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Hey ceilidhdan
Welcome, and good first post.
This is something I've been struggling with for a while. I can't get the traditional CRO multiple to sit sit right in my head for ORPH.
ORPH has no direct competition for its core business which is Hvivo and Human Challenge Studies. Nobody else does this at any meaningful level. I'd say that there isn't a multiplier for this - because there is no-one else to base this on.
So that isn't massively helpful. We could estimate Venn's contribution using the 3x (2.7x) multiplier - but what about Hvivo's? And we are in the middle of a Pandemic where ORPHs skills have a premium.
And that is before we get to Disease in Motion. For me this falls into the tech sphere - but how do we calculate where this starts and ends? Despite CF's suggestion that this might spin off into a different company - I just don't see this. This is hugely valuable - but utterly dependent on Hvivos future studies going forward. I see this still sitting within ORPH and producing massive recurring revenues... just IMSDO (in my slightly drunken opinion)
I'm going to have a proper stab at this over the weekend (and please bear in mind this is the Wales v England rugby weekend - so we may be talking late Sunday night or Monday morning) and will put some figures up for other posters to build on / tear apart / re-jig
It is a really good question because I genuinely don't think anyone knows how to value Open Orphan using traditional methods at the moment.
Anyway, have a great weekend all...
Valuing a business, can be quite a contentious area. Certainly for new companies, its difficult to value companies based upon EBITDA, so the rule of thumb is to use revenue as a gauge to work out valuations. CF has stated that a service company is normally valued at 2/3 times revenue. However, you could have one company with £100M revenue/£20M profit an another with £100M revenue/£10M loss. So there's no way that they both should be valued the same. Rule of thumb as Indiscipline states is 15 x P/E (outside non core assets).
The Health Data division, I would argue should be valued on a different scale, in theory, and as CF has alluded to, the DIM could be sold off as a business on its own. Why? Because its a completely different business model and should be valued differently also. A SaaS model would need to be applied, the revenue would be generated from subscriptions (which he mentioned at the Mello presentation), subscriptions would then be seen as ARR (Annual Recurring Revenue). Recurring revenue has a dramatic and positive effect on virtually every business. Obviously, SaaS based software companies are valued based on the multiple of their recurring revenue. So again, building a business with a recurring revenue model, significantly increases business value, to what respect, is again, contentious but rule of thumb is at least double, sometime treble, so 6/9 times revenue or 30/45 P/E.
It's not so much a different way of valuing, its more to do with future growth and SaaS companies with a high ARR are seen as more attractive because they have the potential to have a higher future growth. There is no right or wrong answer and that's why we have a stockmarket. You choose if you think its undervalued or overvalued? The model though in DIM would be seen as very attractive IMO as we would potentially have annual subscriptions from the worlds most well known wearable brands, is there scope for growth? Maybe not so much with companies (as this may be limited) but with users - yes!
Valuation is elastic. Around 3 times is the general rule of thumb or PE around 12-15. As both are going to be ramping up in a significant way over the next 6-12 months you should do very nicely - that is outside of the sale of non core assets.
The market is a demand and supply system. What really matters is the liquidity being pumped into the share. Again I believe that once elements start kicking in we should have another expansion of demand aiding price. Also if the stock goes to Nasdaq that should significantly increase price.
All these elements are reasons why we have been aggressive in accumulation of stock.
Hi all. Long time lurker, first time poster. Like a lot of you I'm balls deep in OO and significantly overweight compared to the rest of my portolio. I was just wondering about future valuations for Open Orphan, given what's coming up at this company. I've read that CROs are valued at around 2.7x revenue & 16x EBITDA. I can't source any similar statistics for revenue/EBITDA multiples to value data or healthcare data services businesses -- which I assume Data In Motion will be. I have heard 9 times revenue somewhere but I can't recall where. I've read and learned a lot from the likes of PeterS23, Trader3, extrader and a lot more, I'm really impressed with this board & hopefully you can help me understand what a fair valuation for OO might be in future. Cheers.