Found this at the PAI webpage:
pa-investors.com
Description
Embrex, Inc. (NASDAQ: EMBX) is the world's only supplier of commercial in
ovo (in the egg) automated vaccine injection systems for the broiler
chicken industry and is developing or marketing corresponding biological
products. The company has developed and commercialized a proprietary egg
injection and transfer system called the INOVOJECTr system, which
eliminates the need to manually vaccinate newly hatched broiler chicks.
Embrex markets the INOVOJECTr system to commercial poultry producers,
charging a fee for each egg injected. The company's technology provides a
cheaper, faster, and more humane way to vaccinate the birds at a time
when food safety seems to be the paramount issue in the food industry.
As of the end of fiscal year 1997, Embrex was injecting approximately 80%
of the eight billion chickens raised in the U.S. annually, and continues
to expand internationally - with systems operating in over 180 hatcheries
worldwide. Embrex also develops patented pharmaceutical and biological
products that are designed to be injected through the INOVOJECTr system.
These injections improve bird health, reduce bird production costs, and
provide other economic benefits to the poultry industry.
Competitive Advantages
*Company Positioning: The INOVOJECTr system can inoculate 20,000 to
50,000 eggs per hour and eliminates the need for manual post-hatch
injection, the current procedure in virtually all hatcheries in the U.S.
that have not converted to the use of Embrex's system. (Not only is
manual post-hatch injection costly, it is also relatively slow. One
person working at top speed can inject 1,500 eggs in one hour. A team of
14 people would be needed to match the low-end estimate of the INOVOJECTr
system output.) Embrex plans to retain its strong proprietary position by
aggressively patenting key elements of its technology, monitoring for
patent infringement, improving the injection system, and developing
additional biological products. The sales, marketing, and distribution of
additional biological products to existing customers facilitates
increasing revenues and operating margins.
Embrex injects approximately 80% of the U.S. market. The company plans to
aggressively increase worldwide penetration. It has systems operating in
Ireland, the United Kingdom, the Netherlands, Belgium, France, Spain,
Italy, the Czech Republic, Turkey, Israel, Egypt, South Africa,
Australia, and South Korea and intends to enter other Asian and Latin
American markets during the next few years.
*Societal Trends: Chicken, chicken eggs and other poultry promise to
remain principal sources of protein around the world. Currently, only a
fraction of the global poultry industry is serviced by Embrex. As the
world population increases and the INOVOJECTr system gains more global
market penetration, Embrex's revenues will increase.
*Technology: Embrex's technology is its primary competitive advantage.
The INOVOJECTr system in conjunction with Embrex's proprietary Viral
Neutralizing Factor (VNFr) technology (which permits single dose
immunization of the avian embryo effective for the life of the bird) can
deliver biological products and fungal vaccines that are modified for in
ovo delivery. Also noteworthy is that Embrex is marketing its own
proprietary in ovo vaccine, BursaplexT, for protection against Avian
Infectious Bursal Disease (IBD). Embrex continues to register and apply
for the necessary patents to maintain its technological edge as new
innovations are developed. Furthermore, it continues to invest in
research and development including a recently opened research and testing
facility.
Valuation
Embrex has impressive revenue visibility and a dominant position in a
lucrative, defensible niche. Large multi-year contracts with Tyson Foods
and Perdue Farms, the two largest companies in the industry, and the
ever-growing popularity of chicken as a food source will help the company
to do well even in a down economy.
Embrex has a three-year projected annual earnings growth rate of almost
50%. Its 1998 projected P/E ratio of 18x is only .38x this growth rate.
If BursaplexT works well, we feel that Embrex could earn more than the
model below reflects. This earnings model assumes a high introductory
price for the BursaplexT vaccine, with a slow to moderate acceptance.
Earnings over $0.50 per share in 1999 are possible if BursaplexT is
widely accepted.
At the end of 1997, Embrex was trading at a price-to-cash flow of 7.5x.
This compares favorably to the Russell 2000's price-to-cash flow of 23.8x
and to the Russell 2000 Technology Sector ratio of 27.3x for the same
time period. Russell 2000 earnings are projected to grow 28% in 1998
compared to Embrex's estimated growth of almost 48%. Embrex gives you
more than one and one-half times the estimated growth rate of the Russell
2000 at only one-third the price-to-cash flow. Relatively speaking, this
is an excellent bargain.
Earnings Model
(In millions except for For Years Ended December 31,
Earnings per share
data) 1997 1998E 1999E 2000E
Revenues: $24.79 $30.70 $37.70 $45.00
Percent Growth: 20.1% 23.8% 22.8% 19.4%
Gross Profit: $12.55 $15.96 $19.60 $23.40
Gross Margin: 50.6% 52.0% 52.0% 52.0%
Net Income: $1.76 $2.60 $4.38 $6.20
Earnings per share: $0.21 $0.31 $0.50 $0.68
Percent Growth: n/m 47.6% 61.3% 36.0%
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Definitions:
FY - fiscal year; EPS - earnings per share; Cal. Yr. - calendar year; P/E
and P/E ratio - price-to-earnings ratio; E and Est. - estimated; STI -
short term investments; and CAGR - compound annual growth rate; n/m - not
meaningful.
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("PAI") on the matters discussed rather than statements of fact. Opinions
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