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Venture Life Group delivers strong FY24 following acquisition of Health and Her

10:58, 4th February 2025
Paul Hill
PMH Capital
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When smart investors build chunky stakes in unloved stocks, I take note. Indeed, Slater Investments has been quietly accumulating shares in Venture Life Group (VLGFollow | VLG over the past 6 months, and now owns a 23.5% position, compared to 18.0% back in July.

Why? Well, not only are consumers typically loyal to VLG's niche healthcare products, but also the firm is profitable, winning market share and cash generative, as evidenced by this morning's positive trading update.

Dec FY24 revenues ticked up 1% to a record £51.8m (£51.4m LY), with sales of its higher-margin own brands (£34.0m vs £30.5m LY) impressively climbing 9% LFL (split +7% price vs 2% volume), representing 66% of the group (59% LY) - partially offset by a -15% decline in 3rd party brands at £17.8m due to tough comparatives and client destocking.

Here VLG's '4 Ps' strategy is going down a treat, boosting Promotion, widening Place (re new retail listings and online) and improving Product performance, whilst judiciously lifting Prices amid today’s value-conscious consumer backdrop.

Better still, this favourable mix alongside in-sourcing Earol manufacturing and easing input cost inflation, have helped push FY24 gross margins up 2.2% to 42%, with H2 hitting 45%.

Elsewhere, Nov's £10m acquisition of specialist menopause brand 'Health & Her' is dovetails well with VLG's expertise in intimate women's health (re Balance Activ), supply chain strengths and extensive retail footprint, adding "at least £1m of EBITDA in 2025".

Regarding the FY'24 numbers, EBITDA came in at £11.3m, with adjusted EPS and net debt (pre IFRS 16) forecast by house broker Cavendish to come in at 4.3p and £17.5m (£13.7m Dec'23) respectively - the latter being equivalent to 1.7x EBITDA (1.3x Dec'23), which is anticipated to decline to £10m and <1x by Dec'25.

Looking ahead, I expect more of the same - further top line growth, gross margin expansion, greater marketing spend, new distribution agreements, economies of scale and product launches. In fact, Cavendish has raised its target price to 88p/share (vs 68p before) and have penciled in turnover, EBITDA, PBT and adjusted EPS to all rise YoY to £66.0m, £13.8m, £4.6m and 6.3p.

In turn, putting the stock on modest FY25 multiples of 3.9x EV/EBITDA and 5.6x PER, falling to 3.4x and 4.5x 12 months later. In comparison, consumer healthcare peers Haleon and Kenvue trade on PERs of 19.4x and 17.6x.

CEO Jerry Randall commenting: "I am pleased to see the Group finish 2024 broadly in line with our expectations, with the increased spending on the marketing of our VLG Brands delivering good growth in challenging market conditions and compensating for weaker Customer Brands".

"The acquisition of Health & Her has been an excellent addition to the VLG Brands portfolio, broadening our ever increasing presence in the fast growing Women’s Health space, and also being accretive to gross margin. We are extremely positive for the outlook for growth in both our revenues and profitability in 2025."

Finally, the consumer healthcare sector is consolidating, so don't be surprised if one day someone comes knocking. For instance, private equity house DBAY Advisors recently agreed to acquire Alliance Pharma for £350m or 8.3x EBITDA and 12.5x PER.

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The information, investment views and recommendations in this article are provided for general information purposes only. Nothing in this article should be construed as a solicitation to buy or sell any financial product relating to any companies under discussion or to engage in or refrain from doing so or engaging in any other transaction. Any opinions or comments are made to the best of the knowledge and belief of the writer but no responsibility is accepted for actions based on such opinions or comments. Vox Markets may receive payment from companies mentioned for enhanced profiling or publication presence. The writer may or may not hold investments in the companies under discussion.

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