Plant Based CDMO Expansion And Health Pros Network Will Drive Long Term Upside

Catalysts

About BioHarvest Sciences

BioHarvest Sciences develops and commercializes high value plant derived compounds using its proprietary Botanical Synthesis platform, serving nutraceutical, pharmaceutical, cosmetic and nutrition end markets.

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

• Expansion of VINIA BloodFlow Hydration into the fast growing U.S. electrolyte hydration category, supported by multi channel marketing and Health Pros, can create a new recurring revenue stream and lift total revenue growth above current mid to high double digits.
• Rapid scaling of the Health Pros professional affiliate program, combined with a broader VINIA product portfolio, is shifting customer acquisition toward lower cost, higher trust channels, which should reduce marketing spend per order and support higher net margins.
• Acceleration of the CDMO pipeline, including saffron, cosmetics and sweetener projects with potential royalty and equity upside, positions BioHarvest to tap large third party product launches, which could materially expand high margin service revenue and long term earnings power.
• Rising global demand for clinically backed plant based health solutions, together with BioHarvest’s ability to produce consistent non GMO compounds at scale, supports premium pricing and volume growth across both DTC and CDMO businesses, enhancing gross margin resilience.
• New institutional capital and planned modular manufacturing expansion, including tripling bioreactor capacity and adding exosome downstream processing, should unlock operating leverage, improve production efficiency and support sustained improvement in adjusted EBITDA and free cash flow.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming BioHarvest Sciences's revenue will grow by 42.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from -36.3% today to 14.3% in 3 years time.
• Analysts expect earnings to reach $13.5 million (and earnings per share of $0.44) by about December 2028, up from $-11.9 million 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 34.6x on those 2028 earnings, up from -11.5x today. This future PE is greater than the current PE for the US Personal Products industry at 22.8x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.28%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The U.S. electrolyte hydration market is described as a very competitive monster category with entrenched billion dollar brands, so VINIA BloodFlow Hydration may struggle to gain meaningful share, limiting the expected new recurring revenue stream and slowing total revenue growth.
• The long term plan assumes a rich and growing CDMO pipeline with a 40% success rate and future high margin royalty streams, but biological complexity, partner delays or project failures could mean fewer compounds reach manufacturing scale, weighing on future royalties and earnings.
• Management expects CDMO revenues to become roughly 75% of the business in 5 to 7 years with margins well north of 70%. Any slowdown in industry adoption of plant based compounds or exosome based products could leave the company overinvested in capacity, pressuring gross margins and net margins.
• The strategy relies on rapid scaling of Health Pros, gyms and other points of sweat as lower cost customer acquisition channels. If recruitment or engagement falls short, marketing efficiency improvements may not materialize, keeping customer acquisition costs elevated and delaying sustained positive adjusted EBITDA.
• The recent institutional equity financing and modular second manufacturing facility plan are intended to support long term secular growth in plant based health solutions. However, if end market demand normalizes or capital markets tighten again, BioHarvest could face dilution concerns and underutilized capacity, constraining free cash flow and earnings growth.

Valuation

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

• The analysts have a consensus price target of $13.67 for BioHarvest Sciences based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $15.0, and the most bearish reporting a price target of just $12.0.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be $94.8 million, earnings will come to $13.5 million, and it would be trading on a PE ratio of 34.6x, assuming you use a discount rate of 7.3%.
  
• Given the current share price of $6.05, the analyst price target of $13.67 is 55.7% 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.