covid gave quite a bump. But I struggled to see why it has a franchise position that could compound and strengthen longer term. Making other products move as quick as hand sanitiser or mouthwash/dental did in 2020 is not a given. Typically, a business like this will experience attrition in some products too as there is almost a fashionability/trend element. Something like Brand Architekts (LON:BAR) is not a bad comparator....storefront of brands that move up and down in success and (in the past when Swallowfields) an unbranded manufacturer as well.
(This note by me is BAR specific and I'm not suggesting direct read over to VLG but some relevance nevertheless - https://www.stockopedia.com/co... )
I struggle to see that this is fabulous rather than good business. The sp is clearly priced for fabulous. That said, I don't claim to know the business well and clearly durability to current growth means it's not too expensive now.
Issues:
Overall, this feels like a business that should be private/family or private equity owned. Its about margin maximisation and uncertain growth rather than growth with margin...I do wonder whether the aim is to sell it on the back of this covid bounce...but to who at the current price?
Hi Paul / Mojomogoz
Thanks for your points. I will address the ones I can.
Firstly, it is only the first test-tube trial which has been successful so far. It is the second trial which is important on C19 infected patients (described above). If unsuccessful the first test will be irrelevant. I did not buy into VLG for these potential mouthwash benefits but was attracted by the rest of the business and the positive newsflow. Obviously there has been a great rise in the share price but the news and progress has been excellent and think the recent pullback in the share price, although IMO unwarranted) reflected this. The subsequent mouthwash new has reversed this and more.
VLG strategy is to grow organically and by acquisition and manufacturing acquired products in their factory. The also manufacture for 3rd parties. I questioned CEO if this was just a year "when VLG made out like bandits" and he did not think so. He said hand-sanitiser sales were £3.2 m in H1 and he has only projected hand-sanitiser sales of £1m for next year.
VLG have spent money expanding their factory from 40,000 units to 55,000 units so they can take advantage of situations like hand sanitiser. This is a new product for them and they gave away a lot free being situated in Lombardy in the midst of C19. They think one of the benefits of their model is that they can adjust production to take advantage of situations such as hand-sanitiser. The costs for their factory and staff are pretty stable so an increase in revenue results in Op gearing.
The sales of Dentyl and other products are related to their business development team's success, rather than C19 and this should continue as they make agreements with new partners in more geographies. It is only now that the sales of Dentyl mouthwash may receive a C19 boost.
The other increase to rev in the Interims was from the Chinese partner with sales of £2.3m which is not a lot but which VLG are hoping to develop. The terms with the Chinese partner are for collection from their factory gates in Italy and payment terms are at the factory gates too.
There has also been some softening of orders due to C19 and also additional costs related to deep cleaning the factory each day. So IMO there has been a little benefit for VLG from C19 of say £3.2m hand0sanitiser sales but also the need to offset £500,000 -£1m for lost sales and additional costs. Andrew said C19 has strengthened relationships with clients as they were able to fulfil orders, when some others did not.
There have been some additional costs with the factory upgrade but it is very positive as it means that VLG can now quickly manufacture additional products to take advantage of opportunities without incurring much additional cost.
Andrew says VLG has now reached critical mass, is generating cash and that 75% of adjusted EBITDA is free cashflow. This means VLG has lots of firepower for acquisitions. VLG have increased inventory in the UK incase Brexit causes a problem, which seems very sensible.
Some of your points seem to be feelings but I have am waiting for answers about questions on Branding / Patent and how effective or not these might be.
The CFO gave a measured, cautious and sensible impression. Next year's projected figures are only for a 10% increase in rev. They do not account for a likely acquisition or the continuation of the present momentum which are both likely. The FY results and future newsflow are likely to give rise to further upgrades, regardless of the results of the trials.
Michael
Hi mojomogoz,
You make good points, some of which I can pick up on below.
With a 12-month rolling forecast PE ratio of 18.7, versus a market median of 15.2, I don't consider Venture Life (LON:VLG) to be "priced for fabulous". However, if they deliver on their PEG ratio of 0.86, I would consider that fabulous.
Yes it is. This is part due to a regular H1 peak in receivables, payables and inventories, although that is as secondary factor. It is notable that all three are showing a downwards trend relative to sales, so the issue is gradually diminishing with scale.
I agree that specific explanation would be helpful, but I think this is very likely due to the new DISINPLUS hand gel. This is their own brand that they manufacture themselves, which might also explain why their brands profit margin has risen so much.
Have you sold yet Effortless?
No, still here, but not with 100% conviction.
Thanks for this update. I find negative views are most valuable in my stock selection (saving me time and often money).
You're welcome.
That said. My scepticism isn't always right and (particularly during bull phases) I would benefit from being more believing...so adjust accordingly
Yeah - VLG was my stock pitch to the club... I'm afraid I haven't written up my notes yet.
Thanks Ed. I just added a reply here to Paul / Mojomogoz which may help.
Venture Life (LON:VLG) is in the Investment Club so I try to keep an eye on it... I must admit, I'm surprised by the strong rerating on this news.
I wonder if management has guided anywhere to the potential commercial value of this development? My instinct is that long term value will come from a more standard branded domestic goods strategy rather than playing a meaningful role in the fight against Covid.
I can't see any mention of a patent or anything like that to deter competition from making similar changes to their formulation.
That's not to knock VLG at all - happy to hear any counter points and, as I say, I'm invested via the Stockopedia Investment Club & think it could do well!
I agree, Jack, but since it recently dived on news of the COVID vaccine, which was equally illogical for the same reasons, I feel that we have ended up back at around the right place.
I can't see any mention of a patent or anything like that to deter competition from making similar changes to their formulation.
A secret recipe is probably more valuable than a patent as it is harder to copy. (cf. Coca-Cola)
Hi Jack.
The strategy is not a Covid strategy at all. These trials are just a possible cherry on the cake. Please see my reply to Mojomogoz which gives quite a bit of detail. I have written 3 articles on here with detail after lots of discussion with CEO.
Strategy is 10% organic growth /year and 10% via acquisition.
Yes, I do now think that there is some mouthwash excitement in the price, maybe 100p might be right until FY which I think will lead to broker upgrades.
Michael
So I assume you will be taking up the rights Michael ?
One of the most interesting things about these results is that they found that it was not just the CPC on its own:
"Cardiff University went on to state that the 'exact formulation is also important'. Whilst the CPC technology in Venture Life's mouthwash proved highly effective in the in-vitro study, they also tested a third mouthwash, which also contained both CPC and another ingredient, yet this proved ineffective. Their conclusion was that active ingredients in mouthwashes were not, on their own, enough to rely on, but rather it was the construct of the mouthwash formulations that was the critical determinant of a successful outcome. The Board considers the composition of Venture Life's CPC-based mouthwashes to be unique".
So the big question is did they use the clove or the mint version?
That's interesting because I had a look at a selection of mouthwashes in the supermarket this afternoon. Every single mouthwash except Listerine contained CPC.
So they would need some kind of extra rider on these results if they want to get a march on everyone.
Hi Nick
The VLG brand are a particular formulation which give these results, unlike other brands tested.
Here is the RNS so you can read for yourself - "exact formulation is also important"
https://www.investegate.co.uk/...
That was the exact point I was replying to! I see now I didn't phrase it quite right - but I meant that they had to add that rider in order to distinguish themselves from the masses.
Having followed it for past few months, invested this morning before seeing your article. Happy days and weeks ahead!
Good luck Peter!
Is this expected to be more effective than iodine?
I do not know but is iodine taken orally? I thought it was applied to a wound.
This VLG specific CPC formulation is under examination in these tests and has passed the first of 2 tests with flying colours. It is more effective than the other brands of mouthwash which were tested.