Biogaia (OM: BIOGB) - EV SEK 10.1bn; Price 106 SEK; EV/EBIT 23.7x
Watchlist add: BioGaia is a Swedish biotech company that develops and sells probiotic products. Gut health as a cornerstone of a healthy lifestyle continues to gain awareness, and BioGaia is riding, or one could say leading, that trend.
Financially, the company is in a very healthy state and is poised to achieve excellence. During the past twelve months, the company generated revenue of SEK 1.44 billion and an EBIT of SEK 423 million. The pediatrics segment accounts for approximately 75% of revenue and is showing slow growth in the mid-single digits, while the Adult segment is growing at +20%.
Over the past few years, the growth rate has slowed and margins have compressed somewhat. This has led to the share price having a relatively flat development over the past three years. To our understanding, the decreased margins are an effect of higher OPEX, due to a shift from distributor-based sales to direct sales. In a nutshell, it appears that the company is prioritizing long-term scalability over near-term profits, something we typically prefer, while the market may overreact to this decision. However, without a thorough amount of research on the company, we have limited insight into what is strategically correct.
What piqued our interest was the significant insider purchase by the newly appointed chairman, Mauricio Graber, and the changes in majority ownership. However, the current valuation still feels relatively high to us; we would much rather buy at the peak of pessimism, and we do not believe BioGaia has reached that point yet. We will closely monitor BioGaia and follow the news flow and stock price developments.
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