Orion Health

[Joshuatree]

Is this why they refused to give forecast in the IPO.

[RGR367]

this one made me laugh - the depth screen from a moment ago - some guy offering to buy 100000 shares at 10c each makes in onto the screen....

Buyers	Buy Quantity	Prices
3	6,500	$5.200
1	270	$5.180
2	1,500	$5.150
1	1,500	$5.120
5	5,150	$5.100
1	1,800	$5.010
2	5,000	$5.000
1	4,000	$4.750
1	1,500	$4.000
1	100,000	$0.100

We could be joining that lone buyer of 1,500 at $4.00 around Easter, I reckon Who said that reading tea leaves cannot be used on this stock

[BFG]

Quarterly reporting a bugger eh

Hope $25m cash burn a quarter doesn't last too long

Exactly. If it wasn't ASX listed this fiasco would have gone on another 3 months with no one knowing any better here in NZ.

GET YOUR ACT TOGETHER NZX!!!

Disc - Not holding, but could be in for yet another dead kitty pavement bounce

[whatsup]

Im interested but will wait for the next full year accounts to see how the company preforms post listing. Im interested BUT .... !

See what I mean, now what was the issue price to investors again ?

[winner69]

Anybody listen in conference call

Share price seems to have fallen more since .. Nobody believe the excuses?

[winner69]

Down 15% now and getting worse. I had a listen to the conference call this morning - unimpressed with the arrogant tone.

I think we 'don't just get it' bk

If we did things be honky dory

[winner69]

Very interesting comments from some of the analysts - I think a number were genuinely shocked at the cash burn rate.

Suppose hey were, after all nearly 25% of cash raised has gone

Oh well, all honky dory, there's $96m to go

(Last quarter cash burn $27m)

[sb9]

Hmmm..so much for the IPO of 2014, what an anti-climax

[whatsup]

From Market analysis James Cornell

Orion Health Group Ltd, a software company established 21 years ago, is seeking to raise $120 million in new cash from the issue of 21.1 - 27.9 million new shares at a price of 430-570 cents per share.

Existing shareholders will also sell $5.0 million worth of shares (i.e. 0.9-1.2 million shares) to the public in the Initial Public Offering.

Orion Health Group was a profitable business through to March 2013, earning a net profit of $7,750,000 but since 2012 has been “strategically focused on aggressively growing market share” in the United States, which has “required us to scale our delivery at a speed which has generated challenges, which in turn has adversely impacted our margins in the short term”.

In other words, they have had to spend a lot more on Research & Development and on Sales & Marketing to grow in a very competitive market. Expenses have increased faster than revenues and the business has become unprofitable.

Why would you want to buy into a company that had been “adversely impacted” by events? Perhaps because that might depress the share price and offer a low buying opportunity? Well, that does happen on the stockmarket, but not in the IPO market!

How “adversely” has Orion Health Group been impacted? Judge for yourself. The prospectus uses the word “adversely” no less than 42 times. Investors may be a little “adverse” to invest in a company with that many problems.

So lets look at some valuation statistics.

The market capitalisation after this Initial Public Offering will be around $720-915 million (depending upon the issue price of the shares). That is 93-118 times the net profit earned in 2013 (i.e. a P/E of 93-118) but the company became unprofitable in the year to March 2014 with a loss of $1,137,000. In the half year to 30 September, the company lost $14,756,000. Unfortunately, there is no suggestion that the company will return to profitability in the foreseeable future!

At least the brokers selling this IPO don't have to worry about a ridiculously high P/E ratio - but perhaps investors should worry.

Annual revenues to March 2014 were $153.0 million. Only 29% were recurring revenues, although these will increase in the future as the company moves from one-off, upfront, perpetual software sales to recurring annual Software as a Servicerevenues. Unfortunately this transition adversely - yes, that word again - impacts on revenue growth and profitability in the short to medium term.

We like software companies but profitable software companies can be purchased on Price/Sales ratios of 3-5½ (or lower). Orion Health Group's $720-915 million market capitalisation is a Price/Sales ratio of 4.7-6.0. That looks a little expensive, especially as most revenue growth has been from lower margin “implementation services” and “managed services” while high margin “perpetual licence” revenues will decline significantly (i.e. from more than 30% of revenue to just “10-15%” over the “medium term”).

For an unprofitable software company, we might be more interested at a P/S of 2-3. That would value the shares at about halftheir proposed IPO price.

Summary and Recommendation

Software is a great business, especially companies (like Integrated Research and Technology One) that can finance Research & Development (to improve and expand their services) and Sales & Marketing (to win new customers) out of revenues to generate profitable growth and also pay dividends!



Unprofitable software companies involve much higher risks, so are less attractive for investment. Logic is inverted when they are priced at a higher valuation. Why would investors pay more for a company that fails to earn a profit and is unable to finance its growth from internally generated cashflows?

So Orion Health Care may be a great company, but at a high valuation and with an unprofitable business it is not something we shall be buying for our portfolio.

Very interesting reading in hind sight !!!

[BlackPeter]

24-11-2014:

I,m thinking $6.80 by February.Any one else hazarding a guess ?

I remember I questioned your estimate at the time ... still expecting such a stellar recovery?