TSO3’s (TSO3 Stock Quote, Chart, News: TSX:TOS) balance sheet was not overly risky before, but the company’s recent warrant exercise has reduced risk further, says Euro Pacific Canada analyst Doug Loe.
Yesterday, TSO3 announced that all its outstanding warrants with a $1.875 exercise price have either been exercised or have expired as of Feb. 4, 2016, netting the company $13.5-million as a result of exercises since Jan. 5, 2016, and $14.8-million since the warrants were originally issued.
“We now have a strong cash position, no outstanding debt and no outstanding warrants, other than a few remaining broker warrants,” said CFO Glen Kayll. “Our resources will help us ramp up the production and delivery of our Sterizone VP4 sterilizer and related accessories and consumables in fulfilment of the orders we have received from Getinge Infection Control, our global distribution partner.”
Loe says he was already modeling the company meeting its obligations based on its cash balance pre-warrant exercise. He says the cash “substantially reduces” balance sheet risk that was already low.
“To state the obvious, we see no downside to a substantive warrant exercise that provides TSO3 with $13.5M in new financial risk-mitigating cash for the firm to deploy either strategically or operationally at its discretion,” says the analyst. “The devil is in the details on either of these options of course – our model assumed that TSO3’s pre-existing cash balance of $22.2M was sufficient to fund any transient VP4 launch costs not incurred by Getinge, and financial risk reduction conferred by new capital moves TSO3 from a pre-existing low level, in our view. And strategically, we assume TSO3 is constitutively exploring ways to expand its footprint in low temperature sterilization into other markets, perhaps beyond healthcare, but we will assess impact of any future strategic growth initiatives as they are identified.”
In a research update to clients today, Loe maintained his “Top Pick” rating and one-year target price of $3.10 on TSO3, implying a return of 85.6 per cent at the time of publication.