Today markets are suffering from an acute bout of schizophrenia. Why?

Well on one hand, investors seem to worship the tech heavy S&P500 index up +20% YTD (21.4x PER and PEG 1.4x). Yet on the other, they hate UK smallcaps with AIM down -2.3% (12.7x PE and PEG 0.6x).

Investing, though, isn't quite as bipolar as the stats suggest. Rather, much of this under-performance is due to the shift to passives, AI FOMO, and greater risk aversion, creating buying opportunities for those with a 3-5 year time horizons.

Ok, so what looks interesting? Well, one quality stock to consider is Venture Life Group (VLG) , a consumer healthcare products firm that is not only defensively biased and economically resilient, but also profitable and cash generative, as evidenced by this morning's 'in line' H1'24 results and positive guidance.

Here revenues came in flat at £23.5m, with sales of its higher-margin own brands (£12.9m) and private label (£1.0m) climbing 8% and 10% respectively. Albeit offset by a -7% decline in 3rd party brands (£9.6m), reflecting strong comparatives (Gelclair) and destocking.

Four of VLG's power brands - Balance Activ (£3.3m), Lift (£3.1m), Earol (£2.8m) and Ultradex (£1.3m) - performed well, generating growth of 14%, 35%, 22% and 18% respectively, driven by new retail listings, product launches and a 50% jump in online DTC activity (£2.5m) due to greater advertising spend.

Elsewhere, a favourable product mix, in-sourcing manufacturing, and easing input cost inflation, pushed gross margins 0.9% higher to 38.1%. Similarly, reducing net debt (pre IFRS 16) to £10.5m (£13.7m Dec'23), cutting leverage to 1.1x EBITDA (1.3x Dec'23) and providing ample headroom for possible future M&A.

Sure, headline H1'24 adjusted EBITDA and EPS declined to £3.6m (£4.4m) and 0.4p (0.64p), but this was primarily due to enhanced marketing (10.3% of branded revenues vs 6.7% LY), which should ultimately normalise as the business scales.

Looking ahead, FY'24 results will (as normal) be H2 weighted, underpinned by robust visibility and Q3 trading that is consistent with analyst estimates. House broker Cavendish (target price 68p/share) is forecasting FY24 turnover, EBITDA, PBT and adjusted EPS of £52.5m (£51.4m LY), £11.7m (£11.6m), £3.1m (£1.8m) and 5.5p (5.3p), climbing to £59.4m, £13.1m, £5.6m and 6.1p respectively in 2025.

This would put VLG on modest FY24 multiples of 6.0x EV/EBITDA and 8.7x PER, falling to 5.4x and 7.9x in 2025 - alongside net debt closing Dec'24 at £8.3m, equivalent to a 0.71x EBITDA. In comparison, consumer healthcare peers Haleon and Kenvue trade on PERs of 21.3x and 21.2x.

CEO Jerry Randall commenting: "The increased investment in marketing and strengthening of relationships with major retailers is delivering evident results. The Board remains confident to achieve management’s expectations for FY24 and to continue the growth trajectory into 2025."

 

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