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Concepta - Trading Update: not Perfect - but bad news discounted, good news not

By HotStockRockets | Wednesday 8 November 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.

This is not perfect. But it's not a disaster. Far from it. You really would have to expect a small placing from Concepta (CPT) though after this statement.

We are told that:

Concepta has received notice from a distributor that it will formally place an order for £600,000 this month. However, due to third party supplier constraints, revenues from this expected order will be realised in Q1 2018, meaning that 2017 revenues will be lower than market expectations. We are also told that orders have been increasing during the second half of October, and with further new distributors being appointed in November and indications of a number of additional new orders, the board expects the delayed revenue to be additive to the 2018 budget.

Concepta sources components for its myLotus products from both UK and Chinese manufacturers. The supplier of the myLotus monitor has reported a longer lead time for procuring one of the chemicals required in the manufacturing of the plastic at one of their third party suppliers. The delay in the delivery date affects approximately half of the components required to fulfil the orders and revenues as previously forecast for the current year. The Board now anticipates that the delivery of the shortfall will fall into Q1 2018. To prevent any future delays with the supply chain, David Darrock, recently appointed Chief Operating Officer, will head the supply chain management process to ensure future volume requirements are met. David has significant experience managing Chinese supply chains and he will be tasked with sourcing additional suppliers to ensure that the supply chain is robust so as to cover all future requirements.

Erik Henau, CEO of Concepta plc said: "Despite the supplier constraints, the Company has made significant progress this year, establishing initial revenues and a growing order book, and the Board expects 2018 to be a transformational year for the Company. The Company has made notable progress towards widespread hospital distribution in China and its direct-to-consumer launch in Europe, providing a fertility platform to address the universal issue of unexplained infertility that women and couples face. Concepta recently announced the signing of two new distributors and expects to announce further signings and orders in the near future. These are expected following the product launch conference on the 22nd November in Shanghai, which will be attended by additional distributors and doctors. Beyond this, we see a considerable opportunity for myLotus to become an integral tool for healthcare systems to provide personalised healthcare with better patient outcomes at reduced healthcare costs." Ends.

We are in no doubt that Concepta will be materially profitable in 2018 and it is clearly making great progress. But this supplier issue means that it will almost certainly need a small cash injection of perhaps £500,000 to £1 million. The good news is that the big backers of this company led by Adam Reynolds will almost certainly stump up the cash, they will not flip and it will not be at a vast discount. That will mean that once this is out of the way the shares will move ahead sharply as more orders come through and clear profitability is achieved.

But ahead of this being sorted out the shares will not go higher. As such we suggest showing a bit of patience, holding and then waiting for what should be a dramatic re-rate. At 8.375p the market cap is just £9 million. That discounts the uncertainty and a small placing. It fails to discount the potential for really material profitability from 2018 onwards. We apologise for a bad tip so far and share your pain. But the sensible approach is a STRONG HOLD.

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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