Orion Health

[Casino]

http://www.nzherald.co.nz/business/n...ectid=11349437

Definitely not for me.

What's the point of not wanting to over-promise and yet pricing in 25-50% growth?

Some back-of-the-envelope calculations of how much growth is priced in based on (growth rate % / 10) + 1 = forward revenue multiple formula.

Scenario 1 assuming 200m forward revenue

720m=3.6x P/S=26% growth
915m=4.6x P/S=36% growth

Scenario 2 assuming 160m forward revenue

720m=4.5x P/S=35% growth
915m=5.7x P/S=47% growth


Where is the discount/upside that hasn't been priced in?

[GoldenStag]

What is Gentrack's P/S I wonder?

I was comfortable with a listing range of $500m - $800m, but ratcheting it up to $720m-$915m and then not providing any forecasts seems a bit out-there for me.

The way I look at it is this...

The company is being valued at roughly $1b based on the fact that in 2020 it could end up with $1b worth of sales. Putting a finger in the air, I deduct that they get a net profit of 10% of this, leading to about $100m of net profit, which is then paid as an 85% dividend, or $85m. Which we then value as at about $1b due to the returns.

err.... so, we are paying $1b for a company that in 2020 might be worth erm.... $1b.

Overly simple numbers, but the point is... where have you left anything on the table for me?

Greedy. I'm out.

[traineeinvestor]

I agree with Casino and GoldenStag - there is an awful lot of growth over a lengthy time period priced into the offer price. Even if the company delivers (the likelihood of which I am unable to assess based on information provided), I don't see where the upside is for the punters.

No interest whatsoever from me.

[Casino]

If they were on track for 200m, I could easily see them trade at 1.2B after a short while. Without any indication, we don't know if/how soon the raised money will put them back on a sustainable growth track or even above it. There is a lot to be liked here but I would like them to inspire more confidence and excitement.

[GoldenStag]

I was really looking forward to this IPO. Another Hirepool though. Shame.

[Beagle]

What's the point of not wanting to over-promise and yet pricing in 25-50% growth?

Some back-of-the-envelope calculations of how much growth is priced in based on (growth rate % / 10) + 1 = forward revenue multiple formula.

Scenario 1 assuming 200m forward revenue

720m=3.6x P/S=26% growth
915m=4.6x P/S=36% growth

Scenario 2 assuming 160m forward revenue

720m=4.5x P/S=35% growth
915m=5.7x P/S=47% growth


Where is the discount/upside that hasn't been priced in?

If someone put a gun to my head, (you'd have to because I wouldn't buy either), and said would you buy this or XRO ? I'd choose XRO in a heartbeat. At least that has genuine dynamic growth and is substantially made up of recurring business regardless of how over-priced it may be. I find it peculiar that such a small float would seek a dual listing with all the extra costs that incurs and the size of the company's loss $14.8m for the six months to 30 September 2014 on turnover of only $80m looks like a real worry especially seeing as how the company has been profitable before. How is it that the company has been able to grow at 25-30% growth in the past while remaining profitable.
All the low hanging fruit in this niche health sector already picked ? Floating a pup with little to no chance of making any money in the foreseeable future ?
Current growth rates slowing despite massive increase in new staff hire ? Pricing in the next six years prospective growth that may or may not happen into the present IPO price like reestablishment of consistent 30% growth in future years is a given ?
Have we got another Hirepool on our hands with a blatantly greedy promoter ?

[Wolf]

I had a brief look

Biggest red flags for me are
-McCrae retaining between 49.15% to 51.43% giving him so much control over votes.
- No guidance, if they can't forecast it then how the hell am i supposed to haha.
-To hard to value for me by DCF or other methods and i'm not a fan of P/S multiples.
- Goal of $1b Revenue in 2020 from my calculations assumes a Forward CAGR of 35.3% which IMHO i can't see considering
the 10 year operating revenue CAGR of 26%. Even though new funds should raise this and between 2010-2014 the CAGR was 33.6%.
- This highly speculative growth seem's very much priced in.
-They seem to have stumbled and $185m FY2015 seems more likely than $200m In my opinion.

Good Points
- Directors have significant skin in the game.
- Growing industry, a lot of growth available.


Overall personally i feel its a great company, but not a great price where the indicative price assumes a great deal of speculative growth. I see fair value in the lower range about $4.43. There are other speculative stocks such as ATM which offer more value in my opinion. I will wait to see broker research but apart from maybe a stag i'll most likely be on the sidelines.

[GoldenStag]

http://www.nzherald.co.nz/business/n...ectid=11349590

Herald article about the reaction to the weird "no forecast" decision by Orion.

I accept that software companies often have strange revenues. One I was working for actually had sales drop to $0 in one month during the Telco crisis. But Orion could have put a conservative sales forecast and then beat it. Why didn't they? I believe it is because it wouldn't then justify the silly price range they've gone for.

One has to ask why they are going to market? It is to rasie funds while they are losing money and trying to land grab. All good, but why wouldn't they just borrow the money for a small 150m? Well, rates are looking to rise, and going to market is risk-free capital for them, only downside is all the moaning punters who actually want a good investment. (like me)

I'm still somewhat bitter over this one. Why no forecasts and a stupid price range?
A great company, shame about the price.

[Beagle]

http://www.nzherald.co.nz/business/n...ectid=11349590

Herald article about the reaction to the weird "no forecast" decision by Orion.

I accept that software companies often have strange revenues. One I was working for actually had sales drop to $0 in one month during the Telco crisis. But Orion could have put a conservative sales forecast and then beat it. Why didn't they? I believe it is because it wouldn't then justify the silly price range they've gone for.

One has to ask why they are going to market? It is to rasie funds while they are losing money and trying to land grab. All good, but why wouldn't they just borrow the money for a small 150m? Well, rates are looking to rise, and going to market is risk-free capital for them, only downside is all the moaning punters who actually want a good investment. (like me)

I'm still somewhat bitter over this one. Why no forecasts and a stupid price range?
A great company, shame about the price.

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."

Andrew Ferrier, Orion's chairman, said forgoing forecasts was "the prudent thing to do" and a huge amount of financial information was included in the prospectus.

Orion was previously profitable, with profit rising from $385,000 in the 2010 financial year to $7.8 million in the year to March 2013, according to the prospectus.

Great companies grow in a disciplined and well managed manner. For a company to have previously been this profitable in 2013 and growing at circa 30% and then slide towards a substantial loss with a materially slower growth something has gone wrong. There's a lot they're not saying by refusing to give forecasts. Maybe they have very little immediate prospects for new customers ?
Could it be as I suggested yesterday that all the easy low hanging fruit has already been picked ?
Why everyone keeps saying its a great company is a complete mystery to me. If it was so great they'd be building on the 2013 profit of $7.8m and still growing at 30% instead of now making massive losses and growing at a significantly slower pace...WTF ?

Love the fund managers comment who refused to be named who said, "personally if I don't get forecasts I don't invest", sums up a prudent person's thought processes in a lovely succinct way.

Investors rejected Hirepool promoters blatant greed and I was one of the first to call that the float might have to be pulled through lack of demand.
It wouldn't surprise me in the slightest if we see the same thing happen again. Just because something is in the racy sector of software and healthcare does not give promoters the right to stratospheric IPO pricing that already encapsulates many years of future highly speculative growth as though the growth had already happened.

[Balance]

Spoke with an investment banker who has dealt with Orion Health before. Arrogant and unrealistic are his comments.

Amen.