iA Capital lowers target on Microbix Biosystems

New quarterly numbers came in weak for Microbix Biosystems (Microbix Biosystems Stock Quote, Charts, News, Analysts, Financials TSX:MBX), but with better-looking growth prospects heading into the new year, now’s the perfect time to buy the stock, according to iA Capital Markets analyst Chelsea Stellick, who reiterated a “Buy” rating on the stock in a Thursday update.

Microbix, which develops and commercializes proprietary biological products used in diagnostic testing, announced its fourth quarter fiscal 2022 results on Thursday for the period ended September 30. The company’s revenues fell 23 per cent year-over-year and 12 per cent sequentially to $4.3 million due to a lack of viral transport medium (VTM) business, which was a big contributor to last year’s Q4 numbers. 

Microbix had a record fiscal year, nonetheless, hitting $19.1 million in revenue compared to $18.6 million for fiscal 2021, with double-digit percentage increases in sales of test quality assessment products (QAPs) and VTM. The company said sales of antigens were down, while product royalties climbed higher due to increased sales from licensees. 

Management said it expects to produce “meaningful net earnings growth” over the fiscal 2023 and that the company is still working on securing a partner for its Kinlytic urokinase project.

“Microbix will continue to drive sales growth across all of its three revenue-generating business lines and work to keep improving percentage gross margins and driving bottom-line results,” the company said in a press release.

Looking at the Q4 numbers, Stellick said the $4.3 million in revenue was below the iA Capital estimate of $5.4 million as well as the consensus $5.3 million. Stellick said Microbix remains well capitalized, with $13.5 million in cash on hand and $4.7 million in debt. The analyst said that with a strong cash balance, MBX will be focusing on developing its QAPs business, expanding to cover a range of disease areas including HPV, STIs and antibiotic microbial resistance markers. Stellick said she expects the company’s QAPs revenue to more than double by 2024 to $11 million.

“The current share price provides a compelling, opportunistic entry point in the stock ahead of substantial growth in F2023, largely from high-margin QAPs on the back of the QAPsTM supply agreement with a multinational diagnostics firm,” Stellick wrote.

“MBX has been deliberately positioned to capitalize on growing regulatory oversight of laboratory diagnostic testing, which represents growth incremental to the general diagnostics segment tailwind. We believe the Company has formidable pricing power due to its high-quality standards, an essential aspect in a highly regulated environment,” she said.

Stellick lowered her target price from $1.25 to $1.00 per share on lower expected VTM sales, with the new result positioned to generate a projected one-year return of 150.0 per cent.