• GSS’s share price could almost triple, according to Taylor Collison
  • Taylor also believes Good Drinks could outperform
  • Shaw and Partners says it has a target price on Zip that’s 4x current share price


Genetic Signatures to nearly triple

Taylor Collison has maintained its Outperform recommendation on Genetic Signatures (ASX: GSS), with a price target that could almost triple.

The broker has a price target on GSS of $2.21 share price (vs current price of $0.80).

GSS put in a solid sales performance in H123, beating the broker’s forecasts, despite delays in the FDA submission for clearance of the Enteric Protozoan test kit in the US.

Taylor says this FDA clearance remains key for the company, with approval now expected before the end of April vs AGM guidance targeting December.

The FDA usually aims to complete review of 510(k) applications for clearance to market medical devices within 90 days of receipt.

But given that GSS has needed to develop and validate traditional 4-base comparison PCR tests for 5 of the 8 targets in the Enteric Protozoan test kit, Taylor expects the FDA to have a number of questions.

“While the delay is disappointing, it does not diminish the US market opportunity for GSS,” said the note from Taylor Collison.

“We conservatively assume that the FDA review will take the full allowance of 270 calendar days, with the FDA decision regarding marketing clearance being announced in Q1 CY24, with the commercial launch soon afterwards.

“We have therefore revised our forecasts, and now assume potential FDA clearance and commercial launch in Q1 of calendar year 2024.”

Taylor says it also forecasts US sales for GSS of US$10m in FY25, and around US$60m in FY28.


Good Drinks to outperform

Taylor Collison also views Good Drinks Australia (ASX:GDA) as a comfortable Outperform.

Taylor says GDA is an appealing story with scale potential, experienced management, and a share price which isn’t expensive – trading at 9.4x FY23, and 6.6x FY24 EV/EBITDA.

Its peers meanwhile trade on 12x and 10x respectively.

GDA has a very deliberate strategy to reduce contract brewing, increase its own-brand, partner on agency distribution, and diversification through venues – and is currently outperforming the broader beer market through that strategy.

“Further international brand distribution deals are likely to be pursued as GDA leverages its well-resourced sales and marketing team, national footprint, and broadening brand portfolio,” said the note from Taylor Collison.

According to the broker, margin pressures have peaked at $1.20 per litre (cost of goods) in the first half.

The high freight and raw material embedded inventory that caused much of this pain has begun to cycle off and should exit GDA’s systems by May 2023.

The broker believes reduced discretionary spend experienced over Q2 requires careful navigation over the next 18 months, as consumers become more cost conscious.

“We are less cost concerned, and more demand cautious as we progress into FY24,” said Taylor’s note.

With cost pressures and softening demand capping near-term growth, however, Taylor has reduced GDA’s FY23 EBITDA forecast from $11.8m to $10.5m.

“Notwithstanding micro-cap and discretionary consumer-demand risks, we still view GDA as a comfortable Outperform,” said Taylor Collison.


Could Zip share price quadruple?

Meanwhile, Shaw and Partners has retained its Buy rating on Zip Co (ASX:Zip) with a price target of $2.02 (vs current price of $0.52).

In the first half, Zip took actions to improve its balance sheet with $110m of liabilities retired, and an upsized $300m debt issuance.

The company also wound down its non-core businesses in the half, discontinuing products in Singapore, UK, and Mexico – with closure of the Middle East well on track.

Whilst Zip continues to walk the tight rope on capital, Shaw & Partners believes the second half should see an improved position on cash losses, as well as an improvement on cash liquidity and inflows from the closure of those businesses.

“The Rest of World business should result in cash inflows as debt financing facilities flow back to the company,” said the note from Shaw & Partners.

“Any cash inflows are likely to be received positively by the market, noting that there appears to be low market expectations on this occurring.”

In the first half, Zip delivered cash NTM (net transaction margin) of 3.5%, and a strong gross profit of $122m.

“Importantly over time, we expect recognition to emerge that Zip can control yield, credit and cost better than the market is currently giving credit towards,” says Shaw & Partners.

“Furthermore, Zip’s product construct is attractive to strategic acquirers in our view, with Australia leading the way in BNPL moving towards credit legislation.”

Shaw & Partners has, however, increased Zip’s cost base forecasts going into the second half.

“The net result of our changes is that our target price on Zip has reduced marginally to $2.02.”


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