iKang Healthcare Group receives competing "Going Private" offer from competitor-led consortium
iKang Healthcare Group (KANG 19.50, +2.73) is trading about 16.3% higher this afternoon following the announcement that the company has received a competing 'going private' bid from a buy-out consortium. The bid from the consortium is for a reported $22 per ADS or $44 per share.
The competing bid is from a consortium including Jiangsu Sanyou Group Co., Ltd., Cathay Capital Private Equity SAS, Shenzhen Ping An Decheng Investment Co., Ltd., Taiping Guofa Capital Management Co., Ltd., Sequoia China Investment Management LLP and Huatai Ruilian Fund Management Co., Ltd. The interesting connection here is that Meinian Onehealth Healthcare became an A share listed company through the backdoor listing of Jiangsu Sanyou, and is one of the largest preventative healthcare providers in China and a main competitor to KANG.
The bid announced this morning is an increased offer from the previously disclosed $17.80 per ADS from founder, Chairman and CEO Ligang Zhang and certain of his affiliates which was made on August 31. The Zhang bid at the time represented a premium of 10.8% to the closing price from the previous trading day.
In response to that original bid, KANG announced the formation of a Special Committee to evaluate said 'Going Private' proposal; this action was taken by the company on September 10. Following that action, KANG announced on November 10 that it had engaged J.P. Morgan as its financial advisor, Simpson Thacher & Bartlett as its international legal counsel, and Walkers as its Cayman Islands legal counsel.
There are reports out today that the CEO has an unfavorable view of the competing bid, and that the original group including himself which issued the $17.80 per ADS bid in late-August would not support the consortium's attempt to one-up the original offer.
The competing bid, while it represents a higher monetary value for shareholders, may not be in the best interest in this case. The consolidation with another big player in the Chinese preventative healthcare services market would be a potential pass on the Founder and CEO's offer, a move which does not seem to be in the cards for this name, at least from preliminary reports from management.
Despite what seems to be an unfavorable initial sentiment from management, KANG is grabbing gains following the competing offer in the face of a weaker US equities market (S&P 500 -0.22%, Dow -0.26%, Nasdaq -0.39%), a soft close to Chinese equities (Hang Seng -0.33%, Nikkei -0.69%) and an underperforming broader sector (IBB -1.99%, XBI -0.58%).
Looking Ahead - December 1, 2015
The first day of December is upon us, which means for the capital markets that a round of preliminary Manufacturing Purchasing Managers reports are on their way. Things will start in China Monday night and continue with new data out of Europe and the U.S. into Tuesday morning. The collective picture drawn by these reports will carry market-moving influence.
Manufacturing PMI Reports for November (China, India, Spain, Italy, Great Britain, U.S.)
After breaking through key resistance at the $17 area a couple weeks back, shares of SPKE have been red-hot and are once again making new all-time highs today. Despite the surge, SPKE is still a name that many investors are not familiar with as its muted trading volume would attest. The Houston, Texas-based company is an independent retail energy services company that provides residential and commercial customers with alternative choices for natural gas and electricity. It currently operates in 16 states, serving 66 utility territories. It went public on July 28, 2014 after delaying its IPO for a few days.
Clearly, demand was subdued for the deal as it priced at $18, below the $19-$21 expected price range. It opened for trading with no premium at all to the IPO price, then drifted between $17-$18 for about a week before a prolonged slide took hold and sent the stock down to the $12 level by May 2015. In V-shaped fashion, SPKE reversed course off of those lows, first bolstered by news of its acquisition of Oasis Energy on May 13. The acquisition added 40,000 new natural gas and electricity customers across six states, providing SPKE with additional organic growth opportunities. Then, on July 9, the company announced another acquisition, purchasing CenStar Energy for $8.3 million. CenStar is a retail energy company with approximately 75,000 customers across 20 utilities in New York, New Jersey, and Ohio.
These two acquisitions immediately paid dividends for the company when it reported its 2Q15 results on August 12. Specifically, it reported EPS of $0.23 -- which may not have compared to the ($0.01) Capital IQ Consensus Estimate -- with revenue of $65.5 million, ahead of the $63.7 million single analyst estimate. With the earnings press release, management commented: "More recently, we closed on the CenStar Energy and Oasis Energy transactions, and also amended and restated our credit facility in order to provide us with the capacity to acquire companies and large books of customers in order to continue to execute on our strategy to grow the business. The Oasis and CenStar acquisitions added over 100,000 residential customer equivalents, bringing our total to over 400,000..."
By this time, the two acquisitions and the improving financial results pushed shares about 33% higher off of its lows set in early May. However, the stock was struggling to break-through the aforementioned $17 resistance area. The upward trend, combined with the stocks inability to push through resistance, created an ascending triangle formation -- which can be a potent bullish set up.
True to form, SPKE ultimately broke through resistance in mid November, with solid earnings once again proving to be the catalyst. On November 11, SPKE reported 3Q15 EPS of $0.31 compared to $0.03 a year earlier as revenue jumped 34% to $91.8 million, slightly better than the $90.7 million two analyst estimate.
In short, SPKE's ongoing acquisition strategy has led to improving growth and financial results, leading to shares breaking through key resistance levels in order and making new all time highs.
Sharps Compliance (SMED) is trading 6% higher today after announcing a contract win from the Department of Veteran Affairs. It was a small contract but building up its Government business has been a key objective. We thought this would be a good time to take a look at the company.
In terms of quick background, SMED provides medical waste disposal services. Specifically, SMED is trying to disrupt how smaller medical offices dispose of their medical waste. Its largest customers are home healthcare providers, retail pharmacies and professionals (doctor/veterinary offices). Its flagship product is the Sharps Recovery System. It provides a sealed and puncture resistant container, USPS-approved shipping pre-paid boxes, absorbent material inside and a tracking manifest. The waste is then sent to a Sharps facility where it is safely disposed of.
SMED sees an attractive opportunity because, currently, most health providers still use route-based pick-up services while SMED offers a much more affordable US mail-based alternative. It's particularly ideal for smaller customers that do not generate a ton of waste. SMED is a play on 1) increasingly strict regulations being applied to medical waste, 2) smaller offices wanting a more affordable service and 3) the increasing trend of patients seeking care at retail pharmacies instead of doctor offices and ER visits.
Turning to today's news, Sharps Compliance announced that it has been awarded a blanket purchase agreement (BPA) from the US Department of Veterans Affairs for the supply of its Takeaway Medication Recovery System Envelopes to VA healthcare facilities nationwide as part of the VA's Consolidated Mail Outpatient Program.
The awarded BPA allows, but does not obligate, the VA to purchase up to $7 mln, per year, of TakeAway envelopes over a five year agreement period. The VA operates the nation's largest integrated healthcare system and this national program makes SMED's TakeAway envelopes available to any of the 24 million Veterans who might require this service. Of note, SMED's envelopes meet all of the requirements of the DEA's October 2014 Secure and Responsible Drug Disposal Act for the proper and cost effective collection, transportation and treatment of consumer dispensed unused medication including controlled substances.
In sum, this was good news for SMED. Its Government segment is still small, accounting for only $464,000 in billings from government agencies in SepQ. But that's up sharply (+246% YoY) from approximately $134,000 in the prior year period. It seems investors are bidding up the stock not so much on actual results from the Government segment but on the potential from this segment. This potential seems to be one the major catalysts driving the stock in recent months. This VA win was a positive step.
We do caution that the company is tiny with FY15 revenue of just $30.9 mln (+16% YoY) and a market cap of just $140 mln, which makes it a microcap stock. It's also thinly traded (125K avg daily volume). However, there are some good things going on here so we wanted to mention the name.
Globant (GLOB) is a fairly recent IPO, having made its debut in July 2014. It sees itself as a new-breed technology services provider. GLOB is based in Buenos Aires, Argentina but more than 80% of its revenue comes from North America.
Historically, traditional IT providers have focused on delivering custom applications based on detailed client specs, while digital agencies emphasized creativity (visual design, user interface etc.) but without the depth of engineering expertise. GLOB says it's a play on the ongoing paradigm shift whereby customers want IT providers to not only handle the rigorous engineering requirements of emerging technologies (mobile, social media, cashless transactions, big data etc.), but also offer creative talent normally provided by digital agencies.
A couple of examples to understand what GLOB does: GLOB has collaborated with National Geographic Kids to create their new website. This customer approached Globant with a goal of aligning its web properties with its uber Kids brand and products. GLOB was involved in the development, the brand realignment and the creation of a premium service called National Geographic Kids Adventure Pass.
Another customer example is eBay Classifieds wherein GLOB was hired to work on several mobile projects. eBay wanted to create mobile apps that were easy-to-use, visually appealing and with a focus on social media. GLOB collaborated on the core development of the native iOS and Android mobile platforms helping eBay Classifieds Group with design development, talent and scale etc. Most of GLOB's competitors would not be involved in all of these facets, that's why it's different.
Globant said in its Q3 earnings report in early November that it is seeing robust growth in both existing and new accounts. Consumers are demanding businesses offer personalized experiences. As a result, companies are compelled to create what Globant calls Digital Journeys, a sequence of smart, relevant and context aware interactions, integrated with the core business to provide a seamless journey across the different touch points with users. Globant believes it has mastered the ability of building these digital journeys through its Studios, its Agile Pods Methodology and its brand new Services over Platforms offering.
As opposed to the traditional Software as a Service ("SaaS" or cloud) approach in which the products are static, the truth is that each company has specific characteristics. For example, Globant's Digital Journey Mobile Platform combines social media, gaming strategies, mobile technologies and Big Data to augment the end users' experiences before, during & after a touch point with the consumer.
In sum, 2015 has been a good year for Globant as its stock has more than doubled since early March. GLOB has been posting impressive earnings results as it's seeing strong overall demand for its services and it has been getting great traction at key strategic accounts. Revenue for the first nine months of the year was $182.2 mln, up 26% YoY.
Management noted recently that it's really starting to see some scale at some customer accounts. For the first time in Globant's history, the company has a customer account above $20 mln in annual revenues. GLOB sees this as a good reflection of its ability to cultivate key accounts and grow them. They see themselves as more of a technology service provider than a consulting firm.
uniQure reports Q3 results; will update Hemophilia B program in early January
uniQure (QURE) reported third quarter results and provided an update on its clinical programs this morning.
58.com (WUBA), which is known as "the Craigslist of China," is trading higher after it reported Q3 earnings this morning. In case you're not familiar, 58.com, which made its IPO debut in October 2013, is thought of as "the Craigslist of China." It operates the largest online marketplace (think classified ads) serving local merchants and consumers in China. The site covers diverse content categories, including housing, jobs, used goods, automotive, pets, tickets, yellow pages and other local services. Its well-recognized brand, "58.com," helps local merchants to attract consumers in China.
Online classified ads are a relatively new concept in China, but it's catching on quickly and WUBA is a play on that trend. The online classifieds market in China is expected to explode from US$275 mln in 2012 to US$2.4 bln in 2017 due to China's large number of megacities, where access to local information is paramount. Tencent Holdings (TCEHY) is a major investor in WUBA, it upped its stake to about 25% in July 2015.
WUBA has been active on the M&A front in 2015. In April 2015, WUBA acquired Ganji.com, a major online local services marketplace platform in China. This followed WUBA's March 2015 acquisition of Anjuke, a major online real estate listing platform in China. Also, in late November, WUBA announced it will spin off Guazi.com, which is a consumer-to-consumer (C2C) used car trading platform. WUBA will divest a controlling ownership stake in Guazi to Mr. Mark Haoyong Yang, co-Chairman and co-CEO of 58.com, in exchange for a cash injection from Mr. Yang into Guazi. Following the injection, 58.com will retain an estimated 46% stake in Guazi.
Turning to the Q3 results, revenue nearly tripled YoY to US$212.9 mln, exceeding guidance of US$195-200 mln. That big revenue jump was in large part due to the acquisitions of Ganji and Anjuke as well as organic growth on the 58.com platform. However, the company is not yet profitable as it reported a non-GAAP loss of $(0.50) per ADS. The good news is that loss was much narrower than market expectations.
Most of WUBA's operating losses are related to new business initiatives such as 58 Home and Guazi. Its core classifieds businesses, which includes Anjuke, however, incurred very minor losses during Q3. The integration of Ganji is progressing well and the company is optimistic that profitability for its core classifieds business will improve over the next few quarters.
Membership revenues were US$88.6 mln, an increase of 139.5% from the prior year period. The increase in membership revenues was primarily driven by an increase in the number of paying merchant members. The number of paying merchant members on the original 58.com platform during Q3 was approximately 893,000, a 60% YoY increase. In addition, Ganji and Anjuke jointly had more than 700,000 paying merchant members in Q3. Online marketing services revenue jumped 233% YoY to US$116.1 mln, primarily driven by increased revenue from Ganji and Anjuke as well as organic growth of the original 58.com platform.
Its core classifieds business continued to grow rapidly as it acquired more traffic and merchants and increased in size and scale. Since its acquisition in March 2015, Anjuke's traffic and topline growth accelerated. Paying merchant members and online marketing services set new operational records.
In sum, the stock has been on a bit of a roller coaster in 2015 with all the M&A and there were some rumors that Tencent would buy the remaining portion of WUBA that it does not already own. Also, the Anjuke acquisition significantly increases WUBA's exposure to the Chinese real estate market, which concerns many people as there has been talk of a bubble. However, the stock is trading higher this morning as this was a good quarter for WUBA. They reported a loss but it was much narrower than expected and the Q3 revenue came in above prior guidance. Also, WUBA is guiding to Q4 revenue of US$240-245 mln (+199-205% YoY), which is strong growth as well.
Portable oxygen therapy provider Inogen
This morning, Inogen (INGN) reaffirmed its previously-issued 2015 guidance and 2016 sales guidance, and provided additional Adjusted EBITDA and net income guidance for next year.
If you're not familiar with the company, INGN claims to be the leading worldwide provider of portable oxygen concentrators (POCs) used to deliver oxygen therapy to patients suffering from chronic respiratory conditions. According to the company, there are about 2.5 million oxygen therapy patients in the US, of whom only 7% use POCs -- the vast majority still rely on stationary oxygen concentrator systems for use in the home, and oxygen tanks for mobile use. While POCs still have a low penetration rate, they are the fastest-growing segment of the Medicare oxygen therapy market, not only due to their greater ease of use, but also because reimbursement cuts for oxygen therapy have sped adoption of the more cost-effective POCs.
INGN's flagship Inogen One G2 & G3 systems allow much greater mobility, can be used at night, and eliminate scheduled deliveries of tanks, since POCs generate their own oxygen. INGN is the only manufacturer that uses a direct-to-consumer strategy in the US, which allows for higher margins since they don't rely on distributors. This business model has resulted in strong (40+%) revenue growth and consistent profitability. However, growth is expected to cool in 2016 as additional cuts to Medicare reimbursement rates occur as certain contracts come up for competitive bidding.
Returning to this morning's press release, the company reaffirmed its previously-issued 2015 guidance, which consisted of: revenues up 33-36% to $150-153 million, Adjusted EBITDA up 21-34% to $29-32 million, and net income up 25-47% to $8.5-10.0 million.
The company also reaffirmed 2016 revenue guidance, which they expect to rise 17-21% to $177-183 million. In addition, INGN provided the following additional 2016 guidance: they expect adjusted EBITDA to rise 15-21% to $35-37 million, and expect net income to increase 19-41% to $11-13 million. The company also expects net positive cash flow for 2016, with no additional equity capital required to meet its current plan.