Wednesday, 19 January 2011

Neptune's Future Value Creators

Neptune Technologies & Bioressources
Basic Shares: 42.0 million
Fully diluted: 45.48 million

Catalyst Equity Research analyst Robin Cornwell has provided some additional persepectives on why he believes Neptune's shares are undervalued by $3 to $5. His comments come in a follow on report to last week's management quarterly results conference call. In case you missed that call, click here.

Mr. Cornwell noted that while Q3F11 revenues of $4.3 million were a little lower than his $4.5 million forecast, gross margins of 48% were in line with expectations. While he's dropped his F2011 (Feb. 28) sales number to $17.3 from $18 million, he's calling for $24 to $26 million for F2012.
However, why he feels NTB is well undervalued is backed up by several items.
1) NTB's 57% owned pharma driven subsidiary Acasti, is set to go public very soon. Management is looking to have Acasti listed on the TSX Venture Exchange by the end of February. Mr. Cornwell feels Acasti could get to $100 to $250 million in valuation within a year. Based on its percentage ownership, that would add $1 to $2 of value per share to Neptune (writer's comment). Of note, this is based on Acasti finally receiving Health Canada (CTA) approval for a Phase II clinical trial to get underway. Of course, the trials would have to be successful.

2) Simply based on NTB's core nutraceutical business (health capsules), it's trading at 15 to 17 times F2012 adjusted EBITDA. This implies there is no value being attributed to the medical food (Onemia) and pharma initiatives. Onemia is FDA approved and a marketing program aimed at U.S. doctors has been running for the last two months.

3) Acasti is a comparison to Amarin (AMRN - NASDAQ). Amarin is running concurrent Phase 3 trials for its pharma driven fish oil based treatment for cardiovascular disease. This is Acasti's target market. As a writer's note, Acasti as stated above is still awaiting approval to proceed with a Phase 2 trial while AMRN is in the heat of Phase 3. The point is that AMRN's market cap is around $1.4 billion!
Amarin late last year announced it had hit key end points for reducing Triglycerides, on which Acasti also has its target set. Animal results as announced in two previous news releases say NTB/Acasti has produced startling results that exceed all competitors in the push for finding a natural marine based treatment for cholesterol issues.

Mr. Cornwell's point is that there could be substantial future value for Acasti & NTB. Please note the AMRN chart below. To read Mr. Cornwell's update, click here.
Please click on the chart to enlarge