Strong 1H’22 sales suggest upside potential

Tissue Regenix (TRX) is focused on the development and commercialisation of two proprietary processing technologies for the repair of soft tissue (dCELL) and bone (BioRinse). It has a broad portfolio of commercial regenerative medicine products for the biosurgery, orthopaedics and dental markets. Early benefits of TRX’s strategic activities over the past two years were evident in the 2021 results and, in a trading update to the market, the company has indicated that the strong sales performance seen in 2H’21 has continued into 2022. This fits well with our forecast that TRX will become EBITDA-positive in fiscal 2022 and cash-generative in 2023.

• Strategy: TRX is building an international regenerative medicine business around its proprietary technology platforms, underpinned by compelling clinical outcomes. Phase 1 of its manufacturing capacity expansion programme came on stream in July 2021 to satisfy demand from distribution partners for its innovative products.
• Trading update: TRX has reported that the strong sales performance seen in 2H’21 has continued through 1H’22, with sales rising 27% to $11.8m, $0.5m ahead of our forecast. Growth was led by BioRinse sales (est. +33%), with sales of dCELL (est. +14%) and GMB-v (est. +15%) returning closer to pre-pandemic levels.
• Forecasts: Tracking these sales figures through the income statement generates an EDITDA loss of £0.7m and an EBIT loss of £1.25m for 1H’22. Based on our assumptions regarding each business segment, these numbers suggest that there will be scope to upgrade following the interim results release.
• Risks: Forecasts are dependent on the continued recovery in the number of elective surgeries in the US, and the emergence of another COVID-19 variant remains a possibility. Forecasts suggest that TRX is nearing profitability and cashflow breakeven, which would eliminate any lingering concerns about the need for a capital increase.
• Investment summary: TRX has a broad portfolio of innovative regenerative products that are in demand from surgeons. Completion of Phase 1 of its capacity expansion programme and reorganisation of the whole facility has led to operating efficiencies and comforted distribution partners. TRX is well-positioned to deliver persistently strong sales growth, which will drive margin expansion and highlight the low rating of the shares. An EV/sales multiple of 4x 2023E sales generates a valuation of $120m/£92m.

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