LON:VLG | Venture Life - Placing And Mooted Acquisitions.

9th Dec '20 by Michael Tee

12 comments 808 reads

As is usually the case, news of the placing was announced when the share price was very high - around 104p. A placing of £36million in total at 90p which is large for a company with a market cap. of £85m. Institutions had been sounded out for £34m - a positive and impressive sign that they back VLG plans, and £2 million available to retail holders. Directors were not participating but in fact selling around two thirds of their shares - not a positive sign but then again they had barely sold any shares since VLG was founded in 2010.

Three acquisitions were outlined. The first 'Vulcan' is a quite advanced for about £5 million. Two other acquisitions were outlined for £5million and £15-c£20 million but these seem very early stage from the RNS. They all sounded excellent fits for VLG both in terms of production and sales channels. Acquisitions usually take longer than expected so if Vulcan completes before the end of 2020 that would be very quick. The other two appear some way off, possibly not complete in 2021. On the day the RNS appeared Cenkos published a research note for 2021 including figures with these acquisitions which I consider rather misleading. They may take a long time and as with any potential acquisition, may not happen at all. Whatever happens it will take a considerable time for VLG to deploy this cash which will sit on the balance sheet for the time being.

I like VLG medium and long term plan to grow organically and via acquisition. The site in Italy is large and they have scope to buy additional property where the factory is.

In the near term what positive news can boost the share price from here?

1. Vulcan completing soon and this seems likely.

2. Positive news from the Cardiff University study would mean that VLG sell some more mouthwash but how long will the fight against Covid last? The charismatic and down to earth government advisor, Johnathan Van Tam's football analogy is that we are now 70 minutes into the football match - so we are on the last leg. Is a positive test result really going to make much difference to an enlarged VLG?

3. FY results due in the second half of January. VLG guides the market for £30m rev and £6m EBIDTA. H1 rev was £17.9m so an additional £12.1m. Several commentators including Simon Thompson…

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Nick Hewett

9th Dec '20

Funnily I bought VLG about 40 minutes ago having had an alert trigger for the price being <90p. I liked the last update and the acquisitions. This seems a well run company.

Michael Tee

It is a very good company and in the medium to long term IMO is a winner. I could easily have this wrong but I felt I should update after other articles I had written. Good luck!

Carey Blunt

I always liked Venture Life (LON:VLG) and held for ages after they bought the rights to the Dentyl PH brand but the share didn't move like I thought it might and so I cut it prior to the Covid crash., probably just before it then took off.

I will just have to mark it up as "one that got away". Possibly an issue caused by my own impatience but also I suspect that at the time it was a good choice in terms of defense of my portfolio. I just should have bought back in again at some point.

Metatron

10th Dec '20

I hold the shares and have been very impressed with the management.Do not like director selling and hope it just individuals top slicing their share profits rather than anything to do with the business model.With the Covid crisis there is likely to be a firesell of companies in difficulties coming and companies like VLG trying to put cash in the bank to make acquisitions is a smart policy

I agree there will companies for sale. It will be very important to work out which can perform well in a post C19 environment and this is made more complicated as some have done very well in the last 6 months, but only as a one off.

You can't catch every bus and you need a bit of luck too.

mojomogoz

I only looked at Venture Life (LON:VLG) as Michael told me to.

I think you are all suffering from an excess of credulity. VLG was a potentially lowly priced modest margin biz back in early 2020. It had grown revenues through acquisitions. It hadn't shown a great ability to create operating leverage through it period of acquisitive revenue growth.

Then covid hits and its a star. Amazing that the transformation happened alongside the bug...and that was even before the amazing covid fighting value of their mouthwash was known!...

...or could it be that they sold a sh1tload of highly priced so super high margin handsanitiser?...

Anyone know what's going on above? Why does 'development and manufacturing' have significantly higher margin in HY2019 than 'brands'? That's not the way its expected. I suppose brands might be 'paying' the manufacturing side of the business (owned by Italian) over the odds as production run small. Maybe...so they scale and the margin goes to brands? But then why would this single business run like two? Where does the power lie?

Then look at HY2020...take off on the brands and their margin now approaches 'development and manufacturing' too. Ahem, bs. What's that £4.2m inter-segment sale? That's a biggie! Its a whole heap of cheap and cheerful hand sanitiser, allocated over to brands -> lovely story about brand success and margin...but its a bit of a one-off. After covid subsides "DISINPLUS' is at best white label supermarket product, not a cashable brand.

UK development of Dentyl was very modest. The growth was a shipload to China. Do we really know that has legs? Why is China buying mouthwash from UK...China makes its own stuff! (and it likely will with this)

VLG are very promotional in their RNSs. Nice work as they stuffed shareholders with a high priced raise after selling wonder stories re fighting covid and YUGE China deal from here to infinity (ie it wasn't just a one off £1.2m sale) and got to unload large shareholding on to them....and then they got some options back at c.43p strike....nice...I'd suggest that's approaching where the share price will go.

What's the raise for? Dunno, going to buy some stuff in future!

Where we at now....approx 120x 2019 earnings. Only 45x expected 2020 earnings tho...but ex hand sanitiser what if that's really more like, say, 90x earnings...ouch. And without hand sanitiser and no actual new acquisitions in the bag how are 2021 net profits going to be £5.5m to deliver that not so overheated 20x earnings? This is fantasy stuff.

All IMO obvs...I'm not expert in the stock so someone who is can easily put me right...

VLG is bs (IMO)...and I've largely wasted my time looking at it. I might be wrong and you guys will make out well...but if I'm right and I save anyone some money then jolly good. DYOR...decide your own risks.

I bought Venture Life in May on the basis that it seemed to have formed a good partnerships with both the Chinese firm and Alliance Pharma.It had done well to get its brands into Asda,Morrisons,Sainsbury,Tesco and Wilkinson.The markets that it is involved in have over £100 billion in global sales and these markets are growing at approx6.5% a year.

The risks are that it is a crowded market and sometimes there can be problems with Chinese partnerships. It share price is volatile and investors should be aware of that before buying

Richard Goodwin

11th Dec '20

I don't know if it's true but contrary good post thanks mojo (I'm not a holder and have no view, just appreciate an interesting post)

jonno

12th Dec '20

It is always good to hear both sides of the argument and I think it is fair to say that most investors, myself included fail to adequately consider what could go wrong when buying a share and instead are more seduced by what they perceive to be the upside.

We can all be wrong and I often am, but Mark Skater is one of the few fund managers in whom I have conviction and he has recently taken Slater Investments holding in Venture Life (LON:VLG) to over 15%. His record in UK equity fund management is impressive, so I am happy to side with Mr Slater until proven wrong.

I have a reasonable holding in Venture Life (LON:VLG), fortunately bought some way below the current placing and open offer price. For the time being I am going to take my lead from Mark Slater's and continue to hold. As always time will tell.

Good luck to all whatever your view.

13th Dec '20

Thanks Richard. My interpretation may not be on the money...but the data points presented by me are true -> facts presented against narrative. Narrative might overcome factual hurdles but in all the breathless bull narrative coverage of Venture Life (LON:VLG) I haven't been given a data based response.

There's a number of points but here's a summary of some:

Mouthwash performance in H1 2020 in UK is not stellar...£1.1m to £1.2m for Dentyl and £1.3m down to £1.0m for Ultradex. It was international that made the numbers and that was £2.3m to China.
0 to £2.3m to China is impressive but how much reliance can you put on that number being a base to work from rather than a one-off. I find it bizarre and hype-y that VLG RNS'd a multi-year contract to China. I know China...this is just not how it works for simple non-premium consumer products to China. How do you discount this...I'd suggest heavily and not swallowing the hype from VLG mgt or stock promoters
By inference, hand sanitiser was a real boon in terms of sales and profit. Mgt even guide that H1 2020 was a bit one-off and unlikely to repeat. This was a superb example of if you have something temporarily scarce you get to print money
Why has 'development and manufacturing' had a historic dominance over brands in both sales and profits? This changed suddenly in H1 2020. Is this really transformation of a business or a one-off event? Its probably a bit of both...but what is the share price discounting?...
Clearly sp is discounting a take-off in growth. To hold its current market cap PAT needs to be north of £5m quite soon. Probably more £7m plus. I'd like someone bullish to explain how this comes. A bumper H1 2020 saw £1.5m PAT. Be generous and double that and FY 2020 currently prices at 38x earnings...
In early 2021 a report of FY2020 profits of £3m will mean that brands and/or Chinese orders have taken a real step up half on half. This is possible...but this does not seem to be the current expectation...of anything a slowdown in H2 is expected as hand sanitiser normalises

My opinion: VLG is a nonsense. All the evidence points to this being outrageously overvalued...I might be proved wrong but that will through a massive surprise in revenue and earnings.

Comparing to Brand Architekts (LON:BAR) is worthwhile a blend of brand and manufacturing historically in consumer goods. Corporate activity there suggests that the value was in manufacturing rather than portfolio of small brands. https://www.stockopedia.com/co...

IMO there's a surfeit of bs in many UK small cap stocks. VLG is a superb example of this, hyped to the rafters by PIs...most buying the story from management rather than looking critically at the numbers. I forecast in H1 2021 the price will be back down sub 40p. There is very little indication that there is a profitable and scaleable brand portfolio (unless you believe in Chinese magic).

Rather than just riding positive short term momentum promoters of VLG need to make a very clear case for why the business is actually fundamentally breaking out H2 2020 and into H1 2021....I'd suggest management have told you they are not as they sold a lot of stock and they have gathered more than a year's worth of revenue through equity issuance to go buy growth through some new brands....who's making the case for this breakout?

BUT...I'm often wrong...

I don't know Slater well. I know his father through Zulu Principle etc. It seems to me that he is a sort of factor based investor who likes earnings surprise and momentum.

VLG fits this factor....maybe they have done some deep dive work and they have intelligence that a huge amount of Chinese orders have come through or will do soon. If it were former by the way then no doubt the promotional VLG would have RNS'd that but really the TU in the 20 Nov placing RNS illustrated that growth slowed down markedly in Q3 2020 as it was only up 29% YoY....whereas H1 2020 was up 70%. Being cynical I'd assume that there's a good bit of hand sanitiser bump in that number for Q3 too...and then for Q4 (2/3rd way through at time of this RNS) mgt used the rather bland words that they have good visibility for Q4 and into early 2021...I read that to mean that its not very positively surprising as if it were they would say that!

Factor in that Q3 2020 was post lockdown and Venture Life (LON:VLG) should have been back to trading normally in UK with regard to mouthwash. There should even be a little bit of restocking bump? Or was the fall in Ultradex in H1 2020 actually a more general fading of that product. These little brands are prone to decline

Venture Life - placing and mooted acquisitions.

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Michael Tee

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