Equity firm Lodge Partners says it has upped its target price for EZZ Life Sciences after it celebrated successes despite a difficult market. Pic via Getty Images.
Health & Biotech
EZZ has the endorsement of equity firm Lodge Partners who has praised the company for navigating difficult market conditions and upped its target price.
Equity tech firm Lodge Partners has praised genomic-tech firm EZZ Life Science Holdings (ASX:EZZ) for navigating a difficult FY22 and has increased its target price on the company.
In its latest comprehensive report Lodge Partners said EZZ’s management team had successfully navigated a difficult period for the company due to both domestic and international covid-related challenges.
Lockdowns around much of Australia and internationally at various times impacted EZZ, while changes in the regulatory environment across e-commerce marketplaces and platforms in mainland China also had an impact.
“EZZ’s management team has been able to successfully navigate a difficult period for the company due to both domestic and international COVID-related challenges,” the report said.
“Despite the challenges that arose, management were able to safeguard the company from long-term impacts through the prudent management of expenses.
“Further to this, during the period, the company was able to further diversify its revenue mix through the launch of seven new high-margin EZZ consumer health products, with strong initial take-up.”
Lodge Partners said EZZ has made the right moves for growth with establishment of four new distribution channels in addition to Tmall Global including its own e-commerce channel and in May launching a store on Douyin, China’s version of short-video platform TikTok. Douyin boasts more than 700 million active users in mainland China.
“This is a significant step for the company as it diversifies sales and distribution channels into its biggest international market,” Lodge said.
Initial take up on Douyin of EZZ”s products has been strong, with a number of EZZ products already winning awards for the bestselling nutrition and food products over 30 days.
“EZZ is now well positioned to capitalise on these initiatives and recommence on its growth trajectory over coming years, as the COVID recovery phase continues globally,” the report said.
Since its establishment in 2018 EZZ, which focuses on sale, distribution and research into skin care and consumer health products, has experienced significant growth.
Listing on the ASX in March 2021, a year later EZZ had its ASX listing changed from retail to a pharmaceutical, biotechnology and life sciences company.
EZZ the exclusive distribution rights for the EAORON brand of skin care products to pharmacies, supermarkets and specialist retailers in Australia and New Zealand.
In 2020, EZZ launched its own internally developed brand of consumer products, which it distributes to retailers across Australia, New Zealand, and China.
EZZ is focused on genomic research and product development to isolate and unpack four key health areas including:
The company now has a total of 17 EZZ consumer health products on the market and aims to launch a further 10 products over the next 12 months.
EZZ’s strategy going forward is to continue to invest in research and development to accelerate the development of new high-margin high-demand products.
In H1 FY22, a strategic decision was made to reduce marketing and advertising expenditure in response to continued market uncertainties.
This led to a decline in revenue by approximately 50% from $13 million in H1 FY21 to $6 million in H1 FY22.
However, the company’s financial performance rebounded strongly in H2 FY22 generating revenue of ~$9 million by diversifying key distribution channels to bring total revenue for FY22 to more than $15 million.
Around 54% ($8.14m) of revenue was attributed to the sale of higher-margin proprietary EZZ- branded products, representing an increase from 51% in FY21 ($11.37m), with the remaining portion due to sales of EAORON products ($6.88m in FY22).
EZZ had maintained profitability and a balance sheet strength with $10.5 million cash at bank as of June 30, 2022, placing the company in a strong position to pursue growth initiatives.
Lodge Partners said it has valued EZZ using a discounted cash flow model (DCF) using a WACC of 12.47% and terminal grow rate of 2%.
“Our model conservatively forecasts top line revenue growth of 20% over coming years and a long-term gross margin of around 50%,” the report said.
“We have also gradually increased advertising expenses as a percentage of total revenue to reflect the renewal of marketing on Tmall, and for new marketing initiatives on Douyin as well as in the ANZ markets.
“If the Company can achieve the forecasted double-digit revenue growth and maintain or improve its margins, we expect EZZ to generate significant free cash flows over coming years.”
Lodge Partners maintains a buy recommendation on EZZ, increasing its price target from 51 to 84 cents, which reflects an implied return of 175.4% from current levels.
This article was developed in collaboration with EZZ Life Science Holdings, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.
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