Notes from Adelaide email today This week's feature: Microbix Biosystems (TSX: MBX, OTCQX: MBXBF)
We had the pleasure of marketing Cameron Groome, CEO of Microbix (TSX: MBX, OTCQX: MBXBF) in Toronto this week. For those small cap investors unfamiliar with Microbix, you should be paying closer attention. Under Cameron’s stewardship over the past 7 years, the Company has been able to increase its revenues growth rate, fix its balance sheet, develop new profitable business lines and dozens of new products, while modernizing systems, increasing capacity, and positioning itself at a valued partner at the forefront of the global diagnostics industry. The business has been building cash - Cameron proudly tells investors that the Company currently has $13M in cash on the balance sheet which is more than the total amount of equity that has been raised during his tenure. The antigens business has recovered nicely from the covid lows and is growing at 10% but the real juice is the quality assessment products (QAPs) business which is targeted to grow at 30-40% and is becoming deeply entrenched with the who’s who of the global diagnostics sector. The Company is expecting to do $25M in revenue and about $6M in EBITDA this year – so the stock is still very cheap at under 2x sales, around 7x EBITDA and approximately 1.5x BV.
Microbix also has huge optionality from the 2023 deal announced with Sequel Pharma to return Kinlytic to the US market. Microbix should receive a double-digit sales royalty and up to $30M in sales-driven milestone payments upon successful relaunch (anticipated to commence in 2027).
Despite these positive developments, the stock continues to languish in the low 30c range. As my buddy Tony Pullen aptly observed in his recent note, “In a market that eschews companies without revenues and earnings, Microbix proves even having them does not matter much either.” I’ve been around the Canadian small cap markets for long enough to know that while the market can be incredibly inefficient it doesn’t stay that way forever. Small cap investors keep telling me they want to see profitable growth and Microbix continues to deliver it, so logically I do expect to see the stock rerated higher eventually.