Shares in Venture Life (VLG:AIM) leapt almost 30% higher to 64.5p on Monday after the consumer self-care company announced its largest-ever contract win with the signing of a new and exclusive agreement with its existing Chinese partner for mouthwash brand Dentyl.
Worth a minimum of €168m, the 15-year tie-up with its unnamed Chinese partner covers the distribution of products in Greater China (China, Macau, Hong Kong and Taiwan) and a number of the Bracknell-based group’s products besides Dentyl, the brand acquired for £4.2m in 2018.
Broker Cenkos calculates the €168m minimum purchase obligation ‘equates to, on average, £10m of revenues and potentially £4m of earnings before interest, taxation, depreciation and amortisation (EBITDA), per year, to 2034’ for the AIM-quoted company.
A LOOK AT VENTURE LIFE
For the uninitiated, Venture Life makes and commercialises products for the global self-care market which are available through pharmacies and sold in major supermarkets.
With operations in the UK, Holland and Italy, Venture Life’s portfolio includes the UltraDEX and Dentyl oral care ranges, food supplements for maintaining brain function, medical devices for women’s intimate healthcare, fungal infections and proctology, not to mention dermo-cosmetics for addressing the signs of ageing.
MYSTERY PARTNER SHOWS SUPPORT
Venture Life chief executive Jerry Randall reckons this minimum value commitment, which the partner is required to purchase in order to retain the exclusive distribution rights, ‘demonstrates our partner’s long term intention and support for these important brands’.
Alongside recent final results, which showed record revenues and continued growth, Venture Life announced that it had already received orders from this Chinese partner for Dentyl and other key products in excess of €7m for delivery in 2020.
At the start of this year, the partner started a new marketing initiative and demand has increased rapidly, both pre and post the COVID-19 situation in China. Venture Life’s partner largely sells its products online and bears all the sales and marketing costs too.
WHY BROKERS ARE BUYERS
Reiterating its ‘buy’ recommendation on the stock, Cenkos believes the agreement ‘significantly improves the group’s long-term financial position. The deal clearly validates Venture Life’s Chinese strategy and its partner’s commitment to the long-term development of these key products.’
The broker also sees potential upside to estimates from Chinese orders already received for 2020 as well as hand sanitiser sales.
Also reiterating its bullish stance is Panmure Gordon, which insists today’s news ‘adds further to the company’s commercial momentum. We will be looking to the potential beneficial impact on our estimates in due course and, in the meantime consider our existing 90p target price signifies substantial value upside against the current share price.’
