Cosmos Health Posted a 202% Increase in Adjusted EBITDA in 1H/2022; Here’s Why 2H/2022 Is Expected to Be Even Better ($COSM)

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Cosmos Health (NASDAQ: COSM) is a company deserving investor attention. And for good reasons. Since its name change from Cosmos Holdings in July, the company has reported impressive earnings and revenue growth, a significant milestone reached by its Sky Pharm SA subsidiary, and most importantly, positioned itself and its subsidiaries for substantial growth in Q4 and all of 2023.

The name change made sense. While it was appropriate as “Holdings” in its former business life, especially with several subsidiary assets in its portfolio, transforming to Cosmos Health presents a more comprehensive and more easily understood representation of the company and its focus. It also marked a new chapter in the company’s evolution, reflecting its commitment to cementing its place as a leading, highly scalable, and innovative global healthcare group.

And keep in mind, while its name is new, COSM isn’t a new player in the billion-dollar health sector. They are already an established international healthcare group with over a decades worth of experience. That’s provided an ability to leverage its industry expertise to capitalize and monetize opportunities in the nutraceuticals sector through its proprietary lines of products, “Sky Premium Life” and “Mediterranation.” But that’s not all they do. Cosmos Health is also taking advantage of opportunities within the massive and fast-changing pharmaceutical sector by providing a broad line of branded generics and OTC medications. Subsidiaries in Greece and the UK contribute to growth in that mission, currently serving retail pharmacies and wholesale distributors.

Infrastructure To Accelerate Growth

While that’s plenty to support investment consideration in a $0.35 stock, there’s more to appreciate. Moreover, with COSM shares included in the 2022 small-cap biotech beat-down, share prices at current levels present a compelling value proposition. COSM provides the reasons why.

Foremost, they have a well-defined business plan that includes taking advantage of substantial revenue-generating opportunities in the Branded Pharmaceuticals, Generic Pharmaceuticals, and Health Products and Food Supplements markets. Each of those segments presents multiple shots on income goals. But that’s not the best part.

Intimate with both sides of the markets, COSM can maximize operating performance by getting a unique behind-the-scenes view of product availability, pricing, demand trends, and patent expirations. Remember, as the patents for branded products near expiration, generic equivalents become ripe to enter the marketplace and, more often than not, become the preferred choice for those needing the medications. That’s a result of cost primarily. And that shift in demand plays in COSM’s favor, especially with the company monitoring these cycles and taking advantage of pricing fluctuations caused by the patent expiration once the generic equivalents enter the market.

The principles and strategies described above are inherent to how COSM targets business from the Generic Pharmaceuticals and Health Products and Food Supplements markets. But they can also maximize opportunities by understanding the historical and market-specific characteristics of generic product demand, providing valuable insight to guide its vendors that source their generic drug exports. In other words, it’s an efficient channel. So is its Health Products focus.

But the better news is that its focus on wholesale distribution of Health Products & Food Supplements offers more significant margins than pharmaceutical product distribution. And the opportunities to grow that business is in play, with product portfolio expansion remaining a priority objective to take advantage of high-margin sales. Moreover, expanding its product portfolio also provides a competitive advantage by offering customers a more extensive portfolio of products sourced from a single vendor. But here’s the better news.

In addition to being wholesalers for supplements and related products, COSM is also creating its own brand of products to sell to its current customer base. And it’s expected to do well, with COSM already having insight into what products are in demand and which products should be developed. Private branded products would carry significantly higher margins than serving as a wholesaler for other brands. But all the above is about the products side of the business. Plenty more is going on to create additional shareholder value on the corporate side.

Robust R&D, Focused Acquisition, And Direct Sales Model

Leading that charge is a robust Research & Development program. And it’s not singularly focused; COSM is on the record saying they are committed to strategic R&D across each business unit, focusing intensely on nutraceutical products with inherently lower risk profiles and clearly defined regulatory pathways. And they have been busy, constantly evaluating the demand for food supplements in the markets where they currently distribute pharmaceutical products. Just as significant, their research and analysis determine which food and nutritional supplements are chosen to develop and how they are formulated, a move that maximizes the probability of successfully competing with other brands in the marketplace.

Investors liking growth won’t be disappointed, either. COSM regularly evaluates acquisition targets that expand distribution reach and/or can be vertically integrated into the supply chain of the products they currently distribute. In addition to capitalizing on organic growth drivers, COSM is also actively pursuing accretive acquisitions that offer long-term revenue growth, margin expansion through synergies, and the ability to maintain a flexible capital structure. Another business focus is attracting investor attention, and it should.

Cosmos Health’s expansion into the full-line wholesale distribution business through acquisition has provided them the opportunity to sell, as a full-line pharmaceutical wholesaler, the local markets with branded pharmaceuticals, generic pharmaceuticals, over-the-counter (OTC) medicines, vitamins, and food supplements. By expanding its pharmaceutical distribution business, COSM is better positioned than ever to source and procure branded and generic products directly from manufacturers and sell their vitamins, food supplements, and cosmetic products directly to pharmacies at competitive prices. Expectations are for this expansion to increase COSM’s sales and profit margins by expediting its vertical integration into the supply chain.

There’s also the matter of COSM subsidiaries. Each is a value driver.

Subsidiaries Are The Engine For Growth

COSM is, in fact, being powered by a subsidiary-fueled engine. Sky Pharm SA, a Thessaloniki, Greece, based company, is one. It trades the excess amounts of about 500 medicines that can be exported within the EU countries. COSM buys from Greek wholesale pharmaceutical companies and multinational pharmaceutical manufacturers and then exports them to European markets, where demand and prices are often substantially higher. The company is in compliance with GDP (Good Distribution Practices) certified by ΕΟΦ (the Greek equivalent to the FDA) and is ISO certified by TUV NORD. Incidentally, COSM shares spiked after COSM announced officially launching its first Sky Premium Life products on Amazon in the United States, with plans to get all 85 SKUs listed on Amazon by year-end. Placement into US Amazon followed successfully getting its products on Amazon in the UK and Singapore, part of a focused initiative to grow internationally and leverage its robust global logistics and distribution capabilities to a worldwide customer base.

Another contributor to the value proposition is Decahedron Ltd., a UK-based pharmaceutical wholesaler with over a decade in business. They import and export branded, generic and unlicensed POM, OTCs, and medical devices worldwide, participate in governmental tenders, and register dossiers in new territories. Its network comprises 25 clients and vendors, expanding to nine countries, including Germany, the UK, Denmark, United Arab Emirates, Germany, Italy, France, Singapore, and Ireland. It is audited by the MHRA under European GDP (Good Distribution Practices), listed as a full member of the EAEPC, and audited by TÜV on their behalf.

Its third subsidiary, Cosmofarm, has more nearly 30 years in business and is a fully licensed pharmaceutical wholesale company operating in the greater Athens area. The company is approved and authorized by the National Organization for Medicines under Good Distribution Practices to distribute a comprehensive range of pharmaceutical products. Cosmofarm’s core activity is sourcing, procuring, and distributing branded and generic medicines, over-the-counter (OTC) pharmaceuticals, food supplements, and medical devices to its growing network of more than 1130 pharmacies. The company maintains a vast supplier network of approximately 250 pharmaceutical manufacturers and wholesalers.

Of course, infrastructure, an impressive product portfolio, and meeting growth objectives are important. But so is making money. And COSM is.

A Strong 1H/2022 With A Tailwind

Cosmos Health recently reported a 202.42 % increase in Adjusted EBITDA and positive operating income for the first half of 2022. Keep in mind that it came during some pretty strong global business headwinds. Despite those challenges, COSM increased its profitability by strengthening gross profit margins to 14.2% from 11.5% compared to last year.

Better yet, the growth is organic, driven by the development of its proprietary nutraceutical brand, Sky Premium Life®, which contributed to reaching positive income from operations of $0.2 million for the first half of 2022 compared to a loss of $3.1 million in the same period last year. Its positive EBITDA of $0.8 million for the first half of 2022 compares to a $2.8 million loss for the same period in 2021. It gets better. Gross profit increased by 23.0% to $3.7 million for the six months ended June 30, 2022, resulting from managing expenses and reducing operating expenses by nearly 43.7% and 41.9% for the three and six months ended June 30, 2022, respectively. The trend is likely to continue.

COSM announced launching a new premium line of nutritional supplements, Mediterranation, made using organic herbs and plant extracts such as crataegus, hibiscus, dittany of Crete, oregano, mastic, and kritamos, ingredients found in specific regions in Greece and the Mediterranean. Cosmos management expects the product to do well, noting that these unique, high-quality formulations will meet demand among consumers for supplements that utilize high-quality Mediterranean ingredients, including polyphenols, which possess antioxidant and anti-inflammatory properties.

A Healthy Opportunity In-Play

Indeed, the sum of COSM’s parts equals a compelling value proposition. In fact, share prices at these levels fail to appropriately account for a company with strengthening fundamentals, top and bottom line growth, and accelerating its mission to create more shareholder value than ever in the remainder of 2022 and all of 2023.

Moreover, they have the right products, are in the right markets, and have the right management team to make it happen. Thus, don’t be misled by the pressure applied to COSM stock; almost every small-cap biotech is getting relentlessly beaten down in an oversold market. But, for those liking sale prices in companies with extraordinary forward-looking opportunities and built-in potential, COSM may be a timely play. A potentially profitable one too.

They’ve traded significantly higher over the past 52 weeks despite being in a better position today. Hence, share price weakness may ultimately relent from COSM having what investors want most from a company: Strong fundamentals, increasing revenues, and strengthening bottom line results from a management team that understands the markets they serve and can capitalize quickly on opportunities. That trifecta of positive performance usually leads to one thing- the path of least resistance may be to the upside.

 

 

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