2Q report available online (dated 30 Dec 1996):
neogen.com
Highlights (other than was has been posted previously), emphasis added:
"Seafood processors are now becoming more diligent in
establishing HACCP plans and putting in place testing
procedures. ***The mandatory seafood inspection program,
supervised by the Food and Drug Administration (FDA),
goes into complete compliance in January, 1998. ***
Due to recent concerns about salmonella infections in shell eggs,
the FDA is also considering imposing new testing
regulations on the nation's egg producers."
I guess I'd forgotten about this 1998 growth prospect.
In addition, NEOG has posted its estimate of FY1997 (ending May 31, 1997) sales/earnings: $15.5M (v. 12.5M) for $0.25 (v. -0.05). This includes a 1997 charge of 700k for restructuring. Operating profit without the charge is ~$0.30.
And finally, an estimate of the potential for Neogen's growth in the test kit field:
"Growing Demand for Safer Food
"The market for diagnostic products for food safety has been
estimated at $500 million per year at the turn of the century by
Dr. David Wheat, a veteran market analyst in the biotechnology
industry. Neogen estimates that it currently controls about 2%
of that market and a handful of its competitors control
approximately another 10%.
"This means that 88% of the total potential market is not
currently using rapid diagnostic test kits. A portion of this
market is still using the older, traditional methods that are
generally slower, more difficult, and more expensive.
"A significant portion of this untapped market is represented by
testing not being conducted today, but where testing will occur
over the next few years.
"Neogen's diagnostic product sales have increased from
$1,763,000 in 1990 to $8,759,000 in 1996. This represents an
increase of approximately 400%. Management believes it has
the vision, skills and dedication to continue to achieve strong
sales growth resulting in above average returns for Neogen's
shareholders."
Making a conservative estimate of NEOGs potential from these numbers (actual market in a few years of $250M, NEOG controlling 1/6th as they do now) gives us $41M in revenue, or about 5 times the FY1996 number. Given that these are high profit margin products, we could easily see NEOG making $1 per share in the next few years. In a more rosey scenerio ($500M market, NEOG controlling 25% through better/wider array of products relative to compettition and acquisitions), we see revenue of $125M, or about $3-4 a share if current ratios of profits to sales are are steady or slightly increasing. Management seems to be trying for the latter, but is set to make money if the future holds the former.
Of course, one should always do homework before investing actual money. In my opinion, NEOG is a great prospect for the next few years.
Rich |
