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Optibiotix - share slippage not a reason to sell, but to buy

By HotStockRockets | Friday 12 May 2017


Disclosure: Financial Investigative Media Limited, which is not owned by Tom Winnifrith but by a trust for his dependants, owns shares in companies mentioned in this article. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.


Shares in Optibiotix (OPTI) hit 60.5p mid at one point Wednesday but closed at 61p-63p. Having retipped this as a buy in the low seventies and at up to 80p we have received a number of emails saying "should we sell?" Some were citing savants on the LSE Bulletin Board who make dire predictions and others were asking what is wrong?

Anyone basing their investment decisions on comments posted on the LSE Bulletin Board deserves the poverty that awaits them. The facts are that nothing is wrong, indeed the investment case continues to improve. That is clearly not reflected in the share price performance but it will be. Patience, patience. Indeed just the other day Optibiotix announced a new deal, the granting of a non-exclusive license agreement to Nutrilinea for the production and commercialisation of products containing OptiBiotix's LPLDL® strain.

Nutrilinea has over 15 years' experience in the design and development of customised formulations and presentations (capsules, tablets, sachets) for the supplement and pharmaceutical industry. Nutrilinea provides products to both national and international businesses in Europe and the USA, and is one of Europe's fastest growing providers of food supplements, doubling revenues in the last 12 months to over €30 million per annum.

Under the terms of the agreement, Nutrilinea intends to produce, promote, market and commercialise OptiBiotix's CholBiome™ and CardioBiome™ products to its European network - these products tackle high cholesterol and high blood pressure.

A fair criticism of Optibiotix is that it keeps on announcing deals but we have no idea of what revenues they could generate. We gather that boss Steve O'Hara will be sitting down with broker FinnCap shortly to help it model forecasts going out to 2020 and that should address that issue.

What folks need to get their head around is how Optibiotix is following the model of ARM in that it has created IP which it licenses out. So each new deal agreed adds not a cent to the cost base but sets up a new income stream. Some of these streams will be small. Others will be large, very large. We await news on the Tata deal which we expect soon and it will be in the "very large" category. But they all add up. At a certain point the revenue streams cover PLC costs. Then every deal after that is almost all pure profit. That is what happened with ARM Holdings.

Those who made the real killing on ARM were those who understood the business model and bought the shares when the earlier licensing deals were signed, which was before the inflexion point when revenues exceeded costs. And that is why Optibiotix is a buy now because we are not yet at the inflexion point but the licensing deals are coming in thick and fast which validates the IP. The stance is very strong buy at up to 80p with a target to sell of at least 120p.

This article first appeared on HotStockRockets (with the shares 3p lower than where they are now), where two emergency share tips were published this week. For those, and to catch the next red hot share tips from the HotStockRockets team out shortly, for just £5 click HERE


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