Post by
laurencelefou on Mar 16, 2021 8:22am
Covid-19
Until yesterday, I had never heard of Apollo healthcare. Saw the news about Fourth Quarter 2020 results. Talk about modesty, year over year revenues are up 92% and Apollo makes no reference to what caused the increase. Found the answer in the August 11, 2020, press release ''the Company augmented existing customer demand and attracted new customers for its cleanser and sanitizer products.'' The increase in revenues is partially the result of Covid-19.
I am impressed by the FY 2020 financial statements. Thirty-one million dollars in cash and no debt, revenues of $321.7 million, operating cash flows (OCF) of $108.7 million, resulting in a 34% margin ($108.7 / $321.7). Revenues for the past three quarters have declined but operating cash flows have increased. For the past two quarters OCF / revenue yields were above 40%. That ratio is better than most tech stocks. Market cap is ±$340 million. It is cheap real cheap. Why is it cheap???
1) Apollo's operating cash flows were boosted by not paying taxes (page 5 MDA). Revenues for the past three quarters have declined.
2) Apollo is one of the largest private label personal care product manufacturers in North America, not exactly a high growth sector of the economy, but with the right product mix Apollo has shown it can be a highly profitable business.
3) FY 2021 will likely be the reverse mirror image of 2020. As the Covid-19 crisis subsides, Q4 2021 revenues will likely be lower than Q1 2021. Long-term investors are asking themselves, will the revenue growth rate for 2022 look like 2020 and 2021 or look like 2019, 2018, 2017? Or perhaps something in between. When Covid-19 dies off, by how much will customers reduce their purchase of cleanser and sanitizer products?
4) Customer risk. As of December 2019, two clients represented 71% of revenues. As of December 2020, three clients represented 70% of revenues. (Note 12)
Just read the December 2020 Smallcappower article. Apollo has many great customers, Walmart, Loblaws, Costco, Target, Shoppers, CVS. The author makes several good points.
As a value investor and bargain hunter, Apollo Healthcare current valuation offers good upside possibilities and limited downside protection.
https://smallcappower.com/expert-articles/apollo-healthcare-canadian-manufacturing-stock/
Comment by
gary7789 on Mar 16, 2021 9:24am
Late 2021 results are going to depend on whether they can expand their product offering to Costco & Walmart US. If they can't get that done in time, then revenues will almost certainly continue decline through 2021. They don't offer any meat on forward initiatives concerning that in the MD&A nor would i expect them to tip that nor would Costco or Walmart appreciate it if they did.
Comment by
nbastar1986 on Mar 16, 2021 1:58pm
Conservatively, Apollo can generate free cash flow of $50M/year. With $73.21M shares o/s that's $0.68/share. why not dividend out $0.50 per share per annum. would provide a current yield of 10%. shares would easily double from here
Comment by
gary7789 on Mar 16, 2021 9:20am
Costco & Walmart US (including Sam's Club) are the most important customers .. in that order .. by a wide margin. Costco presents large opportunity but they don't like to become more than 25% of any vendors revenue .. but it's a soft guideline, not a rule.
Comment by
gary7789 on Mar 16, 2021 9:28am
The Canadian retailers, lead by Loblaw (who owns Shoppers as well), are brutal to do business with in private label. The make sure their vendors make little to margin. They want a bigger number of skus for fragmented volume while wanting a Costco pricing. I don't really care if they do business with Canadian retailers because of that. It's defensive only..