Friday, October 31, 2014
I Would Be A Bit Careful With Getting Involved In This E-Health Initial Public Offering.
I spotted this report last week:
5:00 AM Wednesday Oct 22, 2014
Software developer ends speculation on IPO, but some possible investors worry it might set the bar too high.
The ink is barely dry on the announcement of Orion Health's up to $150 million sharemarket listing and fund managers are already talking down the offer's price - even though it is yet to be revealed.
After years of speculation, the Auckland developer of software systems used in hospitals yesterday confirmed it is aiming to float on the NZX and Australia's ASX late next month.
The company is looking to raise between $120 million and $150 million through its initial public offer, which will fund growth in key markets such as the United States.
An entity associated with chief executive Ian McCrae, who founded Orion in 1993 and remains the majority shareholder, is planning to sell $5 million of shares through the offer.
Valuations of up to $900 million have been bandied about for Orion, whose investors also include Milford Asset Management, Pioneer Capital and Sir Stephen Tindall's K1W1 fund.
Salt Funds Management managing director Paul Harrison said appetite for the listing would depend on the offer's pricing and the company's growth forecasts.
"I suspect the price expectations of the [Orion] vendors were set when companies like Xero were trading at $45 and the market was prepared to pay for blue sky and then some," Harrison said.
Shares in accounting software developer Xero have fallen from a record $45.99 in March to last night's close of $15.90 after a global sell-off of growth-focused stocks and recent market disappointment about the company's progress in the US.
Orion posted revenue of $153 million in its last financial year and is aiming for $1 billion in revenue by 2020.
There is an interesting Q&A that follows this:
While not an investment adviser it does strike me there are a few elements to be considered in this - remembering the very basic rule that the initial price you pay for an asset is what determines your profits over time. This means simply the lower the price the shares are issued at the more likely you are to do well.
Second there has been a bit of excitement around IT stocks in NZ. The poster child has been XRO (a web based accounting company that is yet to actually make a profit) which has gone from $1.0 to $45 and now back to $15 or so.
Third these are the people who bought us the user interface for the PCEHR.
Fourth there are major trends in e-Health funding and investment happening around the world which may mean Orion may be close to its peak right now.
Last many Health IT companies have had a difficult time over the last decade for one reason or another and the industry is rapidly evolving which can damage existing business models. It is also important to note that in the US market the commercial sustainability of Health Information Exchanges (which is some of the software Orion supply) is a seeming a little challenged.
So, in summary, all I am suggesting is to do your own careful research and do not pay too much for these shares if you decide to participate in the IPO. Caveat Emptor (Definition of caveat emptor -noun - the principle that the buyer alone is responsible for checking the quality and suitability of goods before a purchase is made.) as they say.
After having written this note I was spotted this follow-up article.
5:00 AM Wednesday Oct 29, 2014
Fund managers concerned by Orion’s unusual approach ahead of going to the market.
Fund managers have expressed concern over Orion Health's unusual decision to not provide earnings forecasts ahead of its highly anticipated initial public offer, which will raise up to $150 million in new growth capital.
The Auckland-based company, which develops IT systems used in hospitals, yesterday registered its prospectus and declared an indicative price range for its sharemarket listing of $4.30 to $5.70 per share, which would value the firm at between $720 million-$915 million.
IPO prospectuses usually contain detailed forecasts of future financial performance, but Orion decided not to include such information because of the inconsistent nature of its revenue.
Chief operating officer Graeme Wilson said the company's revenue came via large contracts and it was difficult to provide accurate forecasts "as to when contracts will land and not land".
Fellow Kiwi software developer Gentrack, which listed in June, was forced to downgrade its profit forecast just five weeks after the float because of delays with major customer contracts.
Salt Funds Management managing director Paul Harrison said the lack of prospectus forecasts - combined with the $14.8 million loss Orion has reported for the six months to September 30, up from a $4 million loss in the same period of last year - was "disconcerting". "It doesn't give investors much to go on, particularly in a business that you're expected to pay for growth opportunities."
However, Harrison reckoned investors would give Orion "the benefit of the doubt".
Another fund manager, who did not want to be named, said the lack of forecasts required a leap of faith by investors. "Personally, if I don't get forecasts I don't invest."
Seem others are not too sure either.
Posted by Dr David G More MB PhD at Friday, October 31, 2014