Turning profitable and cash-generative

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 regenerative medicine products for the biosurgery, orthopaedics and dental markets. 2022 results highlighted the benefits from recent investment in capacity and commercialisation, with the company turning EBITDA-positive in 4Q’22. Further strong growth is expected in 2023, with TRX becoming cash-generative and nearing profitability. Additional operating efficiencies have been identified, moving Phase 2 of the capacity expansion programme into 2025.

• 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 2021 to satisfy demand from distribution partners for its innovative products.
• 2022 results: Underlying sales rose 26%, to $24.5m ($19.8m), with growth being seen in all three divisions. Operating efficiencies and tight cost control saw TRX become EBITDA-positive in 4Q’22. Gross cash at the period-end was $5.95m, and the revolving debt facility has been doubled, to $10m.
• Outlook: Management will continue to build on its “4S” strategy to drive sales growth and sustainability. While continuing to drive the performance in the US, TRX is looking to extend its geographical reach through commercial distribution agreements elsewhere, making the company profitable and cash-generative.
• Risks: The prolonged effects of the pandemic are evident in the number of elective procedures, staff shortages in healthcare institutions and supply chain issues, although investment in capacity by TRX has mitigated some of these risks. Also, TRX will not be immune from global economics and wage inflation.
• Investment summary: Turning EBITDA-positive in 4Q’22 was a major milestone, and the leverage effect of expected sales growth in 2023 will become more apparent, highlighting the low rating on the shares. An EV/sales multiple of 4x 2024E sales generates a valuation of $139m/£112m. The board is proposing a 1-for-100 share consolidation to make the shares less unwieldy and to increase their attractiveness to investors.