Trinity Biotech - Fourth Consecutive Analyst Beat And Profitable Quarter With Potentially Significant Growth Ahead. Fair Value Is At Least 300% Higher

Summary

• On September 9, 2021 Trinity Biotech reported that in 2Q 2021 revenues rose 61.3% Y/Y to $25.84M beating analysts' estimates by $1.84M. This is the 4th consecutive revenue beat.
• 2Q 2021 net income of 20.3c/share beat analyst's estimates 13c//share. This is also the 4th consecutive net income beat.
• TRIB is reinventing itself by recently revising its new product development and launch strategy and this will start bearing fruit for shareholders shortly with the launch of 4 new products.
• The most important new product release will be the TrinScreen HIV screening test which is anticipated to take away significant market share of dominant player, Abbott, in the $160M African HIV screening addressable market. I expect the WHO will approve this product in 2H 2021.
• One analyst has a $7/share price target on TRIB stock. This represents a potential 280% appreciation from today's share price. We are now coming close to the end of 2021 and investors should be thinking about 2022 and beyond. For a company growing profitable revenues in the range of 5 to 10% annually, TRIB shares should (and I believe will eventually in a not too distant future) command a 3 times sales valuation. This equates to a share price ranging from $15 to $20/share. This in turn would result in a more reasonable 15 to 20 PE based on projected net income growth with the addition of TrinScreen net income contribution.

About Trinity Biotech

Trinity Biotech PLC (NASDAQ:TRIB) specializes in the development, manufacture and marketing of diagnostic test kits. The test kits manufactured are used in the clinical laboratory and point-of-care segments of the diagnostic market, to detect infectious diseases, sexually transmitted diseases, autoimmune disorders, cardiac arrest, haemoglobin disorders, and in the detection, monitoring and control of diabetes. Trinity Biotech are also a significant provider of raw materials to the life sciences industry. Trinity is an Irish founded and headquartered company quoted on the NASDAQ exchange and with facilities spanning Europe, America and Canada, Trinity Biotech products are sold in more than 110 countries. They reach customers worldwide by combining the skills of their sales force with a network of international distributors and strategic partners.

Most recently, strong sales have been reported of Covid-19 related products which includes their FDA approved PCR Viral Transport Media product, Covid-19 IgG ELISA antibody test, monoclonal antibodies (through their life science supply business, Fitzgerald) in addition to the boost in demand for the Company’s rapid respiratory products, Strep Pneumoniae and Legionella Urinary Antigen.

Total revenues for fiscal year 2020 were $102M versus $90.4M in 2019, an increase of 12.8% year on year. For 2021 I expect revenues to grow an additional 5 to 10% up to about $110M.

On its September 9, 2021 2nd quarter 2021 earnings report and corporate update Trinity Biotech stated that in the first 6 months of 2021 the company netted 30.3c/share net income on $51.3M in revenues. I expect much of the same the rest of 2021 thus equating to about 60c/share net income for the entire 2021.

Current Valuation

By any financial metrics, Trinity Biotech is extremely undervalued. With 2021 revenues expected to top $110M the current market cap of $56M the stock is priced at 0.5 times projected 2021 revenues and 4.5 projected 2021 PE ratio. The current valuation if even more ridiculous if we assume a potential 10% profitable revenue growth for 2022 since the next engine growth for the company, the TrinScreen HIV screening test is expected to be approved in 2H 2021. I will discuss this important development in more detail later in this article.

As a valuation comparison, take competitor Co-Diagnostics (NASDAQ:CODX) with a $310M market cap (and not long ago it reached over $1B valuation), it commands a price/sales ratio of 3.2 and a PE of 30 (both 6 times higher than TRIB's). Granted, C0-Diagnostics has a stronger balance sheet than TRIB, but it derives over 90% of its current revenues and earnings from COVID-19 related products. Trinity Biotech on the other hand only gets about 25% of its revenues from COVID-19 related products and services. Which one would I want to invest on today? For me it's a no-brainier to put my money on TRIB right now as it's trading at a huge discount of its peers and will continue to thrive because of its diverse new products and services in the pipeline as COVID-19 slowly moves from a pandemic into an endemic status.

We are now coming close to the end of 2021 and investors should be thinking about 2022 and beyond. For a company growing profitable revenues in the range of 5 to 10% annually, TRIB shares should (and I believe will eventually in a not too distant future) command a 3 times sales valuation. This equates to a share price ranging from $15 to $20/share. This in turn would result in a more reasonable 15 to 20 PE based on projected net income growth with the addition of TrinScreen net income contribution.

TRIB's chart is starting to reflect an uptrend (upper chart) that I believe will continue into 2022 and 2023. The chart below shows the recent uptrend but I believe the long-term uptrend will reflect the May 2020 to February 2021 move from $1 to $7/share shown on the weekly bottom chart:

One analyst has a $7/share price target on TRIB stock. This represents a potential 280% appreciation from today's share price.

At least one technical guru (see YouTube link below) believes that TRIB could get back to the mid 20s trading area which enjoyed in 2014 and 2015 on far less potential than today:

Trinity Biotech plc Stock with a superb trend ahead - trib stock - YouTube

Fourth Consecutive Profitable Quarter And Earnings Beat 

On September 9, 2021 Trinity Biotech reported 2Q 201 financial results, its 4th consecutive profitable quarter and earnings beat. 

2Q 2021 Earnings Highlights:

• Revenues rose +61.3% Y/Y to $25.84M beating analysts' estimates by $1.84M. This is the 4th consecutive revenue beat.
• Net income of 20.3c/share beat analyst's estimates 13c//share. This is also the 4th consecutive net income beat.
• Clinical Laboratory revenues increased 61.9% Y/Y to $23.9M, mainly due to strong revenues from within its COVID-19 related portfolio of products.
• Point-of-Care revenues for Q2 increased to $1.96M from $1.27M in Q2, 2020 driven by higher HIV revenues from Africa related sales.
• Gross profit amounted to $11.03M, representing a gross margin of 42.7%.
• Cash at the end of 2Q 2021 was $28.6M which included a  $2M interest payment on the company's $83.2M exchangeable notes. This compares to $15.6M cash at the end of 2Q 2020.

Commenting on the results John Gillard, Chief Financial Officer stated,

“The Company delivered another strong quarter in Q2 2021 with gross profit of $11m compared to $6.9m in Q2 2020. This translated into an operating profit (before impairments) for Q2 2021 of $6.3m compared to $0.5m in Q2 2020.”

Importantly, Trinity  Biotech CEO Ronan O’Caoimh commented:

"We have made significant progress in streamlining our R&D processes with the aim of bringing new high quality products to market faster and at a lower cost of production so as to allow the Company capture a greater market share and deliver higher profitability, particularly in our lateral flow business."

Why is this important? to me it is because for the first time in many quarterly reports/conference calls since 2015 (the last year the Company was profitable and traded North of $20/share) that the CEO makes comments regarding higher profitability resulting from the launch of "new high-quality products."

I believe the company is re-energized and gradually reinventing itself primarily thanks to the improved cash flow that has resulted in the last 4 quarters due to strong revenue contribution of a myriad of COVID-19 related products. Prior to the pandemic Trinity Biotech seem to be destined to become extinct as losses mounted and cash was being depleted consistently from $102M in 2025 to $15.2M in 2019. Recall that I mentioned that cash has rebounded to $28.6M since the end of June 2021. 

I don't think the market in general has noted the transformation that has been taking place within Trinity Biotech since the start of the pandemic. But this "quiet company" is likely to surprise investors with a slew of new products which are likely to result from a massive influx of new professional talent as the company hired over 4 dozen professionals (according to LinkedIn - a relatively high number based on the total number of about 400 employees) in the last year with a majority of them having significant lateral-flow technology know-how and experience as well as new product launches, quality control, project/process engineering, and others. Granted, the company missed the boat with several potential COVID-19 applications that would have resulted in even better quarterly reports since 2Q 2020, but I believe the relentless investor criticism on the company's CEO and BOD will start bearing fruit in upcoming quarters.

CEO O'Caoimh added:

"Our core lateral-flow technology is customizable for many test types, and we expect to continue to expand our test offerings with this test platform and leverage the cost benefits of common manufacturing processes. We intend to further expand the test menu in Infectious Disease in 2022 with a focus on high volume markets to capitalize on the synergies of our Sales, Marketing and Distribution capabilities and existing relationships with NGO’s.

Upcoming New Product & Service Launches 

1- HIV Testing (TrinScreen™ HIV)

According to the 2Q 2021 earnings release:

"Trinity Biotech has been the main confirmatory test provider for the detection of the HIV virus on the African continent over many years. Trinity Biotech has developed a new product, TrinScreen™ HIV, specifically for the screening market, a market that is significantly larger than the confirmatory market. TrinScreen™ HIV has already undergone an independent evaluation sponsored by the World Health Organization (WHO), yielding excellent results. The final part of the approval process includes WHO review of the multi-site clinical evaluation which concluded in Africa in 2020."

TrinScreen HIV Updates:

• The final part of the submission dossier was submitted to the WHO in March 2021.
• In June 2021, the Company received an update from the WHO on the approval process. The WHO confirmed that their screening of the submission dossier was complete and the dossier was to move forward to the final assessment phase.
• In September 2021 the Company received a further update from the WHO on the approval process. The WHO confirmed that the final assessment phase is now well advanced.

According to the press release,

"...the September 2021 update is an important milestone in the approval process for TrinScreen™ HIV."

Once TrinScreen HIV is approved it will allow the Company to build on its strong brand presence in HIV testing in Africa. The Company believes the TrinScreen™ HIV product has a number of key advantages compared to the current main incumbent product and expects a positive response from the WHO and the opportunity to expand its market share in the African HIV market.

The Company believes the TrinScreen HIV product has a number of key advantages compared to the current main incumbent product and expects a positive response from the WHO and the opportunity to expand its market share in the African HIV market.

The estimated addressable market for HIV screening tests in Africa is about $160M/year. Abbott/Alere control over 80% of this lucrative market.

During 1Q 2021 conference call Trinity Biotech CEO commented:

"We know the market. We have a good reputation in the market. I mean we have been selling the gold standard, Unigold HIV confirmatory test for many years . It basically commands the highest price in the market for the last 15 years. So we clearly have a very good reputation in the market. And in addition to that, then we can manufacture the product in a very cost-efficient manner in Ireland on an automated system that can -- that has basically almost unlimited production capability."

During the conference call CFO John Gillard added:

"....basically, is Abbott, so Alere had basically had a dominant position within African HIV screening. And they were acquired by Abbott a number of years ago. And basically, what's happened is, is that we have managed to recruit the senior management team (of Abbott's HIV screening test program), that develop the business for Alere. So we have a really good team in place. So the senior people of that team now work for us, and they're the people that basically, managed to have a kind of who built that 85% market share for Alere, now Abbott. So their argument is that we have a very experienced with the perfect, arguably the perfect marketing team. We have a good reputation with UNI-GOLD. The product itself is performing excellently, and is quicker than the Abbott test. I mean the WHO ran their own trials. And they got -- we got 100% sensitivity and specificity on large sample sizes. And on top of that, we have this very sophisticated automated system in Ireland for manufacturing which can -- will be very easy -- will respond easily to demand at any level. I think we put all those factors together we're confident and taking -- of taking meaningful market share away from Abbott."

During the 1Q 2021 conference call CEO O'Caoimh was was evasive about the important hiring of the leader for the TrinScreen product launch in Africa (the Abbott/Alere Africa HIV lead man). But I found out through LinkedIn that Willem Pretorius was recently named President Global HIV Sales & Marketing at Trinity Biotech.

Mr. Pretorius states the following on his LinkedIn profile:

"My strong science background coupled with my in-depth knowledge of these market sectors and my strong vision have allowed me to repeatedly succeed in guiding and developing large and diverse cross-functional teams to successfully execute comprehensive strategic growth plans and secure phenomenal levels of sales revenues."

"I am passionate about team development and will ensure that my management and leadership approach always identify development needs ensuring a coaching and mentoring culture that allows the organization to continuously improve."

"I am also highly adept at launching new products ( TrinScreen HIV) and aligning marketing initiatives and I believe strongly in forging effective working relationships across organizational lines and levels as well as with partners in order to build consensus and deliver results."

"I am able to influence and negotiate at all levels within government agencies as well as non-government organizations through my ability to engage healthcare, scientific and business leaders and translate technical issues into a commercial benefit."

"My particular areas of expertise that allow me to deliver success include strategic business planning, budget and P&L administration and control, project and change management and my strong customer focus coupled with my ability to manage and balance stakeholder relations."

Not to sound redundant, Mr. Pretorius was formerly Vice President Strategic Innovation Market Access & Market Expansion - Africa for Abbott (NYSE:ABT). In his role he provided executive-level leadership to the African business to develop a 5-year strategic growth plan to build a business of $500 million over a 5 year period looking at new potential products, new market access models and to identify new market segments.

Prior to that he was Abbott's VP of sales in Africa and responsible for over $250M in revenues. He was also VP of sales for Alere International with full P&L and leadership responsibility for business worth $200 across the African continent. In his role he also spearheaded the African based commercial organization and held key roles on important strategic teams charged with the development and growth of the business. Alere was acquired by Abbott in February, 2016 turning Abbott into the global leader of point-of-care diagnostics.

In a previous conference call CEO O'Caoimh implied that TrinScreen revenue contribution could ultimately amount to about 30 - 40% of total revenues stating that its contribution would exceed that of the COVID-19 related products and services.

2- COVID-19 Rapid Antigen Test

According to CEO O'Caoimh,

"Our COVID-19 rapid antigen test is the first product development project to be brought through (the aforementioned) new and improved R&D process. As a result of an expectation of higher demand due to the impact of the Delta variant, the Company has also decided to increase the priority of this test and is committing additional internal resources to the development of this test in the short term. The streamlined R&D process, coupled with targeted additional internal resource allocation has significantly reduced our expected time to market. As such, we now expect that we will have achieved CE mark during Q2 2022 which will allow us to launch the product in Europe. While we do expect to launch the product in the US, the regulatory path for such products remains fluid and thus the Company will continue to assess what may be the most appropriate regulatory approval pathway to allow a US launch of the product."

"The COVID-19 rapid antigen test can be run without any specialised equipment, provides a result in 12 minutes and utilises an easy-to-use anterior nasal swab sample. The test design has demonstrated excellent analytical results, and the focus for the remainder of the development process will be on transfer to automated manufacture and clinical validation. The COVID-19 rapid antigen test is built on the same core lateral flow technology as our TrinScreen HIV test and thus the Company has significant automated manufacturing capacity to produce the test."

3- New mid sized hemoglobin A1c instruments 

During the 3Q 202 CEO O'Caoimh commented:

"..We anticipate launching our new mid sized hemoglobin A1c instruments in early 2022. This instrument will enable us for the first time to target 1000s of smaller hospitals and diabetes clinics around the world, mostly outside of the US and the EU. Previously, we had been unable to service this market as the processing capability of our Premier instrument, and also what it cost was too large for their requirements. Although we have designed and developed the instruments in Kansas City, it will be manufactured in China, thereby enabling us to make the instrument available in the market at a very attractive price."

4- Expansion of Clinical Laboratory Testing Services

According to the July 16, 2021 Business Development Update: 

"The Company continues to expand the range of services offered at its New York Immco Reference Laboratory through a series of senior appointments. These appointments include a Designate Deputy Lab Director to support the laboratory’s core Autoimmune testing services, as well as an additional Assistant Director with certifications of qualification previously not held at the reference lab. These appointments are designed to enable the build out of lab services into new clinical and consumer wellness markets beyond the core Autoimmune and Immunogenetic testing services on which the reference lab has established a reputation of scientific and customer service excellence over the last 10+ years. The laboratory currently provides a broad range of diagnostic services across Diagnostic Immunology, Oral Pathology, Immunogenetics and Andrology."

Financial Situation

At June 16, 2021, the company had $29M in cash, up $15M from a year ago

Regarding the $83.2m debt reported on 3Q 2020, noted SeekingAlpga contributor Bret Jensen hadt his to say about Trinity Biotech's financial situation in his January 13, 2020 article "A Treatise on Trinity Biotech:"

"Despite an $80 million market cap (now $58M), the company gets no coverage from Wall Street. I can't find a single analyst rating on this name over the past year. The company ended the third quarter of 2020 with nearly $20 million in cash on hand against what appears to be just over $80 million in long term debt listed on its balance sheet as 'Exchangeable senior note payable'.."

"The last article on Trinity on Seeking Alpha was in September of 2019 was a bearish one speculating the company might go bankrupt as it couldn't generate positive cash flow to pay off the debt (the $80 million of convertible debt mentioned above) it had on the balance sheet. That take turned out to be dead wrong as Trinity managed to navigate 2020 while starting to produce positive cash flow."

Regarding this debt, CEO O'Caoimh commented in 2Q 2021 CC:

"Well, we've appointed professional advisors. And we're confident that there are a number of options available to us today, as you can imagine, it's very much in thoughts and in thoughts of the board and we're working diligently (to address this issue).

Unlike other biotechs, Trinity Biotech does not dilute shareholders with unexpected and frequent equity raises. The share count at the start of the decade was 21.3M shares, with 23.2M being the highest level was in 2015, and it's currently 20.9M. Trinity Biotech has maintained an stable share count through several share buybacks over the history of the company.

Institutional and Insider Ownership

Several institutions own 51% for the company's common stock. Stonehill Capital Management LLC is currently the company’s largest shareholder with 14% of shares outstanding. Paradise Investment Management LLC and Hunter Associates, Inc. are the second and third largest shareholders.

Per the latest filing, insiders own about 18% of shares outstanding. On June 6, 2018 CEO O'Caoimh purchased 430K shares at $6/share to increase his holdings in the company to 3.6M shares. The resulting float is less than 10M shares.

Analyst Opinion

One analyst has a BUY rating on TRIB stock with a $7/share price target.

Conclusions

• On September 9, 2021 Trinity Biotech reported that in 2Q 2021 revenues rose 61.3% Y/Y to $25.84M beating analysts' estimates by $1.84M. This is the 4th consecutive revenue beat.
• 2Q 2021 net income of 20.3c/share beat analyst's estimates 13c//share. This is also the 4th consecutive net income beat.
• TRIB is reinventing itself by recently revising its new product development and launch strategy and this will start bearing fruit for shareholders shortly with the launch of 4 new products.
• The most important new product release will be the TrinScreen HIV screening test which is anticipated to take away significant market share of dominant player, Abbott, in the $160M African HIV screening addressable market. I expect the WHO will approve this product in 2H 2021.
• In a previous conference call CEO O'Caoimh implied that TrinScreen revenue contribution could ultimately amount to about 30 - 40% of total revenues stating that its contribution would exceed that of the COVID-19 related products and services.
• Regarding TrinScreen, CEO O'caoimh state: "We have a good reputation in the market. I mean we have been selling the gold standard, Unigold HIV confirmatory test for many years . It basically commands the highest price in the market for the last 15 years. So we clearly have a very good reputation in the market. And in addition to that, then we can manufacture the product in a very cost-efficient manner in Ireland on an automated system that can -- that has basically almost unlimited production capability."
• To take away quickly and swiftly significant market share from Africa's HIV screening 85% market leader Abbott, Trinity Biotech hired Willem Pretorius. Mr. Pretorius was formerly Vice President Strategic Innovation Market Access & Market Expansion - Africa for Abbott (NYSE:ABT). In his role he provided executive-level leadership to the African business to develop a 5-year strategic growth plan to build a business of $500 million over a 5 year period looking at new potential products, new market access models and to identify new market segments. Mr. Pretorius brought with him several of his Abbott reports to form a strong TrinScreen African sales and marketing team
• One analyst has a $7/share price target on TRIB stock. This represents a potential 280% appreciation from today's share price. We are now coming close to the end of 2021 and investors should be thinking about 2022 and beyond. For a company growing profitable revenues in the range of 5 to 10% annually, TRIB shares should (and I believe will eventually in a not too distant future) command a 3 times sales valuation. This equates to a share price ranging from $15 to $20/share. This in turn would result in a more reasonable 15 to 20 PE based on projected net income growth with the addition of TrinScreen net income contribution.
• Unlike other biotechs, Trinity Biotech does not dilute shareholders with unexpected and frequent equity raises. The share count at the start of the decade was 21.3M shares, with 23.2M being the highest level was in 2015, and it's currently 20.9M. Trinity Biotech has maintained an stable share count through several share buybacks over the history of the company.
• Per the latest filing, insiders own about 18% of shares outstanding. On June 6, 2018 CEO O'Caoimh purchased 430K shares at $6/share to increase his holdings in the company to 3.6M shares. The resulting float is less than 10M shares.