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Research: Healthcare
Progress has been made in implementing the new corporate strategy and Deinove expects commercial revenues from FY18. Cash resources are sufficient to finance the business for the rest of FY17 and into FY18. Upside for the shares will be dependent on Deinove’s ability to demonstrate commercial deployment of its technology and generate revenue in its target markets.
Written by
Deinove |
Progress implementing the new strategy |
FY16 results |
Pharma & biotech |
6 April 2017 |
Share price performance
Business description
Next events
Analysts
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Progress has been made in implementing the new corporate strategy and Deinove expects commercial revenues from FY18. Cash resources are sufficient to finance the business for the rest of FY17 and into FY18. Upside for the shares will be dependent on Deinove’s ability to demonstrate commercial deployment of its technology and generate revenue in its target markets.
Year |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/15 |
0.5 |
(7.3) |
(66.8) |
0.0 |
N/A |
N/A |
12/16 |
0.8 |
(6.9) |
(64.6) |
0.0 |
N/A |
N/A |
12/17e |
0.5 |
(7.9) |
(56.6) |
0.0 |
N/A |
N/A |
12/18e |
1.2 |
(7.2) |
(44.2) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Reshaping the business
Deinove has made progress in implementing its new strategy (ex-biofuels), which is now focused on two areas: healthcare (antifungal and antibiotics) and industrial biotech (cosmetics and nutrition). Reflecting its strategic objectives Deinove has reconfigured its board, appointing four directors with considerable experience in the pharmaceutical industry, including Charles Woler as Chairman. In healthcare, where a significant market opportunity exists to develop new antimicrobial drugs, Deinove completed (January 2017) its acquisition of Deinobiotics (now 100% owned) and has appointed Bernard Scorneaux (March 2017) as preclinical project manager for the division. Deinove also recently concluded in vitro tests on a number of wild strains of bacteria and successfully identified a number that possess properties which make them suitable candidates for use in its target markets. Following the screening programme, Deinove announced the formation of a partnership with Greentech to develop and market active ingredients for skin care (complementing those with Avril and Flint Hill Resources in nutrition). Deinove expects to bring its first product (carotenoids) to market by the end of 2018. We forecast the first commercial revenue from the Deinochem project in 2018.
FY16 slightly ahead of forecasts
FY16 results were slightly ahead of our forecasts, with revenue of €0.8m (Edison FY16e €0.5m) and a net loss of €6.3m (Edison FY16e €6.7m), in part due to higher revenue, but also as a result of better cost control than we had anticipated. Deinove believes that net cash of €9.3m is sufficient to last until Q118 without further recourse to tranches 3 & 4 of the Kepler facility (€8m). At the same time, Deinove will pursue non-dilutive sources of funding for its healthcare business.
Valuation: Upside potential
Deinove’s target markets are large (cosmetic > $100bn, nutrition >$100bn, health >$50bn). By comparison, its market capitalisation is modest (c €20m), but upside will be dependent on the successful commercial deployment of its technology and its ability to penetrate its target markets and generate revenue.
Exhibit 1: Financial summary
€'000s |
2015 |
2016 |
2017e |
2018e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
492 |
793 |
469 |
1,247 |
Cost of sales |
0 |
0 |
0 |
0 |
||
Gross profit |
492 |
793 |
469 |
1,247 |
||
EBITDA |
|
|
(7,309) |
(6,983) |
(7,300) |
(6,414) |
Operating profit (before amort. and except.) |
(7,331) |
(6,956) |
(7,943) |
(7,155) |
||
Intangible Amortisation |
(634) |
(736) |
(244) |
(426) |
||
Exceptionals |
(10) |
283 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
||
Operating profit |
(7,975) |
(7,409) |
(8,187) |
(7,581) |
||
Net Interest |
(14) |
15 |
0 |
0 |
||
Profit before tax (norm) |
|
|
(7,345) |
(6,941) |
(7,943) |
(7,155) |
Profit before tax (FRS 3) |
|
|
(7,989) |
(7,394) |
(8,187) |
(7,581) |
Tax |
1,633 |
1,115 |
2,078 |
2,580 |
||
Profit after tax (norm.) |
(5,712) |
(5,826) |
(5,865) |
(4,575) |
||
Profit after tax (FRS 3) |
(6,356) |
(6,279) |
(6,109) |
(5,001) |
||
Average number of shares outstanding (m) |
8.6 |
9.0 |
10.4 |
10.4 |
||
EPS - normalised (c) |
|
|
(66.8) |
(64.6) |
(56.6) |
(44.2) |
EPS - (IFRS) (c) |
|
|
(74.3) |
(69.6) |
(59.0) |
(48.3) |
Dividend per share (c) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross margin (%) |
N/A |
N/A |
N/A |
N/A |
||
EBITDA margin (%) |
N/A |
N/A |
N/A |
N/A |
||
Operating margin (before GW and except.) (%) |
N/A |
N/A |
N/A |
N/A |
||
BALANCE SHEET |
||||||
Fixed assets |
|
|
1,968 |
2,366 |
5,623 |
5,056 |
Intangible assets |
117 |
201 |
3,600 |
3,174 |
||
Tangible assets |
1,055 |
853 |
712 |
570 |
||
Investments |
796 |
1,312 |
1,312 |
1,312 |
||
Current assets |
|
|
15,359 |
11,537 |
9,135 |
5,106 |
Stocks |
0 |
0 |
0 |
0 |
||
Debtors |
2,393 |
1,792 |
2,097 |
2,003 |
||
Cash |
11,932 |
9,316 |
6,609 |
2,675 |
||
Other |
1,034 |
429 |
429 |
429 |
||
Current liabilities |
|
|
(2,719) |
(2,142) |
(3,640) |
(4,046) |
Creditors |
(2,719) |
(2,142) |
(3,640) |
(4,046) |
||
Short-term borrowings |
0 |
0 |
0 |
0 |
||
Long-term liabilities |
|
|
(6,512) |
(9,193) |
(10,425) |
(10,425) |
Long-term borrowings |
(6,497) |
(9,178) |
(10,410) |
(10,410) |
||
Other long-term liabilities |
(15) |
(15) |
(15) |
(15) |
||
Net Assets |
|
|
8,096 |
2,568 |
693 |
(4,309) |
CASH FLOW |
||||||
Operating cash flow |
|
|
(7,324) |
(6,079) |
(6,885) |
(6,319) |
Net Interest |
(14) |
15 |
0 |
0 |
||
Tax |
1,633 |
1,115 |
2,857 |
2,985 |
||
Capex |
(289) |
(620) |
(501) |
(600) |
||
Acquisitions/disposals |
756 |
(479) |
(3,642) |
0 |
||
Financing |
14,257 |
752 |
4,233 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
||
Net cash flow |
9,019 |
(5,297) |
(3,939) |
(3,934) |
||
Opening net debt/(cash) |
|
|
3,584 |
(5,435) |
(138) |
3,801 |
HP finance leases initiated |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(5,435) |
(138) |
3,801 |
7,735 |
Closing net debt/(cash) (company definition) |
(12,432) |
(9,316) |
(6,609) |
(2,675) |
||
Source: Company accounts, Edison Investment Research
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