Byron Capital analyst Douglas Loe is bullish on Neptune Technologies, but says his forecasts are highly dependent upon the pace at which Neptune can complete ongoing expansion projects at the Sherbrooke plant where it manufactures Krill oil. Earlier this month, Neptune Technologies (TSX:NTB) closed a (US) $34.1-million public offering, selling 7,318,000 shares at $4.10 each.
The Laval-based company was quite specific about the purposes of the raise; approximately $9.0-million of the cash will go towards sales, marketing and krill inventory purchases, $8.0-million is earmarked to support Acasti Pharma in the development and validation of CaPre and other product candidates, approximately $5-million will finance the expansion of Neptune’s Sherbrooke plant, and $3-million will go to finance product development, clinical trials and regulatory affairs.
In a research update to clients this morning, Byron Capital analyst Douglas Loe reviewed Neptune under a new capital structure that will being the company’s fully-diluted shares outstanding to 62.8 million. He likes the expansionary nature of the financing and the increased visibility it gives him on revenue forecasts. For the first time since he has been covering the stock, Loe introduced forecasts that include fiscal 2015. The Byron analyst believes the growth initiatives Neptune is supporting with the financing will enable it to post revenue of $65.86-million that year, much higher than the $44.7-million he was forecasting for fiscal 2014. As a result, Loe today raised his price target on Neptune Technologies to $7.25 from his old target of $6.50.
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At a manufacturing facility in Sherbrooke, Neptune Technologies manufactures Krill oil. Krill are shrimplike crustaceans that are the primary food source of marine life such as salmon, whales and rockfish. Recently, fish oil from the tiny algae and plankton eaters has come to be prized as a dietary supplement for human consumption. A 2007 study in the Journal of the American College of Nutrition showed the oil, which is extremely high in omega 3, decreased inflammation and arthritic symptoms in cardiac and arthritis patients. Other studies showed it was effective in raising HDL, or “good” cholesterol, and lowering triglycerides.
Loe says his forecasts are highly dependent upon the pace at which Neptune can complete ongoing expansion projects at its Sherbrooke plant. He expects production capacity will increase to 300 metric tonnes by the fourth quarter of fiscal 2013, and then to 500 metric tonnes by Q4, 2014. His models assume an average selling price to distributors of approximately (US) $170/kg.
Shares of Neptune Technologies today closed down 3.8% to $4.06.