Oak Ridge Financial Research analyst Richard Ryan, in a report published on May 16, 2024, provided an update on BioLargo Inc. (BLGO:OTCQB) following the company's first quarter 2024 (1Q24) results. The analyst reaffirmed a Buy rating and a price target of US$0.38 on the stock, highlighting the company's strong financial performance and the continued success of its Pooph pet odor control product line.
BioLargo reported 1Q24 revenues of US$4.76 million, representing a 28% year-over-year increase and a 9% sequential growth.
"BLGO's results continue to be driven by Pooph sales, its pet odor control product line that is being sold through national retailers like Amazon, Walmart, Chewy Ace Hardware, Home Depot and other retailers," Ryan noted. Pooph revenues accounted for 88% of the total revenues, or approximately US$4.2 million, during the quarter.
The company's odor control operating segment generated an operating income of US$1.8 million, or a 39% margin, based on the increasing Pooph sales. BioLargo also generated US$481,000 in cash flow from operations (CFFO) and ended the quarter with US$4.3 million in cash.
"We do not believe our rollout assumptions for Pooph are overly aggressive, but timing trends is difficult, and we have opted to stay on the conservative side of expectations," Ryan stated. "Additionally, BLGO's PFAS business will be project oriented and the sales cycle, building the project out and estimating revenues is difficult as well. Thus, our estimates for 2024 are based more on our continued confidence in the ramp of Pooph."
The analyst also discussed BioLargo's business model, which focuses on inventing or acquiring a product, prototyping and proving it out, partnering with necessary third parties, and commercializing the technology through operating subsidiaries. This approach allows the company to diversify overall risk while providing solutions to diversified end markets.
Ryan highlighted the potential for BioLargo's other business segments, including the expansion of the Pooph product line, the progress of Clyra Medical's patented Copper-Iodine wound irrigation solution, and the growing market for PFAS remediation.
"The dangers of PFAS are well documented, and this will become an ever-increasing area of attention. BLGO's pipeline of PFAS potential projects has grown significantly as customers become more comfortable with its novel technology and as final EPA regulations for remediation are released," the analyst noted.
Oak Ridge Financial Research's US$0.38 base case price target is based on a 4.2x EV/Revenue metric on their FY2025 estimate, consistent with comparables in the odor elimination industry, combined with an independent valuation of Clyra Medical based on recent equity valuations. The analyst also developed a bull case price target of US$0.50, incrementally including PFAS-related revenues.
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- BioLargo Inc. is a billboard sponsor of Streetwise Reports and pays SWR a monthly sponsorship fee between US$4,000 and US$5,000.
- As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of BioLargo Inc.
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Disclosures for Oak Ridge Financial Research, BioLargo Inc., May 16, 2024
Analyst Certification: I, Richard Ryan, certify that the views expressed in this research report accurately reflect my personal views about the subject company and its securities. I also certify that I have not been, am not, and will not be receiving direct or indirect compensation related to the specific recommendations expressed in this report.
Important Disclosures: The analyst or a member of his/her household does not hold a long or short position, options, warrants, rights or futures of this security in their personal account(s). As of the end of the month preceding the date of publication of this report, Oak Ridge Financial did not beneficially own 1% or more of any class of common equity securities of the subject company. There is not any actual material conflict of interest that either the analyst or Oak Ridge Financial is aware of. The analyst has not received any compensation for any investment banking business with this company in the past twelve months and does not expect to receive any in the next three months. Oak Ridge Financial has been engaged for investment banking or advisory services with the subject company during the past twelve months and does anticipate receiving compensation for such services in the next three months. Oak Ridge Financial has not served as a broker, either as agent or principal, buying back stock for the subject company’s account as part of the company’s authorized stock buy-back program in the last twelve months. No director, officer or employee of Oak Ridge Financial serves as a director, officer or advisory board member to the subject company. Oak Ridge Financial Rating System: Oak Ridge Financial utilizes a two-tier rating system for potential total returns over the next 12 months. Buy: The stock is expected to have total return potential of at least 15%. Catalysts exist to generate higher valuations and positions should be initiated at current levels. Investors requiring time to build positions may consider current levels attractive. Hold: The stock is expected to have total return potential of less than 15%. Fundamental events are not present to make it a Buy. The stock may be an acceptable longer-term holding. Valuation and Price Target Methodology: Based on our estimates, we believe that the projected success of Pooph, alongside the current valuation of Clyra Medical, provides investors with underlying support and a conservative degree of upside, while the diverse array of technologies within BLGO’s portfolio offer investors an interesting “call option”, if you will. We are reaffirming a Buy rating and a $0.38 (base case) Price Target. Our PT is based on a FY25 Revenue multiple of 4.2x, which is in line with historical industry valuations and transactions, and an independent valuation of Clyra Medical based on recent equity valuations. When considering our “bull case” scenario, we believe the PFAS technology has enough commercial interest to support 2025 revenues of $14M. Based on a FY25 Revenue multiple of 3.5x, which is in line with historical valuations within the water filtration industry, we believe the AEC can support a bull case PT of $0.50.
Oak Ridge Financial does not make a market in the subject security at the date of publication of this report. Other Disclosures: The information contained in this report is based on sources considered to be reliable, but not guaranteed to be accurate or complete. Any opinions or estimates expressed herein reflect a judgment made as of this date and are subject to change without notice. This report has been prepared solely for informative purposes and is not a solicitation or an offer to buy or sell any security. The securities described may not be qualified for purchase in all jurisdictions. Because of individual requirements, advice regarding securities mentioned in this report should not be construed as suitable for all accounts. This report does not take into account the investment objectives, financial situation and needs of any particular client of Oak Ridge Financial. Some securities mentioned herein relate to small speculative companies that may not be suitable for some accounts. Oak Ridge Financial suggests that prior to acting on any of the recommendations herein, the recipient should consider whether such a recommendation is appropriate given their investment objectives and current financial circumstances. Past performance does not guarantee future results. Additional information is available upon request.
