Preventative Health Shift And Microbiome Therapies Will Support Strong Long-Term Business Upside

Catalysts

About Biome Australia

Biome Australia develops clinically validated microbiome-based therapeutics and preventative medicines for health professionals and pharmacies.

What are the underlying business or industry changes driving this perspective?

• Accelerating adoption of preventative health solutions and condition-specific microbiome therapies positions Biome’s evidence-based portfolio to capture a larger share of prescription-adjacent spend, supporting revenue growth and higher earnings.
• Growing mainstream medical acceptance of co-prescribing probiotics alongside chronic disease medications, including statins and reflux treatments, expands Biome’s addressable market within the 330 million annual Australian prescriptions and lifts average basket size and gross margin dollars per pharmacy.
• Structural under-supply of sophisticated probiotic brands in highly regulated markets such as Canada, Ireland and New Zealand, combined with Biome’s early-mover approvals and distribution, creates capacity for international scaling that can progressively rebalance the revenue mix toward higher-margin offshore sales and earnings.
• Rising demand for non-pharmaceutical options to manage metabolic, menopausal and gastrointestinal conditions, including GLP-1 users and aging populations, supports category growth for the newly launched Activated Therapeutics range, driving incremental revenue with minimal additional overhead and expanding net margins.
• Industry pressure on undifferentiated supplement brands from regulation and discount models favors clinically proven, premium products that are not routinely discounted, enabling Biome to preserve its gross margin profile while operating leverage from higher throughput converts more of each incremental sales dollar into EBITDA and net profit.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Biome Australia's revenue will grow by 39.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.2% today to 18.5% in 3 years time.
• Analysts expect earnings to reach A$9.3 million (and earnings per share of A$0.04) by about December 2028, up from A$214.7 thousand today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 29.8x on those 2028 earnings, down from 406.0x today. This future PE is greater than the current PE for the AU Personal Products industry at 13.7x.
• Analysts expect the number of shares outstanding to grow by 0.64% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.22%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The current growth trajectory relies heavily on maintaining premium positioning and avoiding discount channels. Any consumer downtrading during economic weakness, or a shift toward cheaper, undifferentiated supplements, could slow volume growth and pressure revenue and gross margins over time.
• International expansion into Canada, Ireland and New Zealand is capital and execution intensive. If regulatory delays, slower than expected uptake or weaker partner performance emerge in any of these markets, the company may not achieve its targeted offshore scale, limiting long term revenue growth and EBITDA expansion.
• The strategy depends on ongoing clinical trial success and sustained differentiation from competitors. Adverse trial results, failure to commercialise Biome owned intellectual property or a faster move by larger global players into clinically validated probiotics could erode Biome’s pricing power and compress net margins.
• Scaling the education led sales model requires more specialist staff and controlled inventory build. If wage inflation, higher bonuses or misjudged stock levels outpace sales growth, operating leverage could reverse, reducing EBITDA and net profit despite rising top line revenue.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of A$1.0 for Biome Australia based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be A$50.2 million, earnings will come to A$9.3 million, and it would be trading on a PE ratio of 29.8x, assuming you use a discount rate of 7.2%.
  
• Given the current share price of A$0.4, the analyst price target of A$1.0 is 60.5% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.