Author Topic: PBSV - Pharma Bio Serv Inc  (Read 4775 times)

A Dhandho Investor

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PBSV - Pharma Bio Serv Inc
« on: February 04, 2014, 11:13:45 PM »
Pharma Bio Serv Inc is a small cap ($46m) providing technical compliance consulting service and microbiological and chemical laboratory testing services to the pharmaceutical, chemical, medical device and biotechnology industries. It has offices in Puerto Rico, the United States (2) and Europe (2).


Highlights:
  • 25% market cap in cash (EV of $34m)
  • Double digit ROE and ROA over the last 5 years, with 26% ROA and 32% ROE in the last year
  • Double digit gross profit and net income margin over the last 5 years with gross profit margin of 35% and net income margin of 15% in the last year
  • Revenues have grown at a CAGR of 17% over the last 5 years
  • Significant positive operating cash flow (last year more than $5m)
  • minimal capital expenditure requirements as a consulting firm (about 200K/year)
  • Clean capital structure (22,6 million basic and 23,4 fully diluted shares outstanding)

Valuation metrics
  • 8,3 * FCF
  • 5,3 * EV / EBITDA
  • 10 * P/E

The stock is closely held, with insiders holding 50% of the shares (the CEO still holds 40% of the shares) and several funds holding 35% of the shares. As a consequence, the float is relatively small (about 15%).

I believe the stock should easily be worth double the current market cap. Any other thoughts?


NeverLoseMoney

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Re: PBSV - Pharma Bio Serv Inc
« Reply #1 on: February 05, 2014, 06:13:23 AM »
I've looked at Pharma-Bio Serv a few months ago. The growth and cash generation look great.

The question I couldn't answer is whether the company is just experiencing a temporary boom or if the recent revenue growth is sustainable. Looking back at earlier 10-K's I noticed that prior to 2011 revenues and profits were much lower. The major growth has occurred after 2010. Since the company depends heavily on just a few customers, often on a project by project basis, I don't have the conviction to say that more growth lies ahead or that the current revenue levels are sustainable.

One other detail I noticed is that the company issued 150.000 shares to an investor relations firm for their services for a period of one year in addition to a monthly fee of $10k (page F-15 of the latest 10-K). There are roughly 23 million shares outstanding. Why would you pay your IR firm in shares when you think your stock is cheap and you have a large ownership stake? Especially since the company has plenty of cash on hand.

Here's an interview I found with the founder and former CEO of PBSV (starts at 25:30): http://www.executiveleadersradio.com/plaza-elizabeth-3658.aspx

A Dhandho Investor

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Re: PBSV - Pharma Bio Serv Inc
« Reply #2 on: February 19, 2014, 06:34:53 AM »
Thanks for you comment.

Capital allocation is clearly a negative. In this respect, I can highlight the fact that one of the funds invested in PBSV already went active http://www.otcmarkets.com/edgar/GetFilingHtml?FilingID=9055855:

Quote
Subject to ongoing evaluation and analysis, the Reporting Person may consider certain plans or proposals to increase shareholders' value that may relate to or may result in (I) a change in the present board of directors or management of the Issuer, including any plans or proposals to change the number or term of directors or to fill any existing vacancies on the board; and/or (ii) a material change in the present dividend policy of the Issuer

Your comment regarding the growth is indeed correct. I believe however that this is inherent to the consulting business, especially for a small consulting firm. At this price, luckily we are not paying for any growth, not even for a stabilisation in revenues :)

frommi

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Re: PBSV - Pharma Bio Serv Inc
« Reply #3 on: October 11, 2017, 09:51:20 AM »
Its a small consulting company in Puerto Rico. They were profitable until 2016 and now trade at 50% of NCAV and below net cash.
They have an active buyback program and bought some shares in the past years, so overall it looks not very ugly on the shareholder friendlyness score. Insider ownership is high, the only thing i found that i don`t like is that their office building is leased from a former employee which sits now on the board. But outside of that management compensation seems reasonable.

I can imagine that they solve their operational problems (probably the currently weak economy in Puerto Rico) over the next 1-2 years and that the stocks trades back up to NCAV in that timeframe.
 
Current assets:
Cash and cash equivalents:  $12,197,684
Marketable securities:                $31,350
Accounts receivable:             $6,946,495
Other:                                    $855,848
Total current assets:            $20,031,377
Total Assets:                       $22,510,221
Total liabilities:                      $1,469,741

Shares outstanding:               23101000
NCAV/share: ~0.80$
Cash/share:  ~0.47$
« Last Edit: October 11, 2017, 11:05:43 AM by frommi »

writser

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Re: PBSV - Pharma Bio Serv Inc
« Reply #4 on: October 11, 2017, 10:28:37 AM »
I appreciate how you pinpoint the weak economy in Costa Rica as the root of their problems. Actually they are located on Puerto Rico (the island ravaged by hurricanes).
« Last Edit: October 11, 2017, 10:38:55 AM by writser »
When you are dead, you do not know you are dead. It's only painful and difficult for others. The same applies when you are stupid.

frommi

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Re: PBSV - Pharma Bio Serv Inc
« Reply #5 on: October 11, 2017, 11:09:57 AM »
I appreciate how you pinpoint the weak economy in Costa Rica as the root of their problems. Actually they are located on Puerto Rico (the island ravaged by hurricanes).

Haha thanks! You are right. Don`t know why i exchanged the names, i corrected my post.
But the operational problems existed before the storm.  Maybe the weak stock price is because of the storm.

writser

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Re: PBSV - Pharma Bio Serv Inc
« Reply #6 on: October 11, 2017, 01:20:39 PM »
I guess so. As far as I can see they generate 80%+ of their revenue in Puerto Rico so this year and next year will probably not yield splendid results.
When you are dead, you do not know you are dead. It's only painful and difficult for others. The same applies when you are stupid.

NeverLoseMoney

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Re: PBSV - Pharma Bio Serv Inc
« Reply #7 on: October 11, 2017, 01:44:03 PM »
There's an old topic about the company: https://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/pbsv-pharma-bio-serv-inc/

I like it a lot more today, purely looking at the numbers. There are not many stocks trading below cash in the US today (excluding Chinese frauds). I think the company has a chance to get back to profitability and it isn't really priced as if it does. So, it might be a nice company to include in a basket of stocks like this. Other than that, I don't know anything about this specific industry and haven't done more than glance at the latest 10-Q.

I would also like to see insiders buying at these levels. In 2013 or 2014 they were smart enough to issue overpriced stock to their IR firm. That did turn out to be a red flag. If management has any confidence in their business prospects, they should be buying with the stock below cash. It should be a no-brainer. That they are not is a bit worrying.

frommi

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Re: PBSV - Pharma Bio Serv Inc
« Reply #8 on: August 19, 2018, 07:17:37 AM »
There is a new development which looks positive, at least to me. Because of tax reform they had a large tax bill in the first quarter of 2018 which reduced NCAV to 0.67$ per share. I was not aware of that, but luckily the margin of safety has bailed me out.

Last friday they filed an 8-K which looks like they sold a complete subsidiary which was not really on the balance sheet. This is what i found:

Quote
On August 13, 2018, Scienza Labs, Inc. (“Scienza Labs”), a subsidiary of Pharma-Bio Serv, Inc. (the “Company”), entered into an Asset Purchase Agreement (“Purchase Agreement”) with Romark Global Pharma, LLC (“Romark”) to sell substantially all of the assets of Scienza Labs used in its laboratory business, except for certain excluded assets as set forth in the Purchase Agreement (the “Laboratory Assets”). Pursuant to the Purchase Agreement, the aggregate consideration to be paid by Romark for the Laboratory Assets, in addition to the assumption of certain assumed liabilities as set forth in the Purchase Agreement, is $5,000,000 payable at closing as follows: (i) $1,750,000 in cash (“Cash Consideration”), (ii) $3,000,000 in the form of a promissory note payable over two years (the “Promissory Note”), and (iii) the application of $250,000 previously paid by Romark as a deposit. In connection with the Purchase Agreement, Romark deposited the Cash Consideration into an escrow account pursuant to an Escrow Agreement, dated August 13, 2018 (the “Escrow Agreement”). The Company anticipates that the closing of the transaction will occur within sixty days of signing the Purchase Agreement, subject to customary closing conditions.

and in the latest quarterly report:

Quote
Scienza Labs is a wholly owned subsidiary, which was organized in Puerto Rico in April 2016. As of April 30, 2018, this subsidiary was in development stage and has not incurred significant revenues or expenses.

So when i add 4 million to the NCAV (i assume that they have to pay a 20% tax on the 5 million) i get a new NCAV of 0.84$/share and net cash of 0.45$/share. In addition to this the business looks like it is on its way back to profitability. (operating cashflow was positive in Q1 and around zero in Q2)
Current price is 0.55$ per share, with an ask price of 0.6$ which is still a discount of 30-50% to NCAV.
« Last Edit: August 19, 2018, 07:22:52 AM by frommi »

frommi

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Re: PBSV - Pharma Bio Serv Inc
« Reply #9 on: September 17, 2018, 07:05:44 AM »
New 10-Q: https://www.otcmarkets.com/filing/html?id=12964658&guid=bxPZUpv1YGZ4bth

Company is again making money, revenue is growing. Looks good to me. The sale i mentioned above is still not in the numbers because it happened after the 10-Q timeframe. So real NCAV should be around 0.85$-0.9$. Since the company is making money again now i think a conservative estimation of fair value might be around 0.95$-1$. Still 40-50% upside.
« Last Edit: September 17, 2018, 07:20:46 AM by frommi »