ARX-Aroa Biosurgery

[Shareguy]

Have taken a small position in Aroa Biosurgery which is a soft-tissue regeneration company that develops, manufactures and distributes medical and surgical products to improve healing in complex wounds and soft tissue reconstruction.  A  NZ company with huge growth to date and a bright future with a large market they say.  Have been following it since it listed on the ASX and think the current share price is attractive. The CEO and founder Brian Ward has 33m shares which is over 9 percent of the total shares.


Brian recently told NBR that he thinks the company is undervalued and expects revenue to surge by up to 40 percent in the second half due to new products.

Wilson's latest says

We maintain our OVERWEIGHT rating on Aroa with a revised price target of $1.60/share. Aroa are clearly developing a sophisticated, high- growth company, with revenue and earnings predictability becoming far clearer. With management guiding to NZ$4-5M EBITDA in 2H24e, investors are right to extrapolate this out to see Aroa delivering >$10M EBITDA in FY25e and >$20M EBITDA in FY26e. Revenue growth and earnings leverage should see ARX rewarded in the next 12 mon

Click on link below for latest annual report

https://aroa.com/wp-content/uploads/2023/07/FY23-Annual-Report.pdf

Disc/ Only a small position and it's just a punt.

[Shareguy]

Nine small-cap stocks tipped to soar in 2024 (from AFR ). This is one of Pies largest positions
 

With investors anticipating rate cuts from the US Federal Reserve and Reserve Bank of Australia in 2024, the bombed out small-cap sector is being touted for big gains as risk appetite returns.
The S&P/ASX Small Ordinaries Index has dropped 23.3 per cent to 2708.6 points since the end of 2021 as the fastest interest rate tightening cycle in a generation erased confidence in a sector that feeds off animal spirits and the lure of huge returns.
 
Michelle Lopez says med tech businesses Aroa Biosurgery and Pro Medicus could deliver in 2024.  Rhett Wyman
"Small caps have been smashed because liquidity was pulled out as interest rates climbed and people didn't want to get caught in small companies if there's a recession," Ophir Asset Management co-founder Andrew Mitchell says.
"If the Fed cuts rates, say in May or June, you could take the view small caps rip from these low levels," he says.
"When the Fed cut rates in December 1974, small caps soared and were the best performing sector on the sharemarket for several years, so if you think you can pick the eyes out of it and buy them lower [than right now], you'll probably miss out."
But rate cuts don't necessarily mean small-cap investors are out of the woods, Mr Mitchell warns because there are persistent fears that less mature businesses will suffer from an economic downturn characterised by weak consumer spending and rising unemployment.
The higher interest rates available on cash in 2023 – around 4 to 5 per cent – also means smaller companies find it harder to raise money to fund the losses often required to deliver strong growth, or finance interest charges on debt.
"Unprofitable tech has been hit very hard," says Mr Mitchell. "We think this could be overdone especially in the micro-cap space."
Nine stocks for 2024
Mr Mitchell names sports hardware and software seller Catapult Sports as a small-cap that could outperform in 2024 and says he thinks it could grow sales at a compound rate of 20 per cent for the next several years, with gross profit margins rising to 80 per cent.
 
"The stock trades at 1.8 times sales now, we think at 80 per cent gross profit margins it should trade at five times sales," he says.
"If they grow the top line at 20 per cent for the next three or four years you double the revenue, and then you put that on five times sales, it has potential to be a $1 billion business, it's currently valued just over $200 million."
Another small-cap stock picker, Michelle Lopez, the head of Australian equities at Pie Funds Management, names Aroa Biosurgery as a business near an inflection point of strong sales growth tipping it into profitability.
Aroa straddles the intersection of medicine and technology, and Ms Lopez says the $235 million biotech may jump in 2024. The biotech produces soft tissue regenerative medicine products that heal complex wounds and Ms Lopez says it has grown sales at a 30 per cent compound rate over the past five years.
"The company is founder-led, has a high level of cash on balance sheet and a well controlled investment program," she says.
"Importantly, profitability is at an inflection point as Aroa scales prior year manufacturing, sales and research investments. Management guided to $1 million to $2 million underlying EBITDA in financial 2024, which implies a strong profit contribution in the second half of the financial year. We expect it will scale rapidly and support strong returns to shareholders."

[Hectorplains]

Nine small-cap stocks tipped to soar in 2024 (from AFR ). This is one of Pies largest positions
 

With investors anticipating rate cuts from the US Federal Reserve and Reserve Bank of Australia in 2024, the bombed out small-cap sector is being touted for big gains as risk appetite returns.
The S&P/ASX Small Ordinaries Index has dropped 23.3 per cent to 2708.6 points since the end of 2021 as the fastest interest rate tightening cycle in a generation erased confidence in a sector that feeds off animal spirits and the lure of huge returns.
 
Michelle Lopez says med tech businesses Aroa Biosurgery and Pro Medicus could deliver in 2024.  Rhett Wyman
"Small caps have been smashed because liquidity was pulled out as interest rates climbed and people didn't want to get caught in small companies if there's a recession," Ophir Asset Management co-founder Andrew Mitchell says.
"If the Fed cuts rates, say in May or June, you could take the view small caps rip from these low levels," he says.
"When the Fed cut rates in December 1974, small caps soared and were the best performing sector on the sharemarket for several years, so if you think you can pick the eyes out of it and buy them lower [than right now], you'll probably miss out."
But rate cuts don't necessarily mean small-cap investors are out of the woods, Mr Mitchell warns because there are persistent fears that less mature businesses will suffer from an economic downturn characterised by weak consumer spending and rising unemployment.
The higher interest rates available on cash in 2023 – around 4 to 5 per cent – also means smaller companies find it harder to raise money to fund the losses often required to deliver strong growth, or finance interest charges on debt.
"Unprofitable tech has been hit very hard," says Mr Mitchell. "We think this could be overdone especially in the micro-cap space."
Nine stocks for 2024
Mr Mitchell names sports hardware and software seller Catapult Sports as a small-cap that could outperform in 2024 and says he thinks it could grow sales at a compound rate of 20 per cent for the next several years, with gross profit margins rising to 80 per cent.
 
"The stock trades at 1.8 times sales now, we think at 80 per cent gross profit margins it should trade at five times sales," he says.
"If they grow the top line at 20 per cent for the next three or four years you double the revenue, and then you put that on five times sales, it has potential to be a $1 billion business, it's currently valued just over $200 million."
Another small-cap stock picker, Michelle Lopez, the head of Australian equities at Pie Funds Management, names Aroa Biosurgery as a business near an inflection point of strong sales growth tipping it into profitability.
Aroa straddles the intersection of medicine and technology, and Ms Lopez says the $235 million biotech may jump in 2024. The biotech produces soft tissue regenerative medicine products that heal complex wounds and Ms Lopez says it has grown sales at a 30 per cent compound rate over the past five years.
"The company is founder-led, has a high level of cash on balance sheet and a well controlled investment program," she says.
"Importantly, profitability is at an inflection point as Aroa scales prior year manufacturing, sales and research investments. Management guided to $1 million to $2 million underlying EBITDA in financial 2024, which implies a strong profit contribution in the second half of the financial year. We expect it will scale rapidly and support strong returns to shareholders."

I hope they do better for you than Alcalcidion Group, one of the other eight picks...that's slowly going down the gurgler...

[Shareguy]

Not so far. Todays downgrade not helping either.

[Davexl]

The share's been tanking - seriously over-done surely at 54.5c ?

[Shareguy]

The share's been tanking - seriously over-done surely at 54.5c ?

I think so. Added to my holding this morning.

[Shareguy]

https://stockhead.com.au/health/stock-insiders-aroa-biosurgery-isnt-wasting-time-counting-sheep/

[Crackity]

It's easy to talk about your winners. However, we're
committed to being candid and not all investments go
according to plan. A small position which detracted from
performance was Aroa Biosurgery (ASX:ARX).
ARX is a soft tissue regeneration company which develops
and manufactures medical devices used primarily in
trauma, hernia and breast reconstruction surgeries.
Founded in 2008, ARX is a New Zealand success story
which ticks a number of our four Ps (Potential,
Predictability, People and Profitability). ARX's value
proposition is faster healing with lower complication rates at
a cheaper price. This proposition has proved compelling,
with revenue growing from $22m in FY21 to $67m-$70m in
FY24. However, FY24 has proved a challenging year.
In November, ARX revised guidance driven partially by
softer sales of a key product Myriad. We materially reduced
our position but retained a small holding given ARX's
potential. This was a mistake.
In January, ARX downgraded FY24 guidance due to lower
than expected sales. Lower sales were attributed to a
myriad of issues including inventory management, a
delayed product launch, lower procedure levels and staff
holidays.
Despite the downgrade, ARX's has plenty of potential:
sales are growing strongly, FY25 should provide an
inflection in profitability and ARX remains well capitalised
with $30m of cash and no debt. However, with investor
confidence wounded, the market will likely require evidence
of execution before ARX achieves a recovery.


DiscoveryFunds Jan musings -I assume you've seen this shareguy but others may not have.....

[Shareguy]

Yes thanks Crackity have seen it. Pie funds have a large holding in their growth fund as well. I understand they are holding onto it and paid way more than current price.

What I like is $30m cash and according to cash flow report 18 Estimated Quarters of funding available. Yet are close to break even with small loss this year. I see it as a delay to profitability.

Looks like a great product with huge growth potential.

[Shareguy]

For those that are interested. Latest Wilson's note

maintain our OVERWEIGHT rating on Aroa Biosurgery however, reduce our PT to $1.00/sh. In the year that Aroa was meant to finally deliver 'proper' earnings, corrections to revenue share assumptions for OviTex has triggered a guidance downgrade. The financial hit is perhaps less significant than that to sentiment, because it reaggravates the argument that Aroa's OviTex business (partnered with TELA) is of lower revenue quality. The next opportunity for Aroa to reinvigorate interest amongst the investor base will be: a) at TELA's result in March (OviTex guidance for FY24); and b) ARX's full year results in May – to demonstrate that despite a 6-month hiccup, fundamentally, the stock is capable of delivering on earnings in FY25E and beyond. Yesterday's 14% hit to share price is likely overdone, however understandable as investor patience wanes. Simplistically, meeting revised guidance and confirming a credible FY25E EBITDA target should at least see ARX trade back in line with its 2-year trailing EV/Rev multiple of 4.0x (now at 2.3x), and ~in line with sector median, which is where our PT now sits.
| Key Points
3Q24 summary. Aroa downgraded revenue guidance for FY24 by approximately 8%, now targeting revenue of NZ$67-70M (WILSe: NZ$75.5M). We estimate that the downgrade splits roughly 60:40 across OviTex and MYRIAD. The OviTex component stems from a new product delay, project payments and having misjudged the revenue 'true-up' in respect of transfer sales to TELA Bio (assumption of percentage stock sold during the period). Aroa's MYRIAD sales guidance also came under pressure, having positioned the product to concentrate on larger trauma procedures. Revised EBITDA guidance is now for a loss of NZ$1-3M (previously positive NZ$1-2M) reflecting the revenue shortfall. Aroa closed 3Q24 with NZ$30.6M cash.
Thoughts on MYRIAD. In terms of MYRIAD, we are cautious not to read too much into the miss in FY24, given earlier stage launches are more impacted by seasonality (surgery rates, sales rep availability), however delivery of at least 70% growth in FY24 is key to maintaining confidence on MYRIAD driving revenue, margin and earnings for the next ≥2 years. On p.3 of this report we include our revised forecasts (minimal changes from FY25E onwards), in order to highlight our longer-term expectations for this product vs. what has been achieved with OviTex.
Forecast changes. Detailed forecast changes are provided on p.3. FY24E changes are in line with updated guidance, and reflect $7.3M (abs) revenue downgrade to previous estimates, driven by OviTex ($3.9M) and MYRIAD ($3.4M), noting we had 100% growth for MYRIAD baked in. FY24E earnings changes are moderated by a lower R&D spend, given the delay in projects with TELA, as well as favourable Fx (0.60 USD:NZD, vs 0.62:NZD). FY25E now looks for 40% growth in OviTex sales (cc basis, guided by TELA's FY23 result in Feb) and 50% growth in MYRIAD (cc basis, representing 3% downgrades). ENIVO revenue (NZ$1.7M) shifts to FY27E. FY26E earnings now includes an additional $2M in R&D spend ear-marked for ENIVO.
Valuation. Our new PT reflects CY24 EV/Rev multiple of 4.0x, sitting in line with its 2-year trading range (95% CI), roughly in line with sector median (3.5x), and a 38% discount to fundamental DCF ($1.62/sh). For reference, forecast changes drove DCF downgrades of 9%, noting rfr increase to 4.0% was updated in late 2023 (already reflected). Previous premium attributed (6.0x) removed until ARX demonstrates revenue quality, profitability, and competitive moat benefits.

[KW]

You know all those funds are just talking up the stock while they are dumping their holdings, right?

Only need to look at the volume in the last 2 weeks to see that instos are selling out. 

[Shareguy]

You know all those funds are just talking up the stock while they are dumping their holdings, right?

Only need to look at the volume in the last 2 weeks to see that instos are selling out.

Maybe. Pie has 14 m alone. Up 5 percent today 🤷

[KW]

Maybe. Pie has 14 m alone. Up 5 percent today 🤷

Low volume day.  The NZ instos are on holiday, its Waitangi Day :-)

[Shareguy]

Interesting article I thought.


https://stockhead.com.au/health/aroa-biosurgery-targets-sales-growth-and-operations-cash-flow-positivity-in-fy25/

[Shareguy]

There was a large seller last week and the share price got a hammering I think on their US partner not meeting guidance. Added to my position. It's been on the way up since and I'm in the green at moment.

Interesting company with huge potential. First cape have been adding.

Latest Wilson note

Investment View
TELA Bio (TELA) missed estimates in 2Q24, reporting US$16.1M OviTex revenue (WILSe:
US$18.4M) but maintained full year guidance at US$74.5-76.5M. Similar but independent cyber-
attacks impacted a national GPO and hospital customer, impacting revenue by ~US$1.5-2.0M.
We maintain OVERWEIGHT rating and $1.00 PT on Aroa Biosurgery. Minimal impact to ARX.
| Announcement Highlights
Aroa's US channel partner TELA Bio released 2Q24 results. OviTex revenue of US$16.1M was below our forecast (WILSe: US$18.4M) representing
11% growth vs pcp. The FY24 revenue guidance range was maintained, noting a recovery in volumes in 3Q. The impacted GPO (Ascension) was a
relatively new channel partner and growing quickly. The incident emerged in early May and was resolved within a few weeks. TELA estimates an impact
of US$1.25-1.75M from this event. Separately, a large hospital customer with similar issues experienced a shortfall in volumes worth ~US$0.25M to
TELA. TELA closed 2Q24 with US$26.5M cash (net debt of US$14.3M).
| Wilsons' View
Initial analysis
Revenue and product performance. Competitive position in larger complex ventral hernia repairs remains solid with underlying product growth at 29% v
pcp and ~70% of US sales (balance is PRS). Management's focus is now turning to enter larger volume (smaller size) segments with the IHR product
targeting inguinal repairs (building on the success of LPR in laparoscopic/robotics). TELA provided new colour on European sales (US$2.4M sales v
US$1.5M in the pcp).
Capital adequacy. TELA made a US$11.6M operating loss in 2Q24 and probably needs to raise capital again this side of Christmas. The business has
worked hard to optimise its SKU mix, reduce stock obsolescence and improve gross margins (69% in 2Q24). The top-line aberration in 2Q24 has led to only a
minor deterioration in cash flow metrics (Figure 1). As a reminder, we see a largely normalised outlook for OviTex ordering patterns in FY25 for Aroa (growth
of Aroa's OviTex share of ~22%). TELA re-iterated its goal to reach profitability but US consensus sees losses through to at least FY27e.