reported in-line 4Q sales, but higher costs last week. Still, we view positively the news on the new product launches and additional USD 1m from Restorsea already received in 1Q17. Thus, we reiterate our Buy recommendation at an unchanged target price of NOK 12/sh, awaiting eventful 2017.
4Q revenues in line, but higher costs lead to lower profits; DPS of NOK 1/sh
Aqua Bio Technology (ABT) released its 4Q16 report last Thursday with top line of NOK 12.4m being spot on our estimate. However, costs were higher not least due to the increased activity and expanded business model. Thus, EBITDA came in at NOK 6.2m vs NOK 7.6m expected by us. The figure includes around NOK 0.5m in additional litigation costs related to Access Business Group (Access), a US customer with which arbitration hearing is now expected to be held in the UK this September. Another dividend of NOK 1/sh was proposed for 2016 (10.9% yield) in addition to NOK 1/sh in extraordinary dividends proposed last autumn. Still, we were hoping for another NOK 2/sh having in mind the very strong cash position of the company. Notably, cash and cash equivalents were at NOK 46m at the end of the year, in line with our projection.
New sales to start in 2Q and grow during 2H17 and beyond
The company indicated that the new skin care ingredients are ready for market launch. First revenues from product sales are expected in 2Q with increase in 2H17 and going forward. AlgoSource ingredient sales should start kicking in in 2H17 as well. This is in line with the assumptions in our model of a gradual sales increase during 2017. Notably, the OPEX should also grow a bit due to these new initiatives.
Agreement with Restorsea extended for 5y; arbitration with Access in Sept.
ABT said it has extended the agreement with Restorsea for a new 5-year period and surprisingly another USD 1m payment was received in 1Q17. Note that going forward sales from Restorsea will be purely sales-based royalty payments and will be much lower than what was received in 2016. Also, ABT indicated that arbitration hearing with Access will take place in September.
Buy and NOK 12/sh TP reiterated
After our model revision, our TP stays intact at NOK 12/sh. Strong cash position (net cash is ca 66% of market cap.), attractive dividends, upside to target and eventful 2017 ahead lead us to reiterate our Buy recommendation.

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