Probi is a corporate group nisched in probiotics. The German Symrise owns 56% of the company.

In 2016, Probi merged with America Nutraceutix. Today, the company researches, develops, produces and sells well documented probiotics in various forms. Approximately 75% of the company’s goods are sold in the region of the Americas.

Positive effect on health

Probiotics are various sorts of bacterial strains with positive effects on health that support good bacteria which exist naturally in the gut and intestinal tract. The company has, during a long period of research and development, secured approximately 400 patents.

Stomach health and immune system

The product portfolio up until now has been focused on stomach health and the immune system. However, after a successful launch of new research on bone health and iron uptake, Probi have now launched products within this segment that include:

• Probi®Osteo – that lessens bone loss which is relevant for women reaching menopause, that can cause bone degradation to accelerate.
• Probi FerroSorb®, which increases uptake of iron. On the swedish market, the product is launched under the name Probi® Gravid (pregnant), since most of the added iron during pregnancy is not taken up by the body, but rather stays in the intestinal, and this product can counteract this.

Consumer Healthcare and Functional Foods

The company is divided into two business areas, consumer health and functional foods.

Within consumer healthcare, Probi produces and markets their probiotics to the medical- and health industry. Sales consist of finished products to bulk sales of raw products in bulk. This business area stands for 90% of total sales.

Functional Foods stands for 10% of total sales, and are sold through partnerships with food producers with focus on probiotics. Income comes primarily from royalties based on these partnership sales. Many know the fruit-drink Proviva, which is one of Probis’ most well known products.

Lactic Acid

The lactic acid bacteria that have been successful within this segment are not as suitable for new products. This is because the new products are heat treated, which can kill Probis lactic acid bacteria.

VivaPro

To cope with this, Probi, together with their partner Vivia5, have founded the company VivaPro. Together, the group has started evaluating track-shaped lactic acid bacteria that resembles the company’s traditional bacteria but are more robust and can handle the heat treatment. If this evaluation fares successfully, it would be a possible opening for widening the portfolio of functional foods.

New CEO

During the first quarter of 2019, Probi hired a new CEO, Tommy Rönnlund. Since then, more than having increased possible new products, Probi has also paid off all of their debt for the acquisition of Nutraceutix. The net cash is therefore now substantial.

Increased production capacity

Moreover, new investments were made into an upgrading program for the company’s production facility in Redmond, USA, where production capacity will be increased and optimized. The company also came into the position of, what they themselves call, a top-modern facility that can be taken into production immediately. These investments are expected to produce to full capacity during 2021.

Above this, Probi has increased its sales resources in the US and have received several positive delivery agreements in the region.

European market

During the second quarter of 2020 a pan-european agreement was signed with a large actor within the consumer healthcare industry, with a concept built on Probis premium products, to be launched on 15 markets during 2021.

Very strong growth

Probi has increased the growth rate during the 3rd quarter, that in absolute figures also was the company’s best quarter yet. Probi reached a revenue growth of 38% and an earnings growth of 53%. Due to the great cost control we see some operational leverage.

Looking forward, we can see several positive aspects that can gain Probi:

• New deals and investments in the company’s production facility which potentially can increase revenue further and improve margins.
• Probi has a strong track-record of R&D for new products.
• New findings have found strong potential effects that probiotics have for mental and metabolistic health. If this can be scientifically secured, it opens a new potential market for Probi.
• After some setbacks in the APAC-region, Probi have now increased their sales resources, mostly in China.
• Their big net cash and low debt makes acquisitions possible that would strengthen their position on the market.
• During May, the CEO bought 1400 shares.
• With an acceleration i growth, a P/E of 45 is far from stretched.
• We love the small float of only 11.4M.

Technical

The stock is currently in a base, trading above EMA10, we will wait for a drop in volatility before an entry but the stock is very much on our radar.