Bioprocessing And Peptide System Capacity Improvements Will Create Future Opportunities

Key Takeaways

• Bioprocessing expansion and improved cost management are driving revenue growth while enhancing operational efficiency and profitability.
  
• Focus on pipeline management and capacity expansion could boost visibility and unlock significant future revenue opportunities.
  
• Reliance on a small customer base and supply chain issues threaten revenue stability and margin pressures impact profitability and earnings predictability.

Catalysts

Provides solutions and products in the areas of drug discovery and development, analytical testing, and water and environmental testing.

• Biotage's Bioprocessing segment is expanding its customer base significantly, which is expected to drive future revenue growth as these customers move from early-stage drug discovery to late-stage development and commercialization. This strategic expansion should help mitigate current revenue volatility.
  
• The company is managing its cost structure and taking decisive actions to rightsize its Bioprocessing cost base, expecting to improve operational efficiency and profitability starting from the second quarter of the year, positively impacting net margins.
  
• Increased demand for peptide systems, despite current manufacturing capacity constraints, suggests potential for mid-single-digit revenue growth in the core business. Addressing these capacity issues could unlock substantial revenue opportunities.
  
• Biotage's focus on pipeline management and customer classification by clinical stage provides better visibility of future revenue streams, allowing more strategic alignment with market opportunities that could enhance long-term earnings.
  
• Sequential improvements in gross margins, particularly strong in the Bioprocessing segment, indicate operational efficiencies and cost control that can enhance profitability as revenue streams stabilize and grow.

Biotage Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Biotage's revenue will grow by 5.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 13.0% today to 18.2% in 3 years time.
• Analysts expect earnings to reach SEK 418.1 million (and earnings per share of SEK 4.75) by about May 2028, up from SEK 255.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as SEK344 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 32.0x on those 2028 earnings, down from 44.2x today. This future PE is lower than the current PE for the GB Life Sciences industry at 44.2x.
• Analysts expect the number of shares outstanding to grow by 0.05% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.36%, as per the Simply Wall St company report.

Biotage Future Earnings Per Share Growth

Risks

• Volatility in the Bioprocessing and Large Molecules sector, particularly due to reliance on a small customer base and fluctuations in Plasma revenue, poses a risk to consistent revenue growth and could impact overall financial performance.
  
• The delay in purchasing decisions driven by macroeconomic factors and announcements by authorities may lead to short-term dips in revenue and affect the predictability of earnings.
  
• A supply chain bottleneck in peptide manufacturing limits the ability to meet demand, resulting in an unfulfilled backlog that could lead to missed revenue opportunities if not resolved.
  
• Adjusted operating expenses have increased due to non-recurring costs and foreign exchange fluctuations, adding pressure to net margins and affecting profitability.
  
• The ongoing risk of short-term revenue volatility, highlighted by nervousness and reluctance among some customers to place orders, underscores potential challenges in achieving stable earnings growth.

Valuation

• The analysts have a consensus price target of SEK143.0 for Biotage 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 SEK2.3 billion, earnings will come to SEK418.1 million, and it would be trading on a PE ratio of 32.0x, assuming you use a discount rate of 5.4%.
• Given the current share price of SEK140.8, the analyst price target of SEK143.0 is 1.5% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.