virtus health ipo & vei comparable valuation , page-5

Further to my post in May, I think some of the recent adverse commentary is unjustified. I was optimistic and based my forecasts on revenue in 12-13 being the same as 11-12, even though we were warned in Sep 12 that projected revenue would be down 15% due to the changes in Govt rebates for Intravitreal Injections. So a reduction in revenue of only 3.7% is not bad.

In regard to the claims of lack of information on refinancing, you have to read the financial statements. In the 12-13 Half Year report, Note 7, it told us that the principal repayment had been reduced from $10m pa to $8.75m pa for 2012-2014. We are now told in the current presentation that from July 2013, principal repayment is to reduce to $5m pa. In each period VEI has managed to repay more than their commitment - not good for dividends but making a much stronger company. There is no lack of information - you just have to make the effort and look for it.

I think the party who is guilty of sloppy processes is Bell Potter who were underwriters of the recent share issue and had all the information needed to provide good predictions of future earnings and dividends, and came up with the ridiculous forecast of a 3c dividend for 2013. Blind Freddy could see that this was not a good call.

The financial statements of VEI are pretty straight forward and the board has given regular 6 monthly forecasts for EBITDA which have been pretty spot on. The anomaly this time around has been Goodwill Impairment which has been explained elsewhere as not very representative in a company's accounts as you have to accept impairments but cannot claim offset improvements.

I go back to my original analysis and think that at just under 6cps earnings without the Goodwill Impairment, the shares should be valued at between 10 and 15 times earnings, so at the current price of 80-90c they are close to full value. Share value will trend up with revenue, but the quantum jumps over the last 12 months are over.

As to the future, there are still issues in regard to maintaining doctor numbers and keeping a lid on their salaries, but they have shown they are a great cash generating machine. I just hope they do not waste it as they did in 2005-2008 period.

Regards Westwind