Transition To Solution Provider Will Accelerate Market Penetration By Late 2025

Key Takeaways

• ArcticZymes is shifting from raw materials to solutions, aiming for revenue growth through closer customer interactions and market penetration by late 2025.
  
• New product launches and OEM agreements are set to boost revenue and competitive positioning, especially in cell and gene therapy markets.
  
• Increased competition and challenging market conditions could pressure ArcticZymes' margins and delay revenue growth due to higher operational expenses and strategic transformations.

Catalysts

A life sciences company, develops, manufactures, and commercializes recombinant enzymes for use in molecular research, in vitro diagnostics, and biomanufacturing in Norway, Germany, Lithuania, France, Italy, rest of Europe, the United States, and internationally.

• ArcticZymes is investing in a commercial transformation to shift from being a raw material supplier to a solution provider, which is anticipated to enhance revenue as the company positions itself closer to customers and accelerates market penetration by late 2025.
  
• Progress in securing an OEM agreement for SAN enzymes and CDMO partnerships by 2025 is expected to bolster revenue growth significantly, as these agreements increase market access and customer base expansion.
  
• Launch of new GMP grade nuclease products and a sensitive ELISA kit over the next year is projected to drive revenue growth and strengthen ArcticZymes' competitive positioning in the cell and gene therapy markets.
  
• Increasing focus on expanding the molecular tools segment, despite a recent sales dip, with strategic hires and market repositioning, is expected to create opportunities for revenue growth in the coming quarters.
  
• Planned strategic investments in marketing and sales optimization, alongside lead generation enhancements, are anticipated to improve market reach and revenue, with expectations set for performance improvements in the molecular tools segment by Q4 2024.

ArcticZymes Technologies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming ArcticZymes Technologies's revenue will grow by 13.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.2% today to 19.0% in 3 years time.
• Analysts expect earnings to reach NOK 30.7 million (and earnings per share of NOK 0.6) by about January 2028, up from NOK 4.6 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as NOK9.9 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 31.6x on those 2028 earnings, down from 154.1x today. This future PE is greater than the current PE for the GB Biotechs industry at 17.3x.
• Analysts expect the number of shares outstanding to grow by 0.18% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.95%, as per the Simply Wall St company report.

ArcticZymes Technologies Future Earnings Per Share Growth

Risks

• The company experienced a challenging quarter with a loss in revenue, particularly in the Molecular Tools segment, impacting earnings negatively.
  
• There is increased competition in the SAN (Salt Active Nucleases) market, which may pressure ArcticZymes to invest more in marketing and innovation, affecting net margins.
  
• A significant transformation is underway that requires substantial investment in commercial operations and marketing, leading to increased operational expenses and potentially lower short-term profitability.
  
• The macroeconomic environment is challenging, especially for smaller biotech companies, which are core customers for ArcticZymes; this could impact revenue growth if funding remains difficult for these clients.
  
• Delays in securing agreements and launching new products may push the timeline for realizing revenue benefits beyond the current forecast, impacting future revenue projections.

Valuation

• The analysts have a consensus price target of NOK16.0 for ArcticZymes Technologies based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be NOK161.4 million, earnings will come to NOK30.7 million, and it would be trading on a PE ratio of 31.6x, assuming you use a discount rate of 6.0%.
  
• Given the current share price of NOK13.96, the analyst's price target of NOK16.0 is 12.8% 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.