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Blah Blah, this question of whether H1 this year is already profitable or not has me worried. If revenue is set to exceed 50m, that's 4m per month x 5 months = 20million. If costs aren't rising and revenue is on track, then wouldn't costs be around 3m per month, leaving 1 million each month to add to cash at bank. Am I being overly simplistic?
"H1 2021 will be more important from a current valuation perspective. With say £50m rev and say £10m EBITDA for 2021 full year i think a £300m valuation for core OO is not unreasonable "
I appreciate it is just an estimate, but what's your reasoning for £10m EBITDA Shandy? We are near the end of H1 now, and didn't someone say yesterday that there were doubts that they were even profitable in H1 due to rising costs, as evidenced by the fairly sharp reduction in cash? Although there are plenty of grounds for optimism, some of them are based on CF promises about large contracts and timescales for other things, presumbly mostly in H2. We've been down that road before, and CFs guidance led to most people being somewhat surprised by the results (and some were more surprised than others, eh Bronx?).
It was amusing when CF directly contradicted some of the most prominent and vitriolic posters on here when he pointed out the obvious fact that spinoffs will cause a commensurate market adjustment in the ORPH SP. No surprises there for intelligent investors.
Thanks Wally, good job, very clear.
Appreciate your time and effort.
Thanks for the time and breakdown once again Wally. You should get a nice new red and white jumper for your efforts :-)
Wally, I too missed last nights presentation so once again many thanks for the time and effort you’ve put into your summary. Cheers. GLA
Wally - just to reiterate my thanks for your excellent summary, once again. Please keep it up.
3 quick points
1. CF has said news soon and he can't buy yet due to price sensitive information. I assume the 2 are related so that's good for the share price in the next few days. The CHIM would be another £10m which would be great and no doubt why CF is confident of beating YE broker estimates. So all good there.
2. YE 2020 numbers were a little disappointing but clearly combining and then changing 2 loss making companies takes time. H1 2021 will be more important from a current valuation perspective. With say £50m rev and say £10m EBITDA for 2021 full year i think a £300m valuation for core OO is not unreasonable (currently £213m). 2022 rev due to grow 30% too.
3. Spin offs when they go ex div will not be like a cash dividend as the value of the spin off is less clear. People will estimate a value but it's not an exact science. Also remember the reason for these spin offs is twofold. Firstly some sit on balance sheet will no assign value so any spin off value is a bonus. Also CF feels to maximise value they are best as a stand alone entity. DIM is a great example of that. If say it is initially valued at c£70m so 10p a share then ORPH will reduce by that one ex date. However, CF feels this entity could grow quickly so a £200m valuation could happen in say 2 or 3 years. So a 10p drop on day 1 could become 30p in 2 years.
Has already declined based on guesswork of value of POLB. Went Ex a couple of days ago. Ex-day is the day these effects always take place.
Bear666 who needs to know the value? It's more to do with opportunity. If you buy X share at Y Price before a dividend drops the value will be higher because you expect to get the dividend. If you buy X share At Y value after the dividend drops you have missed the opportunity of the dividend and therefore the value is lower.
wallyj "How can SP drop on ex dividend when we don’t know value of dividend in specie?
- Guesswork on value, more astute investors are guessing. SP usually drops pro rata based on expected value. A lot of appetite for these assets"
So when Poolbag has a initial/value/price,say 5p per share,we can expect OO shares to decline pro rata?
Many Thanks WallyJ.
I haven't read it all yet, but looks as good and accurate as last one so far- so well done and thanks for your considerable time.
When do you expect to pay first cash dividend?
- Shareholder and court approval to pay dividend has been obtained. Part of cash balance has been allocated
Will we see any other director dealings in ORPH shares?
- CF can’t speak for others
How can SP drop on ex dividend when we don’t know value of dividend in specie?
- Guesswork on value, more astute investors are guessing. SP usually drops pro rata based on expected value. A lot of appetite for these assets
Will we receive cut off dates in advance for all spin offs?
CROs valued at 6x revenue?
- Most CROs are 4x – 5x, Ergomed is most comparable to ORPH and they’re at 8x revenue. ORPH should be valued more than typical CRO due to high moat and major investment in the business(es) over past few years
Any DIM contracts signed?
- Quite an amount of interest in data but as company will be spun out, this will be completed first before contracts are signed – “messy” otherwise
If I buy more ORPH shares will I get more shares in spinouts?
- Too late for Poolbeg now but yes for remaining spinouts
Final word – yes we are disappointed in share price dropping, however company is cash generative, ORPH will never be fundraising, likely cash dividend before Christmas. Bear with us over next “days, not weeks”, we’ll be in a much better position. “Upwards and onwards from here”. May do investor forum once a month so CF and team can be held accountable.
No. of ORPH new company registrations and name changes is confusing – can we have an organisational chart to clarify this?
- Bit of experimentation in this process to work out best structure, especially regarding tax minimisation. Poolbeg is name of first spinout, forget other possible names. DIM will be second spinout
Could ORPH follow up with an “idiot’s guide” to non-core assets?
- Roadshow in next couple of weeks for Poolbeg, more detail on valuation to follow that. Half the book already covered due to level of interest
When is cutoff date for Poolbeg shares?
- Cut off date was yesterday (16th June). CF expects retrace in ORPH share price commensurate with value of assets that have been spun off
DIM – will this be spun out as its own company?
- Yes absolute, three to four months from now
DIM on track for completion by end of year?
- Much sooner than that as ORPH has 100% control. Will be spun out but “not saying it will IPO”. Shareholders will get shares in that vehicle. Spinouts can’t be subsidiary owned by ORPH, CF and Ian O’Connell will end up with “a couple of percent” stake each, locked up for two years. CF putting up to £500k of his own cash into Poolbeg too at market price, again with two year lock up.
Questions on 2020 final results were skimmed over as mostly covered in earlier presentation, but I did catch that salary costs have increased £5m to £15m following Hvivo acquisition but 50 heads were ‘cut’ prior to this.
Is characterisation study complete and when can we expect first CHIM contract?
- Completion taking a little longer, “virtually complete” and then we can sign off on first big CHIM contracts
Following analyst meeting do you think they’re on your side?
- Don’t want to be unfair to analysts, they are forecasting £50m and £7 – 8m profit, we are aiming to substantially exceed that, CF will be unhappy if ORPH doesn’t exceed that
What is basis of spinout valuation?
- Already covered, 10 – 20% of mcap, which will rapidly increase
More granular trajectory on revenues and how you’re counting receivables?
- Don’t do multiyear contracts, money upfront right away, 15 – 20% on signing delivered within 3, 6 or 9 months. Revenue recognition is in the year we sign the contract
If new shares are in ISA there won’t be CGT?
- Correct, totally tax neutral
Any developments on testing of antivirals?
‘- Let’s watch, news soon’
Any news on Chinese pharmas?
- Absolutely, deals take time, important to get this right. China’s vaccine diplomacy efforts mean they need ORPH’s services
DIM – patented? Trademarked?
- Yes, also some biomarkers trademarked
All spinouts will create dilution – what do you expect ORPH SP to be after all spinouts?
- All competitors trade at 6x revenue without spinouts. ORPH unique, has a high moat, CF thinks company is undervalued. “Bear with us a couple of weeks and we’ll all be in a very different place”.
- 2020 transformational year for ORPH in terms of mergers and restructuring plus removing ‘excess’ management
- Major contract wins in 2020 compared to previous year
- Business is well capitalised with strong cash balance - £19m at end of 2020 compared to £1m at start of year
- Numbers presented in accounts slightly misleading, “not comparing like for like” – 2019 numbers reflected Venn and OO on standalone basis for 2019, whereas 2020 reflects those two companies plus Hvivo
- Modest drop in revenue year on year due to some Covid impact plus divesting clinical operations in Europe
- Q4 EBITDA of £1.3m vs £7.9m loss for previous three quarters combined
- Challenge / Lab contract wins at £27.1m in 2020 compared to £3.9m in 2019; already at £15.4m for current point in H1 2021 with further material contract win expected imminently
- Outlook – strong pipeline of contracts, new challenge study models live soon, targeting FY profitability in 2021, demergers progressing well
- 20 – 30% growth “minimum target” in 2022; still lots of work to do but confident in direction
Disappointed in share price today?
- Of course, but CF very committed to increase shareholding as very confident in ORPH’s future (“a bloody good opportunity”), wanted to do today but inside information prevented this – watch this space
Detail on expected value of dividend in specie for Poolbeg?
- In the region of 10 – 20% of current market cap. Shares to be held in trust and untradeable for nine months. Expecting a double or triple of the value of Poolbeg in that time. A lot of newsflow expected, stick around for a long time and the Nasdaq listing and rewards will be good. “Let’s see how big we can make Poolbeg.”
CGT implications in Ireland? (I couldn’t make out the full wording of this question)
- UK HMRC prior approval, statutory demerger for assets you already own so no tax implications initially. CGT will apply if you sell for profit further down the line.
Poolbeg shares released after lock in period, will we get share certificates directly or to brokers who hold the shares?
- Directly to wherever your ORPH shares are held – broker account, ISA account etc but will be done via Crest system to existing account
Directors can buy shares on open market, no options for directors?
- No, CF not a fan of options, too many historical options from Venn and Hvivo. CF is buying with his own money, “a substantial investment”
Timeline of spinouts?
- Poolbeg underway, roadshow next week, IPO within three weeks. DIM under ORPH’s control also, process underway, couple of months timeframe for this, 10 – 20% of mcap as guidance. PrepBio not completely under ORPH’s control and it does take time to do deals with pharmas. Reiterated again that all spinouts will be done via statutory demerger by Autumn.
Pretty good presentation I thought, definitely reassuring after watching the share price battle to remain above 30 yesterday and nice to see at least a bit of recovery today.
Pleased to get more detail on the 'other assets' CF has mentioned previously that have gone into Poolbeg and get some rough figures and projections for the valuation. Intrigued by the new insider information that has come to light too, and we'll have to only wait days rather than weeks to find out more.
Some notes I made as I was listening:
- “no question” ORPH is now profitable
- CF was hoping to buy shares today (now yesterday) but more insider info has come to light, should be made public in next few days and CF will be able to buy shares following that, he’ll be “putting his money where his mouth is”
- Infectious diseases currently a 10bn industry, forecast to grow to 250bn annually by 2025 – single biggest market ever in pharmaceuticals – vaccines, antivirals etc. for flu, RSV and so on; ORPH clearly a leader in this area
- Watch this space for £10m+ deals – ‘those who stick around will be rewarded’
- DIM now patented, will be spun off, it’ll be an IPO, shares will be distributed via statutory demerger with HMRC approval as with Poolbeg – no tax to pay as we the shareholders already own the asset(s)
- Monetising all non-core assets and they’ll be done by the Autumn, “that is a hard stop” – CF doesn’t want to hang about with non-core assets because ORPH needs to focus on services offering. Later repeated this Autumn deadline.
- First Poolbeg asset may be competing with products of ORPH’s clients – makes sense and keeps clients happy to divest these
- Cash balance has dipped as some money has gone into non-core assets
- DIM data has application for big tech, wearables, pharma and biotech – “data is the future”, process for spin out “well underway”
- Good to see some more detail about what has gone into Poolbeg – a P2-ready immune modulator for influenza (which stops cytokine storm so may have application for long Covid) as we already knew, plus a data-based Vaccine Discovery Platform, “PredictViral Biomarker” platform for predicting severe disease, and non-exclusive licensed access to ORPH’s huge database with advanced discussions underway for this
- PrepBio – ORPH “cracking the whip” re: divestment
- Imutex process “well underway” but no more specific detail unfortunately, CF getting frustrated with delays here
We've found Wally. Yipee!
Haha I'm touched! I was out all day and evening yesterday so haven't watched the presentation yet, looks like a bit of a bounce in the share price off the back of it though. Planning to watch it later this morning if I have time.
Agree Si - I thought the time was past when I'd have to take my own notes. Grrrrr ;-)
Kinda miss his write ups. :)