Read onwards for information about a biotech stock trading on the TSX that:
Has an interesting pipeline with recent FDA clearance
Is making money now and is particularly profitable when flu pandemic concerns arise
Is tightly traded for tremendous upside potential
And, most importantly, a near billion dollar Canadian pharmaceutical company bought a significant stake in the company at market price
After my successful trade of TRE from the $2's to my $5 target, I have been looking for a new stock to place those gains in addition to Futura Loyalty. And then I found the perfect one which has had a ton of excellent news over the last couple of days, and yet the price of the stock is still relatively capped at a little less than its 52-week high.
A lot of people have heard of Cold-FX. Its an herbal treatment to reduce the frequency and severity of colds and flu symptoms and is supported by the likes of Don Cherry. What many people might not know is that the parent company, Afexa Life Sciences Inc, trades on the TSX under the symbol FXA. Cold-FX has been an incredible seller for the company, as evidenced by their company year end financials. Despite having a market cap of just under $60M, their revenue for the past year was $40M with a slightly positive EBITDA and a slightly negative net income. These numbers in themselves would look great for a junior biotech company. But if we look at prior years' financials where the flu pandemic was at large, sales and profits were much higher. If concerns of a flu outbreak rise once again, sales of the product will increase.
Even if today's sales were 0, the company makes a very compelling case for it being valued at much higher than $60M market cap with their pipeline. Their goal is to become one of the first FDA-approved medicines in the polymolecular botanical drug category (a type of natural medication) and they took a significant step in that by gaining clearance for a Phase 1B clinical trial for AFX-2. The drug's goal is to help cure people with a type of Leukemia as outlined below:
"EDMONTON, ALBERTA -- Afexa Life Sciences Inc. (TSX:FXA) today announced the U.S. Food and Drug Administration (FDA) authorization of a Phase 1B clinical trial of AFX-2 (CVT-E002™) as an Investigational New Drug (IND) in adults with Chronic Lymphocytic Leukemia (CLL).
The successful completion of this milestone for AFX-2 marks the initiation of the Company's strategy to obtain FDA approval as one of the first medicines in the polymolecular botanical drug category. The FDA clearance of this important initial step affirms the Company's regulatory, scientific, and quality capabilities in developing novel polymolecular medicines.
Although numbers vary, current estimates suggest approximately 130,000 individuals in the United States suffer from CLL. CLL is the most common type of leukemia, representing roughly one third of all leukemia cases in the U.S."
130,000 cases means 130,000 potential clients. A poster on Stockhouse put it very simply today. Although the math seems a little off, the idea is right. 130K clients spending $2K a year (a fair amount, but not financially impossible for someone who wishes to cure themselves) leads to $260M a year in revenue, much of that going straight to the bottom line. And remember the company trades at less than $60M in market cap. Of course there's a ton of biotechs out there that trade at similar market caps vs potential markets of their drugs. But the difference between them and FXA is that they heavily burn through cash and need venture capital investors who dilute the stock at low prices in order to remain liquid until they receive revenues. All Cold-FX needs to do is make enough money to offset the costs related to getting AFX-2 to market and we are looking at a company of $260M a year purely in profits.
I can write a fine story like this, telling you how undervalued this company is and you can choose to believe me. Or you can choose to believe Paladin Labs, a pharmaceutical company that has doubled its market cap over the past year to nearly $900M.
Refer to the Financial Post article here
Now, the article states that Paladin bought a stake in the Cold-FX maker Afexa, but logic stands to reason that they have researched AFX-2 and that's the reason why they bought shares at market. Reading the Financial Post article as well as Afexa's News Release with respect to the issue, you can see that Paladin bought shares indiscriminately up to 55 cents from the 30's. Do you think they intend to breakeven on those 55 cent purchases?
If you take a look at how the stock trades, you can see it is thinly traded and that just a small amount of volume can really move the stock. Paladin accounted for nearly all the volume on Friday July 15th, and less than 500K shares were responsible for a 20% leap in price on July 18th. The stock's jump is not the work of day traders or momentum players - yet. This is all based purely on significant investor purchases and positive news releases. Imagine what will happen once the day traders and momentum players get in on it. Remember when the Gene Simmons joining Ortsbo craze started? Originally INT's stock jumped from the 50's to low 70's before taking off to the $3's a couple of weeks later.
The difference between INT and FXA is that there is a strong chance that FXA would stay at those levels as Paladin's investment is likely just the first of many and that Afexa will end up being bought out by Paladin. You could say that I'm trying to start a buyout rumour, except that the Financial Post article already started it for me:
"Market watchers saw the buy as a hint that Paladin might eventually move to acquire a bigger stake in the Edmonton-based developer of naturally sourced supplements.
Douglas Loe, an analyst with Versant Partners, said in a research note Monday that it could signal a growing interest in the firm and was relatively positive about the prospect.
“Investment itself could be mildly positive to future earnings, since Afexa looks attractively valued to us,” he said."
Note the underlined part of the quote. This is not myself saying it, but an analyst. While FXA might be too small to gain coverage, the purchase from Paladin Labs and the positive view of this from an analyst shows you what they think of Afexa.
Investing in FXA means you're investing in a company with revenues today and huge future revenues tomorrow. They have a tremendous potential for a buyout and unlike other biotechs which invest in hard drugs with potentially severe side effects, Afexa's alternative medicine remedies may unleash a huge positive influence on society and the industry where people can actually improve their lives 100% through the use of drugs.
Monday 18 July 2011
Thursday 14 July 2011
The Next Big Canadian Tech Stock II
Refer to my first post here. Since then Futura Loyalty (TSXV:FUT) has stabilized in the 4 to 4.5 cent range, up from 3, while its industry counterparts INT, SCG and FSW have struggled.
FUT has greatly expanded its growth potential as it has completed partnerships with the auto dealer associations in Alberta, British Columbia and Nova Scotia in addition to the one it has signed with TADA.
Recently FUT had its AGM. The Stockhouse poster Kings Kid was kind enough to post a detailed summary of the AGM on the message boards.
Read the summary of the AGM here
I will dissect certain parts of it here to provide further commentary on the positive outlook for Futura.
"Existing aeroplan mile revenue this year over last year’s goal was a 5% increase in total miles issued, there goal was to have a 90% retention rate of existing clients. After first quarter they have increased the total miles 40%, and that is just from existing clients prior to TADA, in there Q1 results there was no revenue from dealerships. We will start to see revenue from the TADA starting in Q2. They have also retained 100% of their clients from 2011 for 2012."
The area I want to focus on here is the retention rate and how good this is relative to other businesses. My financial background in Canada is in the telecommunications industry. I know from experience that Bell, Rogers and Telus have churn rates of around 1.5% to 2% each MONTH for their wireless phone, TV and internet clients (a little less for landline phones). Meaning by the end of the year they lose over 20% of their customers. Futura had an aggressive goal of retaining 90% of their clients and they came back with having signed up ALL of their clients in 2011 for 2012 as well.
This is an extremely good sign for the business. It shows that clients find Futura's services useful and necessary, trust the company to provide those services to a high standard and also believes that the company will thrive. If Futura did not have a bright future, you would think at least one of their clients would cut ties and find an alternative way to provide a loyalty program to their customers. Think how many people stopped buying GM cars because they were worried about their financial troubles a few years ago and how that would affect issues like warranties and such.
Futura is B2B which makes it a little bit easier to retain clients, but even the business divisions of the telcos would love to retain 90% of their clients each year. And you can't even compare Futura's retention rate to something like INT. Who knows how many people used Ortsbo once and dropped it. Or the incredible rise and fall of a fad like Crocs, both in sales and in stock price. Futura is not promoting a fad or a novelty. Its promoting a real service needed by real companies to provide an improved customer retention experience. How many TSX Venture stocks with market caps less than $10 million can say that?
"Their profitability level is 128 dealers, this is reached by estimating that the avg dealer will sell about 40,000 miles per month. For the avg dealer to reach the 40,000 miles per month they need to sell 1 car per month where miles are given and 3 service/tires per month where miles are issued. (40,000 miles is equal to $2,000 revenue to FUT) Numbers that seem very reasonable and achievable! I also feel the number of 128 dealers is very achievable by the end of 2011, my guess is that, that number will be surpassed by the start of Q4 again this is just my opinion and not what I was told at the AGM, the number I would like to see my the end of the year and I think is very reasonable is 150 as the projected dealers by the end of the year are between 65 and 80 and I feel that is low, 80-90 is more realistic in my opinion."
This is an incredibly useful piece of information. The company has disclosed exactly where it will breakeven and how it will get there. It has 45 current/near future clients out of 300+ dealers associated with TADA after less than 6 months since the deal was signed. Now that it has signed up with three more associations, with two of them being of equal size to TADA, it's fair to expect that they can get 10-15% of those association members as their clients and triple their dealer count within 6 months, getting to their breakeven level. With all of INT's press releases with hundreds of different numbers and metrics, I have yet to see one where they disclose an estimate of their breakeven point.
"-Aeroplan refers all accounts under 50 locations to Futura that they receive interest from."
Out of all the points that impress me, this could be the most important one of them all with respect to long-term growth of Futura. In Part One to this blog post, I assumed that Groupe Aeroplan was merely compliant in the business of Futura, meaning that they would not actively engage in stealing clients away from them or compete in their market space. Now its confirmed that Groupe Aeroplan is actually ACTIVELY ENGAGED in promoting Futura's business to any client that is viewed as too small by AER. I'd be willing to guess that the vast majority of business devoid of a loyalty program at this stage are those business with less than 50 locations anyways.
Does Google Translator actively refer people to Ortsbo? Does Green Dot actively refer smaller or Canadian retail locations to SelectCore? No! At least not without an agreement and a referral fee sometime in the future. So who has the true competitive advantage here?
"- FUT is in 558 retail locations"
And remember, they managed to retain all of these in 2012. Its a lot easier to retain 10 clients than 558. If all 558 say yes (albeit some are chains which only need the approval of one manager) that's saying something about Futura's services.
"- FUT goal is to double last years overall areoplan sales in 2011 from 2010 total of 34,000,000"
No wonder AER likes them so much. This is not exactly chump change to them.
"-FUT has been talking with Ontario Dealers Association and has almost finalized deal"
Once this is done, Futura will have the inside track to providing loyalty services to over 75% of all dealers in Canada, with the last major hurdle being Quebec. According to this listing, there are nearly 2,000 dealers across Canada though I do not believe this is a complete list.
"-When asked FUT believes that they can be profitable by Q4 2011 or 2012 Q1 at the latest"
This comes in line with my point above that they will reach breakeven in another 6 months.
- FUT receives $.05/ mile in revenue
Again, more evidence of FUT disclosing real revenue numbers. A rarity for small cap Venture stocks.
So when you buy Futura Loyalty you buy a company on the Venture Exchange for less than $10M market cap that:
Has the support of 100% of its clients
Has a straightforward, transparent and achievable business plan
Clearly discloses exactly how it will get revenue and when it will breakeven
Has the direct support of a multibillion dollar company, Groupe Aeroplan
FUT has greatly expanded its growth potential as it has completed partnerships with the auto dealer associations in Alberta, British Columbia and Nova Scotia in addition to the one it has signed with TADA.
Recently FUT had its AGM. The Stockhouse poster Kings Kid was kind enough to post a detailed summary of the AGM on the message boards.
Read the summary of the AGM here
I will dissect certain parts of it here to provide further commentary on the positive outlook for Futura.
"Existing aeroplan mile revenue this year over last year’s goal was a 5% increase in total miles issued, there goal was to have a 90% retention rate of existing clients. After first quarter they have increased the total miles 40%, and that is just from existing clients prior to TADA, in there Q1 results there was no revenue from dealerships. We will start to see revenue from the TADA starting in Q2. They have also retained 100% of their clients from 2011 for 2012."
The area I want to focus on here is the retention rate and how good this is relative to other businesses. My financial background in Canada is in the telecommunications industry. I know from experience that Bell, Rogers and Telus have churn rates of around 1.5% to 2% each MONTH for their wireless phone, TV and internet clients (a little less for landline phones). Meaning by the end of the year they lose over 20% of their customers. Futura had an aggressive goal of retaining 90% of their clients and they came back with having signed up ALL of their clients in 2011 for 2012 as well.
This is an extremely good sign for the business. It shows that clients find Futura's services useful and necessary, trust the company to provide those services to a high standard and also believes that the company will thrive. If Futura did not have a bright future, you would think at least one of their clients would cut ties and find an alternative way to provide a loyalty program to their customers. Think how many people stopped buying GM cars because they were worried about their financial troubles a few years ago and how that would affect issues like warranties and such.
Futura is B2B which makes it a little bit easier to retain clients, but even the business divisions of the telcos would love to retain 90% of their clients each year. And you can't even compare Futura's retention rate to something like INT. Who knows how many people used Ortsbo once and dropped it. Or the incredible rise and fall of a fad like Crocs, both in sales and in stock price. Futura is not promoting a fad or a novelty. Its promoting a real service needed by real companies to provide an improved customer retention experience. How many TSX Venture stocks with market caps less than $10 million can say that?
"Their profitability level is 128 dealers, this is reached by estimating that the avg dealer will sell about 40,000 miles per month. For the avg dealer to reach the 40,000 miles per month they need to sell 1 car per month where miles are given and 3 service/tires per month where miles are issued. (40,000 miles is equal to $2,000 revenue to FUT) Numbers that seem very reasonable and achievable! I also feel the number of 128 dealers is very achievable by the end of 2011, my guess is that, that number will be surpassed by the start of Q4 again this is just my opinion and not what I was told at the AGM, the number I would like to see my the end of the year and I think is very reasonable is 150 as the projected dealers by the end of the year are between 65 and 80 and I feel that is low, 80-90 is more realistic in my opinion."
This is an incredibly useful piece of information. The company has disclosed exactly where it will breakeven and how it will get there. It has 45 current/near future clients out of 300+ dealers associated with TADA after less than 6 months since the deal was signed. Now that it has signed up with three more associations, with two of them being of equal size to TADA, it's fair to expect that they can get 10-15% of those association members as their clients and triple their dealer count within 6 months, getting to their breakeven level. With all of INT's press releases with hundreds of different numbers and metrics, I have yet to see one where they disclose an estimate of their breakeven point.
"-Aeroplan refers all accounts under 50 locations to Futura that they receive interest from."
Out of all the points that impress me, this could be the most important one of them all with respect to long-term growth of Futura. In Part One to this blog post, I assumed that Groupe Aeroplan was merely compliant in the business of Futura, meaning that they would not actively engage in stealing clients away from them or compete in their market space. Now its confirmed that Groupe Aeroplan is actually ACTIVELY ENGAGED in promoting Futura's business to any client that is viewed as too small by AER. I'd be willing to guess that the vast majority of business devoid of a loyalty program at this stage are those business with less than 50 locations anyways.
Does Google Translator actively refer people to Ortsbo? Does Green Dot actively refer smaller or Canadian retail locations to SelectCore? No! At least not without an agreement and a referral fee sometime in the future. So who has the true competitive advantage here?
"- FUT is in 558 retail locations"
And remember, they managed to retain all of these in 2012. Its a lot easier to retain 10 clients than 558. If all 558 say yes (albeit some are chains which only need the approval of one manager) that's saying something about Futura's services.
"- FUT goal is to double last years overall areoplan sales in 2011 from 2010 total of 34,000,000"
No wonder AER likes them so much. This is not exactly chump change to them.
"-FUT has been talking with Ontario Dealers Association and has almost finalized deal"
Once this is done, Futura will have the inside track to providing loyalty services to over 75% of all dealers in Canada, with the last major hurdle being Quebec. According to this listing, there are nearly 2,000 dealers across Canada though I do not believe this is a complete list.
"-When asked FUT believes that they can be profitable by Q4 2011 or 2012 Q1 at the latest"
This comes in line with my point above that they will reach breakeven in another 6 months.
- FUT receives $.05/ mile in revenue
Again, more evidence of FUT disclosing real revenue numbers. A rarity for small cap Venture stocks.
So when you buy Futura Loyalty you buy a company on the Venture Exchange for less than $10M market cap that:
Has the support of 100% of its clients
Has a straightforward, transparent and achievable business plan
Clearly discloses exactly how it will get revenue and when it will breakeven
Has the direct support of a multibillion dollar company, Groupe Aeroplan
Subscribe to:
Posts (Atom)