Turnarounds are often one of the best ways of making money. The trick is choosing the right opportunities & when to invest.
To me, this means focusing on quality stocks (eg high margin products) with strong balance sheets that are experiencing short term issues.
On this score, OTC consumer healthcare group Venture Life (VLG ) has all the hallmarks of a fallen angel. After suffering a few temporary growing pains due to a slowdown in Chinese sales, alongside a covid related hangover from customer destocking (eg hand sanitiser gel), raw material availability, input cost/freight inflation & tough LFL comparatives.
Nonetheless IMO, all these problems should be largely ironed out in 2022, with news today that the company had appointed a new exclusive Chinese distribution partner (Samarkand) for its leading oral care brands (Dentyl & UltraDEX) covering the next 5 years.
The key advantage this time being that Samarkand is UK based, publicly listed & possesses substantial expertise locally in connecting UK brands (eg Omorovicza, Temple Spa & Philip Kingsley) to the Chinese consumer. An excellent strategic fit for VLG wrt culture and market knowledge.
So how much possible upside is there? Well at 39p the stock trades on a modest 5.8x 2022 EBITDA (£8.1m Singer) vs typical OTC branded stocks at 15x-20x
Indeed, push the clock forward say 5 years, & I estimate revenues should comfortably grow organically by 5% pa to >£50m by 2026 – delivering EBITDA margins (re post further economies of scale) of 23% (vs Est 20% 2021). Which theoretically, assuming a 10x-15x multiple - would generate a £115m-£170m valuation, worth 90p-130p/share.
CEO Jerry Randall adding "Samarkand brings two key benefits which I think will be paramount to our success. Firstly having a UK base that we will interact with directly, making communication quicker and simpler than with a partner direct in China. And secondly being their own team in China. We expect this to make transacting business much simpler and more effective than it was with our previous relationship.”
[Elsewhere] following the months of intense integration since the acquisitions of both BBI Healthcare (£36m in Jun’21) and Helsinn (£4.7m Aug21), our commercial team is starting to make good progress on exploring & exploiting the expected synergies. A new distribution agreement