|
|
| |
|
| |
| Jenny Ruth's Column | | For archival copies of Jenny Ruth's Column click here... | | | | 22nd October 2006 | Honey health products company Comvita isn’t wasting any time in achieving its goal of tripling its 2005 sales by 2010.
After a swag of relatively small purchases since late last year, the company is currently in the throes of raising $10.3 million through a one-for-four rights issue at $3 a share.
Given that the shares were trading at $3.40 and the rights at 35 cents, it seems likely the company will raise most if not all the money it is seeking – the issue isn’t underwritten.
While the company says the money will be used partly to strengthen its balance sheet, it also has its sights set firmly on further acquisitions.
At June 30, equity was 47.4 per cent of total assets, so it wasn’t a particularly stretched balance sheet.
Sales in 2005 were $31.3 million and the company wants them to reach $100 million in 2010.
While chairman Neil Craig, whose firm ABN Amro Craigs is managing the rights issue, says in the prospectus that the company has achieved a compound sales growth of 20 per cent and compound earnings growth of 25 per cent over the past five years, it hasn’t all been plain sailing.
The last time the company went to the market for more capital was in early 2004 when it raised $7.5 million at $2.05 a share. While that prospectus had forecast a $1.58 million annual profit, the actual result was only $1.26 million.
In particular, progress with its manuka honey wound dressings has been persistently slower than expected throughout the products’ development.
The latest delay has been in getting US Food and Drug Administration (FDA) approval to sell the products in the US market.
In May, chief executive Brett Hewlett had been hoping to get FDA approval by August to allow for a US launch in September. The company is still awaiting approval and the launch has been put back to about May next year.
For Warren Couillault at Fisher Funds Management, which took a $1.5 million share placement in Comvita ahead of the rights issue and is committed to taking up its rights as well, taking its stake to 11.6 per cent, it is the wound care products that provide the company’s "blue sky" promise.
"The challenge is to go from making pots of honey to making medical honey – they will call it wellness honey," Couillault says.
If Comvita puts 25 grams of manuka honey in a jar, its profit margin is perhaps $5. Put that same amount of honey into a tube of ointment to rub on wounds and the margin might be as much as $20. But put that honey into a patented Comvita wound dressing and the margin could be $100, he says.
A US broker has estimated that the potential market in the US alone could be US$2 billion.
In Comvita’s favour, it has secured about half New Zealand’s production of Manuka honey, which has unique healing properties that other types of honey don’t, making it difficult for anyone to compete against it directly. However, the fine print in the prospects shows it is currently facing patent challenges in Australia and Europe.
"Comvita will always be exposed to intellectual property risk," the prospectus says.
Couillault says he isn’t too worried about the delays in getting regulatory approval – as a rule of thumb, he says he adds a year onto any forecast of when FDA approval might be forthcoming. "It’s a huge process and they’re very thorough. It takes a long, long time."
It does seem as if it’s a matter of when, not if. Comvita already has Conformite Europeene certification, the European Union equivalent of FDA approval.
Comvita has significantly beefed up its management team in the last year or so. Hewlett, who previously worked in marketing for Tetra-Pak, took up his role in September last year and three of the other five senior executives have been appointed this year. | | You can buy a transcript of the interview behind this column ($5) or subscribe to a year’s worth -- 48 interviews ($100) by emailing: info@jennyruth.com | |
|
|
|
