You cant compare apples to organges. How about looking at VEI on the basis of comparison to its peers in the health care industry.
On my calculations on 2012 these are the mutiples for health care stocks (except for VEI which I will use 2013 numbers):
EV/EBITDA
PRY - 8.3 RHC - 10.4 SNL - 10.9 VEI - 4.2 [NB if you are going to account on FY13 EBITDA you also have to account for 10 million in debt being repaid which will effect EV]
EBITDA Multiple
PRY - 5.28 RHC - 8.84 SNL - 8.42 VEI - 1.33
Now I am not saying that VEI should be priced on exactly the same multiples, given different growth profiles and capital structures however the mispricing is clearly dramatic, particularly in respect of EBITDA multiple.
VEI is also trading on a serious discount to PE to its peers as well - for what its worth.
Also I am not sure EV/EBITDA is the best valuation multiple in this instance given the extreme capital structure of VEI. Changes to the amount of debt (by repayment result in extreme swings in value based on EV/EBITDA). For instance adopting your multiple of 5 x and assuming the same number of issued shares and EBITDA for FY13, through repayment of debt, the value of the company (based on 5 x multiple) would be 57.5 cents per share (close to a 60% premium to the current price)
I think the market has overreacted, although there is some risk and has been for some time of a dilutive capital raise and that may be creeping into sentiment as well. The big issue continues to be the debt and how this will be managed. You have suggested that the bankers may "force" a cap raise. A bank can't unilaterally do this. A financier can only take this action where a borrower is in breach of requisite covenants. The debt has recently been extended out for two years and unfortunately the company didnt provide much detail about any amended terms. Covenants as at 2011 were outlined in the 2011 annual report are listed and are currently met, except perhaps for the first but this has been waived over the last few years when the company was in a worse state than it is now.
On top of all of this you have a willing buyer in PRY sitting on the register, so arguably there should be some degree of takeover premium creeping into the price.
My hope is that the current management wait out the current storm and continue business as usual and pay down the debt through cashflows and let the share price respond to this over time.
VEI Price at posting:
30.9¢ Sentiment: ST Buy Disclosure: Held
