Quantum Pharma results are coming in few days, CEO is proclaiming successful strategic acquisitions, so perhaps it is time to enter the position. Revenues of the company grew by stunning 61% over the last three years, company aims to vertically integrate, so perhaps it might continue strengthening its positions. The two serious worries are “falling knife” and huge irresponsible indebtedness. Do pluses weight over the minuses?Website: quantumpharma.co.uk

Purchase motives:

Results are coming in few days on 20 October 2015

+ Positive CEO comment on the upcoming results: “The first six months of the financial year have been a busy period at Quantum Pharma. We successfully completed the strategic acquisitions of Lamda and NuPharm and the integration of both these companies into the Group is ongoing. In addition, pleasingly, a number of the business units have had record half years”

+ Growth of revenues for every past 3 years (total +61% growth in 3 years)

+ Company aims to be vertically integrated pharmacy company, which could potentially benefit with cost savings and more influence on the chain of supply.

+/- The trading spread is 1.26/1.23 = 2.4%, which is not very great, but also not above dangerous 5% limit.

+/- Since company is not fully a pharmacy company, but rather the supplier, and only recently made some steps to increase presence in pharmacy sector, it is not fully lucrative sector.

– Don’t grab the falling knife – the share price was declining and this is the main concern! Why is this happening? Some investors know what is happening inside the company? Or is it just trader’s game? For a few weeks the stock price became stable, almost like everyone started to wait for the results that will come on 20 Oct, and then they will make the decision.

– Acquisitions of Greek based (risk?) Lamda in May 2015 for 9.7mEUR (2.1mEUR revenues and -0.14mEUR losses, means P/S=4.6) and NuPharm were quite expensive (NuPharm was acquired for £9.3m + £4m earnouts with revenues of £3.85m, meaning that P/S is 3.5, which is more expensive than Quantum Pharma’s itself P/S 2.2). Hope only that they will have something to be proud in the future periods.

Quantum Pharma - credit: Cronicle Live

Quantum Pharma – credit: Cronicle Live

– Company made 2 large acquisitions over the year and it is a question, whether it will digest quick enough. However taking a credit facility of £35m to replace £15m could be a sign of the overburn. Just before the IPO company had negative equity (£-4.2m) and £49.7m indebtedness, it changed after IPO to respectively £50.7m and £9m, but hopefully company will not return to that aggressive and too fast growth pattern. First it is necessary to digest what is there and grow organically.

Shares bought for total of: £1.254 x 392 shares = £499.07

If shares were sold now, it would be quite painful -4.9% loss. This is the situation when shares are bought in AIM – alternative investment market and not the main market.

It is important to place a stop loss position, since company’s short term technical analysis suggest selling the stock. As a result, stop loss is ultra important – £1.1, which would lead to 15.1% loss.

Price, £ Total, £ Result, £ Result, %
Price bought 1.25 499.07
Selling now price 1.23 474.66 474.71 -4.9%
Target price 1.60 619.70 120.63 24.2%
Stop loss 1.10 423.70 -75.37 -15.1%

Financial Results, Ratios and Forecast 2013-2016

Quantum Pharma 31-Jan-12 31-Jan-13 31-Jan-14 31-Jan-15 1H 2014 1H 2015 1H 2016 Forecast
cap, mGBP 155.0 155.0 155.0 155.0 155.0 155.0 155.0
Sales 38.3 48.3 53.5 61.7 26 28 32
EBITDA 8.4 9.1 9.1 12.2 1.7 5.4 5.5
EBITDA margin 21.9% 18.8% 17.0% 19.8% 6.5% 19.1% 17%
Net income 1 -2.7 -1.9 0.72 -0.7 2.7 2.7
Equity 5.3 3.5 -4.2 50.7 -3.3 -1.1 53.4
Net debt 38.5 44.4 49.7 9 44.7 47.3 29.0
CFO before WC 7.2 6.7 4.5 8.0 2.8 4.8 5.5
P/S 4.0 3.2 2.9 2.5 3.0 2.8 2.4
EV/EBITDA 23.0 21.9 22.5 13.4 58.7 18.9 16.8
P/E 155.0 -57.4 -81.6 214.1 -18.6 5.2 5.9
P/BV 29.2 44.3 -36.9 3.1 -47.0 -140.9 2.9

IPO prospect can be found here. Successful listing on AIM Dec 2014. From 48.5m shares before: 29.6m sold their shares and 76.5m issued new shares for £1, net proceedings £72.8m. The acquisitions of Colonis at the time of flotation. Market cap at IPO: £125m