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Optibiotix - okay here is A Tata deal - there is another ( and more deals) game on! BUY

By HotStockRockets | Thursday 7 September 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.

Oh Ye of little faith!. There was big news on Tuesday for Optibiotix (OPTI). This was ONE of the big deals we were waiting for. There are more to follow but this should send critics of Optibiotix scuttling for cover as India's Tata is a giant. It has 660,000 employees and annual sales of $103.51 billion! Those who doubted us as we bought our first shares for two years HERE - at sub 55p a few weeks ago you can apologise. now. Go form an orderly queue. The shares are now 75p-77.5p and they are GOING MUCH HIGHER & SOON!

The deal is that Tata has agreed, subject to a pilot trial, to exclusively manufacture galacto-oligosaccharide produced by OptiBiotix's LP-LDL® strain (LPGOS) for the use in food and Over The counter (OTC) products. Tata's Chemicals Food and Nutrition business is a major supplier of salts, spices, and nutritional solutions to the food, beverage, nutraceutical and pharmaceutical industries within India and increasingly across global markets. LPGOS has been shown in gut models to:-

i. Increase the growth and biological activity of OptiBiotix's cholesterol reducing strain (LP-LDL®), leading to a threefold increase in the strains cholesterol lowering ability

ii. Modify an individual's existing microbiome reducing cholesterol by up 22%

And this is just one of a range of ingredients being developed by OptiBiotix which can modify an individual's current microbiome to improve health. The potential here is clearly enormous and it involves no cash payments being made by Optibiotix. In other words it is potentially vast revenues flowing straight to the bottom line with zero cost - capital or operational - to Optibiotix. That is the ARM model for you. And that is why Optibiotix's cash position is more than sufficient to get it through to the point where sales dawrf its modest PLC costs and thereafter the ramp up to massive profitability will be very rapid indeed.

But the eagle eyed spotted something odd about that RNS and a conversation with Optibiotix (LSE:OPTI) boss Steve O Hara today forces us to clarify one point about this deal with Tata for LP-LDL. Hang on was not Optibiotix meant to be doing a deal with Tata on is Slimbiome weight loss product. What happened to that? Over to O'Hara who says:

This is an additional deal to the one we announced last December for a different product. We now have 2 separate deals with Tata, one with their consumer team for Slimbiome, and one with their manufacturing group for our microbiome modulating sugars.

So Steve what happened to the Slimbiome deal to help some of Tom Winnifrith's in-laws who could do with shedding a pound or two? Surely by now we should get news of launches, dates and expected sales volumes. The Indian market for weight loss is massive - obesity and issues such as diabetes are very real problems these days. The word from O'Hara is that we will get news soon.

The Tata LP-LDL deal was ONE of the big name transactions we are expecting to see this autumn. We are led to believe that the pipeline is bulging. So that means that there are three reasons why Optibiotix shares will zoom.

1. Following the ARM model you only need a few licensing deals on very high margins to start generating sales and modest fixed overheads are covered. Thereafter each new deal just sees gross profits fall straight to the bottom line so ensuring a dramatic ramp up in profitability. We are getting close to the stage where we can see breakeven being passed very soon indeed. At that point as folks start to understand the business model the shares will go whoosh.

It is perfectly possible to pain a picture where within two years Optibiotix is delivering profits of £3, £4 or £5 million and growing very fast indeed. In the "early day" when companies such as ARM or ASOS pass that inflexion point and burst into the black and profits are not growing fast but are multiplying each year the ratings can be dizzy - 50, 60,70 x earnings or more. The market cap today is sub £60 million. Do you see the upside potential?

2. Newsflow. That pregnant sales pipeline will mean a string of RNS announcements in the weeks and months ahead. Sentiment is turning increasingly positive and it will improve even more with the newsflow

3. Finally Adam Reynolds has a new RTO, Orogen (ORO). It is chocks away in the last week of September and it is going to zoom ( we are in!). That will improve sentiment towards the rest of the Adam stable, including Optibiotix

The trade: Buy at up to 80p with a target to sell well before Christmas of well over 100p.

This article first appeared on HotStockRockets - to catch the next red hot share tip from the HotStockRockets team for just £5 click HERE

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