Wednesday, 18 April 2007

Paradigm Capital Initiates $17 Target on Neptune


Claude Camiré of Paradigm Capital has initiated coverage on Neptune with a BUY rating and 12-month target of $17.

Mr. CamirĂ© states that "Neptune has taken advantage of the increased demand by manufacturers for various Omega-3 products and has developed a unique phospholipid/Omega-3 carrier which is significantly safer, more effective and more bioavailable than other Omega-3’s on the market. As a result, we expect significant revenue growth in the next two years as Neptune enters into strategic partnerships to market NKO in functional food followed by a prescription drug."

"Neptune is ultimately focused on using a different NKO formulation for the pharmaceutical market. We believe that large pharmaceutical companies are focused to find replacements for cholesterol drugs given the recent failure of Torcetrapib (Pfizer) in Phase III clinical trials and the launch of many generics in coming years. Large pharmaceutical companies have been busy acquiring companies developing new cholesterol drugs focused both on mainly increasing HDL and lowering LDL: Abbott Labs bought KOS Pharmaceuticals for US$3.7b and Pfizer acquired Esperion Therapeutics for US$1.3b."

"The greatest value in Neptune is the potential use of NKO as a drug. On that basis, Neptune has already completed Phase II/III clinical trials for different therapeutic indications and has had partnership discussions for multiple purposes. However, we have only restricted ourselves to value NKO for the cholesterol market."

"Given Neptune’s near-term revenue potential (functional food) and its large potential pharmaceutical applications (cholesterol), we believe the stock exhibits positive risk return attributes. Consequently, we are initiating coverage with a Buy rating and a 12-month target price of $17.00, based on a risk-adjusted DCF (Discounted Cash Flow)."

Mr. Camiré is calling for revenues of $41.4 million in F2008 (May 31) and EPS of $0.10 and $58.4 million in sales with EPS of $0.70 in F2009.