Identifying investors’ psychological biases can be a profitable way of boosting returns. This can occur when companies are impacted by temporary headwinds, but get incorrectly ‘labelled’ as ‘show me’ stories for far too long.
Take healthcare products firm Venture Life (VLG) as a case in point. At 34p, the shares trade on a modest 5.3x EV-to-EBITDA multiple versus peers trading at circa 12x. That's despite serving demographics-drivensecular growth markets, which deliver robust pricing power and 17%-20% EBITDA margins from its stable of niche over-the-counter (OTC) healthcare brands including UltraDex, Dentyl, Lift, Pom-T, Procto-eze, Balance Activ, Myco-care and Glucogel).
The company isn't totally out of the woods - it's still having to negotiate input cost pressures, supply chain challenges and Covid related lockdowns in China. But the company says some of these issues have "plateaued", while a growing orderbook is helping it buy supplies more effectively - and suggests efforts to share input cost increases with customers are working.
After reporting a solid first half - with sales up 4% LFL to £18.9m at 40% gross margins and ending with pre-IFRS16 net debt of just £2.6m - it remains on track to hit analyst expectations for FY 2022. Broker Singer excpects EPS of 2.9p, EBITDA of £8.2m on revenye of £40.5m. As a sign of confidence, Non-Exec Chairman Paul McGreevy snapped up 277,151 shares afterwards at 35p (for a total of £97k), well below Singer's 65p target price.
CEO Jerry Randall commented: "The challenging retail and supply chain environment continued in H1’22. But notwithstanding this, a number of our own brands, as well as some customer brands, have demonstrated strong revenue growth.
"The margin improvement seen versus 2021 is particularly encouraging, and customers have been very responsive to our request to order further out than their normal lead times, enabling us to both ensure supply of raw materials and packaging in time to produce and manage costs.
"The unlocking of Shanghai should allow our new partner [Samarkand] to begin to sell our products there. The Board is confident Venture Life will deliver a FY’22 performance in line with market expectations."