After the market closed on Friday, November 14th, Canadian Insider disclosed that 9 insiders purchased shares of Neptune Technologies (NEPT) in the open market during the past week, including the Company’s interim CEO, Andre Godin, and new Chairman, Pierre Fitzgibbon. In the aggregate, insiders picked up 95,015 shares at an average cost of CAD $2.09 (summary below). These transactions are particularly significant when compared with Neptune’s average trading volume of 93,000 shares.
Neptune, a company trading on the Nasdaq (NEPT) and Canadian TSX (NTB), develops and commercializes krill oil derived products for the nutraceutical and pharmaceutical industries. Activist investor George Haywood explains here why he’s optimistic about his investment in Neptune. Mr. Haywood, who owns an approximate 10% of Neptune, is confident Neptune can be the next success story in his portfolio which includes previous winners like Sarepta and Martek.
Catalysts Driving Insider Optimism
Announcement of Permanent CEO
Back in April 2014, Haywood and a group of other Neptune shareholders took an activist approach to shake up Neptune management and Board. Since, a new Board of Directors has been formed and a search for a new CEO has been ongoing. This search is expected to be concluded by the end of November.
“I am hopeful to make an announcement by the end of November, at the latest”
Source: Chairman Fitzgibbon – FYQ2 Conference call
A competent management and Board with proven track record is the first focus the activist investors targeted. Neptune is considered the pioneer in krill oil production and, as a result, has utilized a strong patent portfolio to settle infringement cases with other krill oil manufacturers. In other words, Neptune is at the helm of this industry and has their hand in every krill oil player’s pocket through collected royalties. Having a management team that can capitalize on Neptune’s competitive advantages will be critical for operations moving forward.
Share Repurchase Plan
Neptune’s Board approved a stock repurchase plan in October to purchase up to 1.5M shares over the next 12 months, representing approximately 2% of the company’s shares outstanding. This announcement was made after Neptune stock was trading near 52 week lows. Though shares have rallied from the lows, Neptune is 50% off the ranges it was trading earlier this year. The activist shakeup has taken a toll on Neptune stock in the short term; however it has positioned the company for long term performance.
At the end of fiscal year Q2 2015 (ended August 31, 2014), Neptune had approximately $20M in cash balance. Management alluded that the company would have a $5M burn rate before becoming cash flow positive. This would leave Neptune with approximately $15M to fund operations and allocate to buying back shares. Realistically, the share buyback would cost the company ~$3.5M, assuming the average cost of repurchased shares are $2.33. This would leave Neptune with $11.5M to fund operations and increase production plant capacity. The company expects to be cash flow positive in Q1 2015 calendar year.
Full Capacity Production of 150 Metric Tons
A tragic explosion struck Neptune’s production facility in November 2012, resulting in two casualties, nineteen injuries and a crippling effect to Neptune’s manufacturing capabilities. As a result of a destroyed facility, Neptune saw operations diminish. After two years of using third party suppliers, Neptune reported that the company is back to full-capacity product manufacturing.
With heightened production levels, Neptune can resume sales efforts to match those the company had prior to the plant explosion. Management projects that by mid 2015, Neptune will be able to sell the entire inventory it produces, indicating sales could reach pre-explosions levels. Obviously, this suggests increase in demand for Neptune’s premium product NKO and bodes well for the company’s outlook.
Before the explosion in 2012, Neptune was trading at double the current price ($4 range). The company was generating quarterly revenues of $7M-8M and gross margins in the high 30%. If management executes on its guidance, Neptune could near these historic figures. For investors this means that upside nearing 100% could be on the horizon. With the recent activity, insiders already seem to be on board.
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