Member Info for sageoflondon

Overall shorting activity on this stock isn’t that high - well the disclosable ones anyway. Less than 2% just. Obviously things haven’t changed that much since Mediclinic bid. NHS work was slowing down then for all to see. The share price has changed due to negative sentiment, increased shorts, Corbyn, Brexit concerns, NHS funding, covenant concerns etc. BMI needs considerable additional investment, rent reductions (rent will still be higher than Spires), capital injection and still carries considerably more debt than Spire. BMI however is private and not publically quoted. The sector doesn’t look great at the moment but that will change eventually.

The current price is pricing in a rights in my opinion or at least being made to look like that through shorting activity. Healthcare and the need for it, both private and state sponsored, isn’t going anywhere. Regardless of share price here the long term market prospects are good.

I find the comparison to BMI interesting - that had circa £2bn of debt in the property arm - the hospital company pays rent......the rent was more than double what Spire pay on the small proportion of hospitals where they don’t own the freeholds. Very different set up. In addition BMI have fallen behind on investment. Spire haven’t. If Spire want to reduce debt then why not do a rights issue to get us through the leaner times? Capital can always be returned when things have improved. I would certain not support and I am sure others would. I don’t think it is needed however.

BMI sold their freeholds a while ago and had a rent bill equaling approx 20% of turnover. Spire don’t.

Poker -can you explain this one? The retained earnings are currently negative yes but this number has reduced in the last few years? I.e. positive contribution to earnings?

This is starting to look very attractive to a non-trade buyer price wise. The only thing preventing such a move is the MDC shareholding. Private equity must be passing the rule over this at present. Low growth market but a number of levers and then a trade sale potentially to boot. Even if no offer a 1 for 4 rights issue (likely not required) would be a straightforward option to reduce debt a little. Personally Indont think it will be needed at all. This is just unloved at present. I recall Laird falling significantly prior to Advent buying it for a relative knock-down price. Healthcare assets always sought, especially with a large FH portfolio due to the options it opens up for sale and leaseback (capital extraction).

So this is barely turning a gross profit. In addition to this the cash generated from operations is negative £2.26m. That is significant. This was £1.1m positive for the same 6 months in 2017. This represents a significant deterioration. I had expected the £4.15m of proceeds to go largely towards paying back debt. This didn't happen as it was obviously eaten up as a result of the negative operating cash flow. Debt was reduced but is still at a level that looks dangerous given the operating cash flow situation.

I think things will improve given the rationalisation of other estates (Prezzo, Jamies, Zizzi, Byron, Carluccios) but this could take a while. The question is will Tasty survive until this happens. In my view another cash injection will be required. At this share price a placing is difficult. In my opinion I see this getting taken private eventually. The Kaye family have the cash and are unlikely to want a very public failure on their hands. I was in York over the summer. Wildwood have a beautiful restaurant there - it is huge but it was dead. York has a Jamies, Carluccios, Bills etc - virtually every chain you can think of. Whilst the Wildwood is very well (and expensively decked out) it's not in the busiest street. It needs to be busier than it was on the day I observed to cover costs.

A takeover would allow realisation of value (to a point) much more quickly than a recovery. I really don't see any offer coming in at much more than 275p. Long term I think Spire could be worth more than that. It might however take a number of years.

The debt level isn't out of kilter for this kind of business either. They just need to ensure they have an effective operating model and transition to rely more on the self-pay market rather than the NHS elective referrals. The NHS is currently rationing but will need to think how it spends all of that extra money. There is talk of abandoning the 18 week target for non-emergency surgery - they don't hit the target anyway. If this happens it is likely to be a political hot potato, especially if you are one of those impacted. It's also likely to lead to more self-pay. Obviously not all of those impacted can afford or will self-pay, but some undoubtedly will.

Is what someone is willing to pay. I think this will eventually be acquired, even if it isn’t it’s still worth a lot more than today’s value. Sure there could be some pain along the way but overall it has a good management team and a strong franchise. Private Health is become no more mainstream. The older generation often won’t touch it - younger adults will use it as required depending on financial ability. Easily worth 250p a share.

I think it unlikely there is a specific reason for the fall at present other than the general sentiment surrounding retail and in the U.K with the Brexit doom mongers prediction no meltdown. Remember the market in these shares is relatively tight. Any good news will leave people scrabbling for what little stock there is around. Same on the way down from circa £2! A lot of people will have bought at circa 35/40p (PIs mainly) and will have hit stop losses. The news would have to be pretty bad to send this down big time again. This is still a profitable business at present paying a decent dividend. People always need irons, kettles and scales to name a few. I really think it’s sentiment at present.

Cinven obviously acquired in 2007 not 2017!

Cinven obviously acquired in 2007 - apologies.

Cinven acquired BUPA’s hospitals for £1.44bn (Euro 2.13bn) on 18th June 2017. At this point they had 25 acute care hospitals located throughout the UK, employees of 5,800 with 2007 revenues forecast at £457m with normalised EBITDA of £100.2m. In February 2008 Spire also acquired Classic Hospitals Group (10 Hospitals) for £145m. So effectively they paid £1.58bn for what is Spire today less the new builds and St Anthonys. They exited fully in 2015 and during their tenure did a sale and leaseback of 12 freehold hospitals to a consortium of property investors (Jan 2013). Spire still own a number of their freeholds. So if you deduct the leaseback proceeds and exclude any dividends (I don’t have this information) they effectively paid £880m (£1.58bn less £700m) for Spire. It has grown considerably since this time. Spire in 2017 had revenues of £932m, normalised EBITDA of £150m and 8380 employees, yet the market is valuing it at approximately £650m today or approx. 163p per share. Mediclinic bid 315p for it towards the end of 2017 (and paid 365p for their original stake I believe). The current market value just doesn’t make sense for a business like this in my opinion. As usual please do your own research. In my view the business is easily worth £1bn to £1.3bn once things have calmed down. A bid of 250p might now be a starting point and I believe 275p would likely secure the deal - a shame we didn't accept 315p but I believe in this business and the management team long term.

We turned down �3.15, this has got to be a target still. Struggle to believe this will remain independent.

This is seriously very unlikely to see the heady heights of �2.25......the valuation got frothy and overhyped. I do however think this will move towards 80p to 90p in the next 3months or so. A little positive news and we should see �1-�1.20 by Christmas.

That is correct. I now have a weighted average price of 35.5p per share. I think downside is limited but you never can tell. People were willing to pay considerably more only a short time ago. Things have changed in terms of both general retail outlook, particularly in the UK, and with respect to this company specifically - i.e. the growth element is parked for the moment. Either way this looks like good value at the current price in my opinion. It's very hard to find value in the market at present. I don't expect management to provide regular updates (and couldn't care about this) providing they perform in the end.

I am roughly aligned to your view. This was originally rated as a growth stock hence the high rating post float pre-warnings, this isn�t going back to �2 without that growth. I think it�s worth 75 to 90 pence on the assumption that there is no more bad news to add. Earnings are likely to be lumpy (and this was taken advantage of to get the IPO off the blocks) and we are suffering somewhat at present as a result of that lumpiness in the opposite direction. I have a personal holding here and will likely buy more on further weakness. I was in at mid 30�s as a first buy.

I agree. Management are thinking about the company as owners of the business, day to day share price movements don�t matter at all. Obviously it�s helpful if you are able to get in as low as possible but that�s not relevant to management as they were in pre-float too. Just out of interest what�s your view on the company? I have a small holding relative to my portfolio but it appears to be good value at the present price in my view.

I personally think the whole sector is struggling. A lot of the operators (Prezzo, Carluccios, Jamies) took on an awful lot of debt as I understand it. Obviously they have leases as well as other debt which becomes difficult to service when the market is saturated. The balance sheet here was strong (circa �5m of debt) on top of leases, however this now looks relatively large compared to the equity - i.e. 7.5m. I see a placing happening to shore up the balance sheet providing the brand is still performing. This is likely to be open to major shareholders / family members only. If they survive, even with a cash injection and the resulting dilution, I think this could multi bag, however there is a risk obviously - i.e. it goes to zero.

Happy overall as the price represents a 65% gain for me. The only problem is what to do with the proceeds. Heavily in cash at present as I see little value elsewhere. This was great from a value and growth perspective and Advent agree. Even with a 70% premium to yesterday�s price. Not that many clear winners out there to invest in.