As the world start to open up after months of lockdown/shelter-in-place/state of emergencies, we realised that the fight against Covid-19 is far from over and we must learn to adapt to the “new normal” lifestyle so as to prevent another surge in cases. So here I am exploring on potential investment opportunities that presents itself along the way.
We all know that disinfectants are important in our fight against Covid-19. But ever wonder about its application method? What is the effective way of using it to disinfect rooms? Do you wipe with a cloth? Spray bottle? Fogging?
Well, TOMZ, with their brand of Steramist and its Binary Ionization Technology (BIT™) Solution, increases its microbial kill rate several times by ionizing it using a cold plasma arc. This effectively creates a disinfectant agent “on steroids” that is capable of a much higher kill rate. This is actually so effective that many would refer to it as a ‘sterilsation’ process rather than just ‘disinfection’.
You can read more on the advantages of “Steramist” here – https://www.bigred.com.sg/covid-disinfection/
Who are their customers?
A quick search was enough to know that Steramist is a global brand that is deployed worldwide with both private and government clients. Their clientele includes companies in South Korea, Singapore, Israel, Indonesia and Germany. A promising point to note is that their customers increasing its usage to combat the virus.
Exploding Sales Growth
Since April, TOMZ has released several press statements stating that they are experiencing high demand for their Steramist products and solutions.
Last week, TOMZ released their 1Q20 results and true enough, their revenue increased by 463% and profit increased 406%. Gross profit stands at an impressive 63.6% and net profit is 37%. It has also given them a much needed cash boost to improve their liquidity and put them in a net cash position.
Sales growth is good, what is even better is that part of their sales is recurring revenue. Besides selling the Steramist products directly, they also derive part of the revenue through services like high level decontamination (eg. decontamination of buildings with confirmed Covid-19 cases).
TOMZ also uses the TOMI Service Network(TSN) which is a global network consisting of third party professionals who are licensed and trained to use the Steramist products as part of their plan to expand the business.
Steramist mist products may be a one-off sales item but the main revenue stream comes from the sales of the BIT™ Solution which is recurring as they increase their usage to disinfect homes, hospitals, public transportation systems etc etc. I’m sure that you have heard in the news the importance of disinfecting places as part of the plans to restart the economy.
Management not asleep on the wheel
In the latest 1Q20 10-Q filing, two things stood out to me to show that management is doing all they can to maximise this profit making opportunity here.
Revoking of exclusivity agreement
Demand for the solution is so high that TOMZ decided to cancel the exclusivity portion of their service partner agreements to give them the flexibility to sell to more customers instead of going through the TSN. You wouldn’t do that unless you are very confident of driving more sales yourself instead of relying of trusted professional specialists all over the world.
Upfront 50% Deposit
An earlier concern of mine was their liquidity issues. In 4Q19, they had less than $1mil in the bank with negative working capital. However, they boosted their coffers with cash from operations of $3.3mil, with $1mil coming from customer deposits. A pretty impressive move by the management to take advantage of the growing demand.
1Q20’s EPS was 2cts per share. Say if we assume that they maintain this EPS for the year (which I find conservative as most of the sales were clocked late March). Full year EPS would be 8 cts per share and its PE ratio is against current share price of $0.98 would be 12.25, which I personally find quite attractive given its high growth in the next few quarters.
TOMZ stands out by having an innovative process to supercharge aerosol droplets of Hydrogen Peroxide which makes it an extremely effective disinfecting technology.
Management has done well so far to make use of this business opportunity to create value for its shareholders. Hopefully the next step would be dividends.
With countries all over the world beginning to restart their economy, sanitation and disinfection will be required to ensure that there is no second surge of cases. As their track record grows, more corporations and government will be more aware of this brand of products and use it against the fight against Covid-19.