ARX-Aroa Biosurgery

[Shareguy]

Might explain the share price. Out today

https://www.sharesinvalue.com.au/wp-content/uploads/2024/08/Aroa-Biosurgery_Initiation-Report-FINAL.pdf

[Shareguy]

Nice update today. Looks like it's going to plan.

[KW]

Hope you are still holding Shareguy.  ARX has finally come good.  Stock has broken out on strong volume, cleared key resistance levels, and is now working off that overhead.  Moving averages now all in alignment.  TA looks good.  I'm in 

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[Shareguy]

Hope you are still holding Shareguy.  ARX has finally come good.  Stock has broken out on strong volume, cleared key resistance levels, and is now working off that overhead.  Moving averages now all in alignment.  TA looks good.  I'm in 

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Yes KW. Doubled holding again recently. All looking good for back over $1. Pie funds have a big position in their growth fund.

[Shareguy]

Insert from Wilson's latest note said

DCF derived price target moderates to A$1.59 per share or
13.5% lower than last time. Our base case DCF 'spot'
valuation for Aroa is $1.44 per share (Figure 4). The three
drivers of our downgrade are a) the deferred contributions
from SYMPHONY and ENIVO; b) a shallower trajectory for
margin leverage from the immediate business reducing near
term free cash flows; and c) the 2% devaluation of NZD
relative to AUD in translation. A DCF-informed 'target price'
estimate of $1.59 is calculated by rolling the spot valuation
forward at the WACC.
Price target set at 4.1 x FY25e EV/revenue. This has been our
practice with Aroa for some time, expressing a 'view' that the
stock should trade ahead of medians in what can be a highly
variable sector peer group (Figure 5). At the current share
price (which implies 2.7x FY25e EV/revenue), the market is
applying a 20% discount to Aroa (relative to sector median at
3.4x EV/revenue). The market's unwillingness to pay more for
Aroa likely stems from two (related) issues. Aroa's
investment into its direct business is yet to produce sufficient
earnings leverage and scale to decouple the stock from
TELA's 'raise and spend' cycle. Whilst MYRIAD has been
successful over the last ~3 years, the two other focal points
from Aroa's product pipeline (SYMPHONY and ENIVO) have
both been 'around' since IPO, but neither is commercialised

[Shareguy]

$70c holding. Looking good with volume

[lorraina]

https://stockhead.cmail19.com/t/d-l-sykgjd-yupddjlly-i/

[Shareguy]

https://stockhead.cmail19.com/t/d-l-sykgjd-yupddjlly-i/

Thanks for posting Lorraina. Similar article in Business Desk this morning. Great potential.

[KW]

Big miss today, as guidance lowered from $80m-$87m to $76m-$79m and EBITDA from $2m-$4m to $0-$2m.

The explanation given was that Hurricane Helene took out an IV Fluid factory in North Carolina, which impacted hospitals ability to do surgery.  Google says that was true:

Hurricane Helene significantly impacted the IV fluid supply in the United States by flooding a major manufacturing facility owned by Baxter International in North Carolina, which produces a large portion of the nation's IV fluids, leading to widespread shortages in hospitals across the country; this disruption caused issues with patient care due to the critical role IV fluids play in medical treatments.

Key points about the impact:

• Affected facility: Baxter International's North Cove plant in North Carolina.
  
• Production impact: This plant produces roughly 60% of the nation's IV fluids.
  
• Consequences for hospitals: Due to the production halt, hospitals faced significant shortages of IV fluids, potentially impacting surgeries and other medical procedures.

So the downgrade may be due more to an Act of God than mismanagement.  We shall see.... 
An update from Baxter today said
"We continue to make strong progress at North Cove and have now restarted all of the site's 10 manufacturing lines. While some lines require additional time to ramp up production, we currently expect to be producing at pre-hurricane levels across the plant early in the first quarter of 2025."

[Shareguy]

Big miss today, as guidance lowered from $80m-$87m to $76m-$79m and EBITDA from $2m-$4m to $0-$2m.

The explanation given was that Hurricane Helene took out an IV Fluid factory in North Carolina, which impacted hospitals ability to do surgery.  Google says that was true:

Hurricane Helene significantly impacted the IV fluid supply in the United States by flooding a major manufacturing facility owned by Baxter International in North Carolina, which produces a large portion of the nation's IV fluids, leading to widespread shortages in hospitals across the country; this disruption caused issues with patient care due to the critical role IV fluids play in medical treatments.

Key points about the impact:

• Affected facility: Baxter International's North Cove plant in North Carolina.
  
• Production impact: This plant produces roughly 60% of the nation's IV fluids.
  
• Consequences for hospitals: Due to the production halt, hospitals faced significant shortages of IV fluids, potentially impacting surgeries and other medical procedures.

So the downgrade may be due more to an Act of God than mismanagement.  We shall see.... 
An update from Baxter today said
"We continue to make strong progress at North Cove and have now restarted all of the site's 10 manufacturing lines. While some lines require additional time to ramp up production, we currently expect to be producing at pre-hurricane levels across the plant early in the first quarter of 2025."

Thanks KW. Savage share price re action. I guess to be expected given how the share price had increased. The exchange rate would have helped which makes this worse plus a $1.6m tax refund in the quarter.  $19.5m cash receipts from customers against last quarter $19.9m.

Oh what to do....

[KW]

Thanks KW. Savage share price re action. I guess to be expected given how the share price had increased. The exchange rate would have helped which makes this worse plus a $1.6m tax refund in the quarter.  $19.5m cash receipts from customers against last quarter $19.9m.

Oh what to do....

The new guidance is constant currency, the actual revenue will be $80m-$84m which incorporates the lower exchange rate. 

The company did not help itself by not explaining the cause of the downgrade in the ASX announcement, but only during the investor call when someone asked the question.  Lack of liquidity in a small cap did the rest of the damage.

If it stays under the 200 day MA I'm going to be stopped out regardless.  Its likely to be stuck back in its prior trading range from before the breakout with 64c back as its resistance level.  FA wise, its a judgement call as to whether management are bullshitting or not as to the cause in the sales slowdown.  What has past history shown us with respect to management integrity? (I've not been following it over the years).

[Turkey]

I'm intrigued. As a great preserver of capital...did you bail?...lol

No holding for me but interesting company and product so thanks for sharing

[Shareguy]

My original purchase was a punt and not a large holding for me. Even at current pricing I'm still in the green. I did look at selling but I like the product. NZ company and the latest research is very positive. Top line growth and they are selling more products directly. Will continue to hold at this stage. It was priced for growth and a possible upgrade. Just think it came up to fast from year low $.44 and being a small cap just got punished when results were not as expected.

I see this as a high risk sector but the rewards are there if it all works out. Quarterly reporting is great so not long to wait and see. This is not the first time that the company has missed guidance and probably won't be the last.

Analysts seem positive

Insert from Wilson's latest (note from KW post re saline shortage is mentioned)

3Q25 | TELA running a tighter ship
We maintain our OVERWEIGHT rating on Aroa Biosurgery (ARX) with a revised PT of $0.75/share.
It's clear that softer than expected OVITEX sales to TELA was the main factor behind the company's
3Q25 guidance downgrade. Part of that will be temporary factors (e,g disrupted volumes with the
US market, short on saline and other surgical supplies during the Dec-Q). We went into the 3Q25
result half expecting an upgrade, given that Aroa's OVITEX partner (TELA) had recently raised
capital and had 'come out swinging at its 3Q24, last year. Our sense is that TELA may be running
even tighter inventory levels now to support growth and this idea lies behind our forecast changes.
The string of downgrades over FY24-25 makes it difficult to pay a premium for Aroa. Our new PT
represents 3.0x CY26e EV/revenue, which is close to the international wound care sector median.
MYRIAD keeps performing but Aroa can only rebuild its valuation premium by getting well clear of
break-even. Leverage depends on extracting more from assets like SYMPHONY and ENIVO.
| Key Points
3Q25 update and guidance. Aroa's 3Q25 cash receipts of NZ$19.5M missed our forecasts by
~10%. Further, Aroa downgraded its FY25 guidance as follows: revenue of NZ$76-79M (a 7%
cut at the midpoint), and EBITDA of NZ$0-2M, both assuming 0.64 USD/NZD. In reported terms
(assuming 0.60 USD/NZD), the revised guidance is NZ$81-84M and NZ$2-4M (WILSe: NZ$81M
and NZ$1.9M, respectively). Our forecasts assume ~0.60 USD/NZD for 2H25e. Although no
product level sales information was shared, our assessment is that the change in guidance
disaggregates (~2:1) between OVITEX and MYRIAD. Aroa echoed several of its
surgical/reconstruction peers in calling out a disrupted Dec-Q due to general product shortages e.g saline).


Morgan's say

Aroa Biosurgery's 3Q operating cash flow met Morgans forecast, however, management narrowed its FY25 guidance for revenue to a range of NZ$81-84m from NZ$80-87m and for normalised EBITDA to NZ$2-4m from NZ$2-6m.

The broker attributes the revenue guidance cut to weaker TelaBio revenue for hernia repair and intravenous product shortages.

The analysts' forecasts for FY26 and FY27 revenue are reduced by -5%, with a -17% and 1-5% impact on earnings (EBITDA), respectively.

The broker lowers the target price to 93c from $1.05. Add retained.

I won't be buying anymore at this stage.

[Turkey]

Cheers Shareguy, yes you were very clear when you bought in it was a bit of a punt.
Such a long gestation period to profitability for these companies.
Sounds like might be a temp blip as KW alluded.

was more thinking more of KW...recent purchase...the chart got her in and was wondering if the chart got her out or just fast fingers... or maybe still in.

Good luck and thanks for posting.
Probably good time to buy some if you believe the story and road to profitability

[KW]

Aroa are now using 60c as the average forex rate, but that is now down to 56c and likely to stay there for the rest of the year (if not go lower as the US$ appreciates and the RBNZ continues cutting interest rates while the Fed holds).  

Its only a small position for me, and as its allegedly a "non-structural" issue, I'm still holding to see if it can bounce from this point.  But if I see something on the market that I want to buy, and I dont have any spare cash, its first in the queue for the chop.