Joel’s Resource Report – Cosmetic Compounding #DVRG

Joel’s Resource Report – Cosmetic Compounding #DVRG

Hi all, I trust all investors are cheering the government’s budget which has some excellent measures to unlock investment in the UK.

Pensana in particular looks especially well-placed to benefit from both Green investment funds and the “Super Deduction” available to companies that invest over the next two years.

Those that follow me on Twitter will know that I recently sold out of Shanta Gold. I’ve nothing against Shanta Gold however with gold prices lower and taking a closer look at the business I concluded that I’d rather focus my capital on opportunities which I’m more excited about and offer more immediate returns such as Tharisa.

Another company I continued to scale into is AIM-listed DeepVerge (ticker DVRG).

Deepverge (formerly Integumen) is a vertically-integrated business of collaborating technology platforms with partners in AI, clinical research, medical devices, life science and environmental science. It changed its name from Integumen after merging with Modern Water.

What does it do?

DeepVerge has multiple divisions, so I’ll focus on tw0 – Labskin & Modern Water.

Labskin

This is a lab-grown equivalent to human skin, for testing cosmetic and pharma products for dandruff, acne, fungal and bacterial infection.

The company has blue chip customers like Unilever, L’Oreal and Estee Lauder.

A wildcard and something which is not built into the company’s 2021 financial forecasts is the SkinTrust Club.

I struggled to find a decent explanation for the SkinTrust Club on DeepVerge’s website, but the following is taken from a recent Proactive article:

DeepVerge PLC (LON:DVRG) has announced the pre-launch registration for its Skin Trust Club Artificial Intelligent (AI) Skincare App and Home Test Kit.

Registration for the Skin Trust Club is free, as will be the downloadable app when it is ready, DeepVerge said.

When the home test kits are formally launched, priority will be given to those users who have already registered their interest in receiving them.

The kits comprise a single swab that maps the skin microbiome delivering a report that produces the most appropriate daily skincare routine, DeepVerge announced. Using real-time air pollution and weather data from the customer’s location, the Skin Trust App builds a complete picture of the skin microbiome and the impact of local surroundings.”

Gerry Brandon CEO explains Labskin & the SkinTrust Club in the following Proactive interview:

(Source: Proactive)

Modern Water

Modern Water specializes in the monitoring of water:

(Source: Deepverge)

Covid-19 detection

Modern Water’s technology can be used to detect covid-19.

Here are some of its high-quality partners:

  • Dell Technologies (for IaaS and instrument support)
  • Aptamer Group (for aptamer development)
  • Avacta Group (for affirmer development)
  • University of Aberdeen/Public Health England (for category 3 labs and access to the real SARS-Cov-2 virus)
  • Hibergene (for PCR testing)
  • Labcare (for specialist engineering services)

The technology deployed for detecting covid-19 in waste water can also be utlized in a breathalyzer:

“Integumen recognised that in collaboration with Modern Water, Avacta and Aptamer Group, its real-time detection and alert system could be adapted to detect the level of infection of coronavirus in a breath sample.  Adapting the wastewater test, Microtox PD, the Company has designed, built and tested a prototype, Microtox BT, which can analyse the breath and detect the spike protein of SARS-CoV-2 in real-time for those with a high viral load.”

The Medicines & Healthcare Products Regulatory Agency recently published a Target Product Profile for “Rapid Breath Tests for the direct and indirect detection of SARS-CoV-2“. Microtox BT appears to fit the bill.

Rational for investing

  • Competitive Moats – across both labskin & modern water.
  • Top 20 global healthcare customers like Unilever.
  • Exponential revenue growth, over 300% during 2020.
  • 2021 guidance for another 100%, which I believe to be conservative.
  • Multi billion dollar potential markets:

(Source: Deepverge)

The reason I suggest that DeepVerge is likely to beat the £10 million revenue guidance is that it announced a £3.6 million order for Modern water equipment on February 17th. Modern Water also has the largest order book in their 30 year history:

(Source: Proactive)

Risks

The largest risk I see with Modern Water is dilution risk. The company had £3 million of available liquidity at the end of Q4 and had £0.5 million of warrants recently exercised.

I believe that the perception of an upcoming raise may have weighed on the shares. My hope is that should a raise be conducted, it will be with existing shareholders.

Ideally, I’d like to see the company raise £5/£10 million so that there’s plenty of cash in the bank to continue the exponential growth trajectory.

Summary

In summary, I believe that DeepVerge has multiple products of which any one of them could transform the company with significantly higher revenues and valuation.

If I’m correct, the prospect of dilution may be causing investors to be cautious. Although the company is hardly in a position where it has to raise and I’d expect any fundraising to be heavily subscribed into. I also believe that DeepVerge may be on the cusp of announcing material news which could cause the share price to re-rate.

Till next week!

 

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    One thing I should’ve mentioned is that at 30p, DVRG’s mcap is £52 million

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