PBP - profit guidance update

PBP announced today it expects to post profit before tax of $6m for FY07 which is in line with prospectus forecast s. The company also stated that they recorded record sales in April and expect another record in May.

More importantly PBP gave guidance on the likely impact of the Phoscal claim. The company's preliminary estimate is somewhere in the range of $2.2 - $5.0m but expects the final liability to be materially less than $5.0m because of appeals and a possible reduction in costs yet to ruled on by the court. In addition the company may seek to recoup the final liability against PBP's original legal advisors who they claim did not properly advise Pro-biotec of its potential cost exposure under the Phoscal claim.

Regardless of the outcome of appeals and other claims by PBP I believe it is prudent to factor in a $4.0m abnormal for FY07. Using today's earnings guidance as a base I forceast FY08 NPAT at $6.0m putting my valuation of PBP at $1.15 per share a 15% premium to the share price.



The Phoscal claim is a one-off and the company can cover the liability with its existing cashflow and debt facilities. A liability of $4.0m will effectively wipe out the years cashflow - cashflow that could be used to pay down PBP's already high debt levels.

Today's announcement makes PBP's position a little clearer however with the claimant's substantiation of costs and the appeals process still to come the whole affair will continue to weigh down on the share price. An air of doubt will also remain around the capability of management and rightly so.