HZL - Healthzone IPO

[djones]

HZL - Healthzone IPO

Hi All,
Just browsing ASX upcoming IPOs and came across this company:

Healthzone Limited - HZL
Expected offer close date - 22 November 2006
Issue Price - $0.50 per share
Capital to be raised - $4,000,000
Listing Date - 04 December 06

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The things I like about this company are:
* They are mainly targetting the over-the-counter healthcare market in China which due to Chinas growth and the population having bigger disposable incomes is a very good market to be targetting (was worth $US4.6 billion ($A6.2 billion) in 2004). Also targetting Baby-Boomers.

* The company distributes company-owned products through company-owned stores which provides the opportunity to lift gross profit margins. Aurinda Health Products will join with health food chain Healthzone Stores and Bod Beauty Products.

* The clean, green image of Australian-made health goods meant its products can be sold at a 50 per cent premium to local products.

* The business has an established market in China with 1,400 outlets selling its Aurinda supplement and vitamin products.

* Healthzone has three divisions comprising of health products, beauty products and five Healthzone retail stores in Sydney and Melbourne.

* The company plans to double the number of Healthzone stores under its franchise model in the next 12 months.

* Chaired by former head of Boots Healthcare's UK business David Stephens (http://www.allianceboots.com/)

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Financials:
* Healthzone will have a market capitalisation of $15.5 million.
* For the year ending June 30, 2006 the company achieved a net profit of $1.61 million.
* The company is forecasting a net profit of $1.98 million for the year ending June 30, 2007.
* The company is forecasting a dividend yield of 6%.
* Of the capital raised Healthzone intends to use it in the following way:
- $2.4 million into the acquisition of health food stores and products in Australia.
- $650,000 into marketing for an expansion in China
- $500,000 for working capital.
- $450,000 for cost of the float (imo very high!)

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Links:
* http://www.healthzone.com.au/
* http://www.asx.com.au/asx/floats/UpcomingFloatDetail.jsp?asxcode=HZL
* Video Interview of Chairman:
http://www.brr.com.au/event/HZL/60055/15911/wmp/i5dkr7am7s

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What do you all think about this IPO?? Im only new to investing (im a student) so would love to hear some opinions on this!

[OneUp]

I recently went to China and found the Chinese prefer traditional herbal medicines. Imported Japanese traditional medicines are popular for their high quality and trustworthiness.

Chines notions of health products is very different to Oz/NZ. Have they achieved profitability in China yet?

I'm concerned that the China expansion is a big black hole.

[absolut-advance]

I like...



Healthzone owns more than 1,400 retail counters in China, our largest and growing wellness market. It is through this channel that our Aurinda brand has become a leading Australian wellness brand in China. We seek to leverage our capabilities to identify new products that suit our customers. We always welcome the opportunity to discuss strategic alliance initiatives of companies like us.

At a very quick glance should be another positive float with steady growth starting from a fairly priced market cap for progress and earnings to date, management goals seek growth via Expansion of their geographic markets.
Expansion of their product range through continued product development and acquisition and value through export growth

AA

quote:Originally posted by OneUp

I recently went to China and found the Chinese prefer traditional herbal medicines. Imported Japanese traditional medicines are popular for their high quality and trustworthiness.

Chines notions of health products is very different to Oz/NZ. Have they achieved profitability in China yet?

I'm concerned that the China expansion is a big black hole.

[OneUp]

AA, did you find any reference to the profitability or otherwise of Chinese operations in the prospectus?

I think it's important to fully understand the market they are getting into in China before rushing in.

I'm still flicking through it.

[OneUp]

Ok, well I've read through to about page 40 and I think that's far enough.

There is lots of generic talk about the healthcare market growth in China (60x population of Aus, only 3X health spend - and that's indicative more of low low prices for health products rather than low consumption). Not a lot of detail as regards to Healthzone's own operations in China. I gather sales increased from $3.4 to $4.4m last year. But no mention of EBITDA or EBIT margins.

Which is a worry because the company appears to be betting its future on successful expansion into China. Basically only competitive advantage they can up with is that they have a licensee in China. Additional $2.4m in marketing forecast to generate $1.1m EBITDA. This is "based on past performance" but, as mentioned, they do not disclose (as far as I have read) what that past performance is!

Almost all sales growth forecast for FY2007 is to come from China, due to additional sales and market expenditure. There are big risks that this sales and marketing does not pay off as expected.

Keep in mind that "pro forma" Australian sales grew 15% last year (apparently because of an acquisition of a couple of businesses in July and August 2006, suspiciously close to the float!), forecast growth is only 3.6% this year. That's about the level of inflation.

Book value for this business if $450,000. They're selling it for $15m!

This is a very small company to be going public. Makes me question why (related to above).

Thanks for bringing this up, but I'm going to avoid.

[absolut-advance]

quote:Originally posted by OneUp

AA, did you find any reference to the profitability or otherwise of Chinese operations in the prospectus?

I think it's important to fully understand the market they are getting into in China before rushing in.



Hi One up, I just made the quick assumption that the achieved net profit of $1.61 million for the year ending June 30, 2006 with a forecasted net profit of $1.98 million for the year ending June 30, 2007, and adding a forecasted dividend yield of 6% should support the IPO market cap of just 15.5 million at least short term, without taking into consideration further earnings growth or lack of.
I havent researched Healthzone.


AA

[yogi-in-oz]

:)

Hi folks,

HZL ..... here's how we see the time cycles lining up
for this IPO, over the next 6 months ... it may well
develop into a a good trading stock:

03-06112006 ... 2 positive cycles = finance news?

10-13112006 ... 2 cycles to bring positive news?

24-27112006 ... 2 cycles - more news - finances?

06122006 ... significant and negative cycle here.

18122006 ... significant and negative news?

22-27122006 ... 2 opposing cycles = flat trading

04-08012007 ... 2 cycles bring positive spotlight onto HZL

15012007 ... minor

23012007 ... minor news?

2601-02022007 ... 2 significant and negative cycles here.

05022007 ... minor rally?

06-21022007 ... significant and negative cycle underlying HZL,
with negative financial news expected on 08022007?

05032007 ... negative spotlight on HZL

16032007 ... minor

29032007 ... significant and positive ... finances???

31032007 ... significant and negative news?

04042007 ... minor

19042007 ... minor news

24042007 ... 2 significant and negative cycles here

03-04052007 ... 2 significant and positive cycles should
bring positive news for HZL ... :)

happy days

yogi

:)

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[djones]

Where do you get that information from yogi?

[yogi-in-oz]

:)

Hi DJ,

..... time cycles based on Gann's astroanalysis ..... :)

happy days

yogi

:)

[djones]

Im guessing this is your article:
http://www.authorsden.com/visit/viewarticle.asp?AuthorID=11344&id=23309

For people who want more info about Gann's astroanalysis which I had never heard of, try this thread:
http://www.sharetrader.co.nz/topic.asp?TOPIC_ID=20886&whichpage=1

[mark100]

I forgot about this one. Listed on Wed at a 10% premium and then got a write up as a buy in todays Criterion column which seems to have pushed it up to 70c. A 40% gain in 2 days for the IPO subscribers.

Pity I only read the article tonight as I probably would have bought it today for a quick trade. Its run too far for me now

[Flying Goat]

Hi,

this is very odd, looks good on the very superficial face of it but must say that i agree with OneUp, if you dig below the surface you will see that most of the shares were issued for about 1 cent to the folk who are listing the businesses, with book values for each below $500,000.

There appears to be no evidence of the operational break down of the supposed $1.6m npat for YE06 - seems almost like a scam if you look at what the listors stand to make: they offered shares at 50 cents to the public, these shares having the equivalent rights / value as those that they paid 1 cent for. Does not quite make sense to me...

As for the Criterion article and Buy recommendation, many of the numbers they throw around are incorrect including the bizarre claim that they have turnover of 10 million - so would not be betting the ranch based on that very lazy piece of reseach.

Sorry to be cynic but have been looking at this and the whole IPO numbers trouble me a bit too much... welcome any disagreement though as I might be interpreting things incorrectly.

[OneUp]

Hi FG,

looks like China is indeed turning out to be a bit of a shambles.

Now trading 20% below IPO price while the market has rallied 10%+

[Footsie]

has this company turned the corner?

Tommy, Steve Fleming, MoSteph...........

I value and welcome your opinions

We seem to like and follow the same stocks.


In my opinion the recent acquisitions have changed the company into a different beast and on a fwd p/e (assuming the achieve it) of 5x it looks the goods.

Thoughts?

[corky]

Footsie

Not one of the experts I'm afraid but I have been following this one without buying. On strategy and figures it looks much more healthy now and anything from China would be a bonus. You have to say it looks OK value and attacking a good sector of retail. However volumes are still v low and it just doesn't have the feel of a quality company to me yet. Will continue to watch for delivery on promise.

Cheers
Corky

[_Michael]

Hi Footise and Corky

I agree with Corky's analysis - as I have also been watching and am not yet convinced of the outlook. If all the pieces fall into place smoothly with the acquisitions then there will be some value - but with the latest largest acquisition target you need to look at the numbers - the business had strong revenue but essentially was barely generating a profit. If they can turn that around then and realize some 'synergies' I agree this could be a multi-bagger over the coming years. However as Peter Lynch says when looking at young companies with bright but risky outlooks - if you're unsure it pays to stand on the sidelines until they can prove to you that their story is intact....

Just my thoughts.

Regards
m

[Footsie]

Well they are unproven and hence the reason why on a fwd p/e of 5x

But when a oompany is that cheap, you're risk factor is quite low.

Try that vs say ARR........when they was trading up at $4.00 on no profits


HZL at 45c with a tiny market cap.......its so cheap, the only real risk is the go bankrupt.

[Footsie]

Hi Phaedrus

could yu pls post a chart on HZL

Looks to be to be in an uptrend now. confirmed by two large volume days in the last 2 months.

[OneUp]

Footsie,

there's a report on the historic performance of Health Minders available from IbisWorld for $89.

Really abysmal stuff. Barely profitable from 2001 to 2005 and organic growth appears to have been negative.

Competing with supermarkets can't be easy.

They may have turned it around but to borrow an old cliche if the deal sounds too good to be true, it probably is. We may be looking at a freak one-off good year in 2007, and minimal/even negative organic growth going forward as supermarkets expand shelf space for high margin health products.

But I'm a gambling man and I have bought a few HZL to gamble on a P/E re-rating to say 10x.

[Phaedrus]

HZL gave Buy signals in mid-June but hit resistance at $0.49 which was not overcome until mid-October. This uptrend has been on pretty unconvincing volume - until today. (Volume bars on Up days are green)

HZL is a very lightly traded stock. Todays spike aside, average daily turnover is only about $9000! This makes it hard to build up a meaningful stake without pushing the price up unduly. It also makes it very difficult to realise any profits you make. Essentially, you have to get out while it is still rising - trying to sell any volume of a stock like this in a falling market is a very discouraging exercise. Paper profits can evaporate surprisingly quickly.

Too illiquid for me!
http://h1.ripway.com/Phaedrus/HZL112.gif

[Footsie]

Thanks for your comments

Yes HZL is a minnow.

Hopefully they can deliver on their forecasts.

a re-rating to a p/e of 10 doesn't seem too demanding.

I still think there is someone building a stake.

[Footsie]

i've elected to take a quick 2 week profit on this. - mainly due to the fact that i need the cash for other things

Which means it will now surge higher ! ha