From Cannacord's morning coffee today:
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Patheon Inc. (PTI : TSE : $10.00) Tony Yue, Ph.D. (604) 643-0195
Recommendation: BUY
12-month target $12.00-15.00
52-week price range: $11.95-1.95
Shares O/S: 43.0M
Float: 80%
Weekly trading volume: 750,000
Market capitalization: $430M
Very strong Growth continued in the Third Quarter of fiscal 1999
Patheon posted another very strong growth quarter. While revenue
increased 98% in the third quarter of fiscal 1999 to $36.2 million
from $17.8 million, EBITDA operating income surged 132% to $5.5
million from $2.4 million, and net earnings before unusual item jumped
141% to $2.1 million from $0.9 million. EPS also doubled to 5.1 cents
from 2.5 cents. Cost associated with the discontinued transaction to
acquire a Buffalo facility from Bristol Myers Squibb reduced the third
quarter of fiscal 1999 net earnings to $1.7 million or 4.1 cents/share.
Management indicated that the new Monza site has been making a solid
contribution to the top and bottom lines and that both the European
and North American operations also exceeded expectations in terms of
operating margins. EBITDA margin rose to 15.5% in the third quarter
of fiscal 1999 from 13.2% a year ago. Revenue mix was: OTC 28%, Rx
62%, and PDS 10% for the third quarter of fiscal 1999, compared with
OTC 46%, Rx 40%, and PDS 14% for the third quarter of fiscal 1998.
For the first nine months, revenue was up 87% to $91.3 million from
48.9 million, EBITDA operating income gained 110% to $14.0 million
from $6.6 million, and net earnings before an unusual item doubled to
5.0 million from $2.5 million. EPS were up 71% to 12.3 cents from 7.2
cents. EBITDA margin improved to 15.3% from 13.6%. The unusual item
mentioned above reduced fiscal 1999 nine months net earnings to $4.6
million or 11.3 cents. The reported results before the unusual item
are ahead of our expectations.
Purchase of Swindon and Bourgoin Plants will Close as Scheduled
Contrary to street rumours, the purchase of the Swindon, England and
the Bourgoin, France facilities from the Hoechst Mario Roussel Group
is scheduled to close on the original target date of October 31, 1999.
Financing is in place and these two facilities will complement the
Monza operations; together, the three European plants will generate
revenue close to $150 million. The newly acquired facilities will
greatly strengthen Patheon's capabilities, it will significantly
increase its presence in Europe, and will further establish the
Company as a leading outsource manufacturing service provider for the
pharmaceutical industry worldwide.
Expansion of the Management Team to support Growth
In addition to the recent appointment of Mr. Aldo Braca as general
manager - European Operation, Patheon has added Dr. Shabbir Anik as
vice president, Scientific Affairs, Pharmaceutical Development
Services (PDS), Mr. John Van Schepen, B. Comm., C.A., M.B.A., as vice
president, Administration and Corporate Controller, and Dr. Joe
Blaker, as senior advisor, European Operations. All of these
executives have extensive experience in the pharmaceutical and/or
manufacturing industries.
Investment Opinion: BUY
We think growth oriented investors should BUY Patheon shares at the
current level. The Company will maintain its strong growth momentum
through acquisitions and internal expansion. The $37 million backlog
at the end of the third quarter of fiscal 1999, for delivery over the
next three months, suggests that EPS for the fourth quarter of fiscal
1999 could exceed 5 cents, raising the full fiscal 1999 EPS to 18
cents. We have also raised our fiscal 2000 EPS forecast to 38 cents. |
